New land laws come into force, paving the way for better services.

Farmers plant potatoes in Mt Elgon. New land laws will protect those under 18 years and incapacitated persons. Photo/File

Farmers plant potatoes in Mt Elgon. New land laws will protect those under 18 years and incapacitated persons. Photo/File

Kenya’s land laws have been officially overhauled by the coming into force of the new laws one of them being the Land Registration Act No. 3 of 2012.

From May 2, 2012, the Act came into force, repealing most of the existing legislation on land. These include the Registration of Lands Act, Registration of Titles Act, The Indian Transfer of Property Act, The Government Lands Act and the Land Titles Act.

All these statues regulated dealings on various parcels of land, for example the Land Titles Act regulated the registration of land in the Coastal region.

The Acts provided for different procedures and dealing according to which regime the particular parcel of land fell under.

This made land procedures and dealings very complicated and most people did not properly understand what the differences in the regimes were.

For example, what was the difference in land due to value of the land or its location?

The Land Registration Act brings all these laws under one regulation with the aim of consolidating all registrations of land in Kenya.

The new Act contains conflicts of laws clause that in the event of a clash, then the new law would take precedence.

The effect of this legislation will be felt everywhere especially in the real estate industry. The Ministry of Lands will also feel the effects as these new laws will change the systems and procedures.

Some of the provisions that may have far-reaching effects include the provision on the definition of what an overriding interest is. In the definitions, an overriding interest includes spousal rights over matrimonial property.

This means that in the event of matrimonial proceedings, the affected spouse can register a caution to stop any dealings in the shared property.

While this could be done before in exceptional circumstances, legislating it as an overriding interest will affect land dealings where there is a matrimonial dispute without having to go to court for injunctions and other orders.

Another notable issue is that a minor’s interests in land can be noted against the register provided that the title is held by the guardian.

This provision is applicable in family law and succession matters. The right of a minor can be noted against the title to pre-empt any fraud by the legal guardians.

In cases where the title is held by a guardian without noting the minor’s interest, it is difficult for any third parties to note the minors ‘interest to the property.

A new provision that has been included is dealing with land in the event the registered proprietor is legally incapacitated.

According to the Act, a legally incapacitated person is one of unsound mind or a minor.

The Act provides that the legal guardian of such a person may represent the incapacitated person and do whatever is required under the Act.

High profile case

In a high profile case, a son sought orders as his father was incapacitated to manage his assets including land.

He sought orders from the High Court to manage the father’s estate on these grounds.

According to the Act, if one is appointed as a legal guardian then his authority is noted by the Registrar in so far as land dealings are concerned.

However, a scenario that has perhaps not been legislated is where one is incapacitated to deal with their property due to medical reasons.

For example, in the case of Terri Schiavo who remained in a vegetative state for many years…. how would her property be dealt with supposing she was a Kenyan citizen?

In a legal instrument called a living will, persons are allowed to appoint guardians to their estates in the event they are incapacitated by medical reasons or other reasons like kidnapping and others.

A living will is a will that is made appointing an executor to your estate should anything happen to you that would make you incapable of dealing with your estate. The new land law has a great impact on family law and succession matters.

Creditors and banks also have a reason to smile under the new law. A creditor may apply to the court to set aside any disposition in land they find to be unfavourable.

For banks, this is an additional security as the debtor remains liable under the Act for any prejudicial dealings with his land.

The Act contains provisions on how leases, charges, transmissions, caveats and many other land dealings shall be dealt with.

The Act also makes the land dealings uniform across the divide and doesn’t classify land into different regimes.

Mputhia is an Advocate with Muthoga Gaturu.


Kenya wins acclaim for easing investor entry into real estate

Trucks transport goods along the Northern Corridor. The Doing Business Report 2012 released by the World Bank on Wednesday shows Kenya fell to position 109 globally, down from last year’s 106, and was placed second in East Africa after Rwanda which moved up five places from position 50 in 2011 to 45 in the latest global ranking. File

Trucks transport goods along the Northern Corridor. The Doing Business Report 2012 released by the World Bank on Wednesday shows Kenya fell to position 109 globally, down from last year’s 106, and was placed second in East Africa after Rwanda which moved up five places from position 50 in 2011 to 45 in the latest global ranking. File 


Kenya slipped three positions in this year’s global ranking of countries in terms of friendliness to business even as it outshone East African Community partners in access to credit, construction licensing and bankruptcy procedures.

Download: Ease of Doing business in EAC report 2012

Kenya beat her neighbours with efficiency in setting off new construction — from land acquisition to approval of building plans —and having the best collateral and bankruptcy laws, the report shows.

Also read: East Africa eases business regulations to spur investments

While on average an entrepreneur in EAC goes through 15 procedures — 22 in Burundi — to complete all formalities required to build a simple warehouse, the report showed it took only eight days in Kenya.

The Doing Business Report 2012 released by the World Bank on Wednesday shows Kenya fell to position 109 globally, down from last year’s 106, and was placed second in East Africa after Rwanda which moved up five places from position 50 in 2011 to 45 in the latest global ranking.

Uganda and Tanzania fell to positions 123 and 127 respectively, down from 119 and 125 in 2011 out of 183 economies ranked this year.

“If we adopted the best practices in our Partner States for each Doing Business indicator, we would be ranked 19th globally, equal to Germany.

There are powerful lessons to be drawn from this”, Richard Sezibera, EAC’s secretary-general said at the launch of the report.

The report indicates that the cost of starting a business in Kenya is generally high, averaging 55 per cent of income per capita.

In Rwanda, the cost is less than five per cent of income per capita while in Burundi, it is almost 117 per cent of income per capita.

Kenya also lags behind her neighbours in providing protection to investments and slow procedures for tax compliance.

The number of procedures and the time required to start a business also vary considerably within the EAC, the report shows.

While an entrepreneur in Rwanda needs only three days to start a business, the same takes 34 days in Uganda.

But in the region, the process of dealing with construction permits takes 170 days, on average, compared to 185 days in the Common Market for Eastern and Southern Africa (Comesa), 238 days in the Southern African Development Community (SADC) and 211 days in Sub-Saharan Africa.

In credit access, EAC economies score an average of four points (out of a possible six) on the depth of credit information index.

While Rwanda’s credit information system scores highest within the group, Kenya not only boasts a unified collateral registry for movable property but also the best legal framework to protect investors.

This focus on the rights of borrowers and lenders with respect to secured transactions lifts the global ranking of the EAC economies to seven out of 10 points on this indicator.

The World Bank’s Doing Business series has been tracking reforms in business registration since 2003.

It shows that EAC investors take on average four procedures, 116 days and $24,450 to get a new electricity connection for a warehouse.

Expressed as percentage of income per capita – 9,353 per cent – the EAC’s electricity costs are among the highest in the world and even higher than in other parts of Sub-Saharan Africa.

In SADC, electricity connections cost an average of 4,343 per cent income per capita, less than half the relative cost of the EAC’s connections.

“The EAC’s high costs and long waits are often due to the fact that dedicated distribution transformers have to be purchased and installed for the 140-kVA connection surveyed for this set of indicators,” the report says.

In Burundi — the worst rated on this indicator — entrepreneurs wait four to five months, on average, to import a transformer from Europe.

Kenya’s businesses wait an average of 45 days for an external inspection after submitting their applications.

Rwanda, the easiest economy in which to connect to electricity in East Africa, takes four procedures and about two weeks to get electricity connection.

British American sets up Sh10bn property fund

The company will put Sh1.5 billion in the fund directly and raise Sh8.5 billion from other investors after getting approval for the fundraising plan from the Capital Markets Authority (CMA) mid-year. 

The company will put Sh1.5 billion in the fund directly and raise Sh8.5 billion from other investors after getting approval for the fundraising plan from the Capital Markets Authority (CMA) mid-year.


British-American Investments Company (BAIC) is set to invite international investors to put their money in a Sh10 billion property fund that will help the firm get a larger share of the region’s real estate market and cut its reliance on the volatile equities market.

The company will put Sh1.5 billion in the fund directly and raise Sh8.5 billion from other investors after getting approval for the fundraising plan from the Capital Markets Authority (CMA) mid-year.

The company’s earnings have been hinged on the performance of the Nairobi Securities Exchange (NSE), a move that has seen it take a hit during bearish runs at the equities markets that culminated in a Sh1.9 billion loss in 2011.

Now, the firm is seeking to reduce the share of its assets under equities and focus on the real estate market where it will invite investors to pool their resources with the promise of offering returns after a specific period of time.

It will also earn returns from its share of the fund as well as a fee for acting as the asset manager.

“We have made regulatory applications for creation of the fund that will allow us source for funds from international investors and high net worth local investors,” said BAIC’ managing director Benson Wairegi.

“To curb the effect of the stock market on our performance… we are focusing on the diversification of our asset portfolio by investing in real estate and reducing the concentration on equities,” said Mr Wairegi.

Property accounts for 10 per cent of BAIC’s assets and the company intends to raise it 30 per cent in a period it did not disclose. Equities accounted for 40 per cent of its assets in December and it’s keen to reduce this portion to 20 per cent.

Under the property fund, investors can exit through selling their shares to third parties who will earn a return from disposal of houses, office blocks, and rental income.

But the exit mode will be made easier by ongoing plans to list property at NSE through Real Estate Investment Trusts (Reits) — which use pooled capital of investors to buy and manage income property as well as allow for trading shares in properties at the exchange.

The rise in home prices and rents has seen property emerge as a prime investment vehicle in step with bonds and equities asset classes.

The sector is riding on nearly three decades of under investment in the mid-tier housing segment.

Fund managers like BAIC are also seeking a piece of the action, hoping that the listing of property at NSE would catapult the use of pooled funds on Kenya’s real estate market.

BAIC is already making big-ticket property investments on its own as it races to grow earnings in this segment.

Offitels open new real estate frontier in Nairobi

Photo/Diana Ngila  Riverside 14, near Riverside Drive in Nairobi has five office blocks with retail space, a 100-room hotel and offices. Other developers are putting up similar complexes in the city.

Photo/Diana Ngila Riverside 14, near Riverside Drive in Nairobi has five office blocks with retail space, a 100-room hotel and offices. Other developers are putting up similar complexes in the city.  

In Summary

  • Convenience drives Nairobi’s real estate market to a new frontier where people live and work from the same location.


When Kishan Bhanderi’s family decided that it was time to diversify their 70-year-old tiles and fittings business in 2009, property development came as a natural option.

In any case, this is the sector that has minted the majority of Kenya’s new billionaires and the family has had a slice of it through its tiles business.

But Mr Bhanderi, who heads the team of brothers that run Nairobi’s Tile and Carpet Centre, says the family had long decided that its entry into real estate was not going to be a run of the mill affair.

“We decided that our entry into real estate would not be to merely join the crowd, but one that would transform the way this business has been done,” he said.

That is the goal that has seen the family develop a commercial real estate complex comprising five office blocks with retail spaces on the ground floor, a parking silo and a 100-room hotel – which Mr Bhanderi says is the architecture that is creating the futuristic workplace.

The complexes, commonly referred to as offitels, have been borne out of a growing desire by the modern worker to occupy a workplace that comes with in-built convenience.

With this has come a shift in demand for commercial space in favour of those that come with additional amenities like the gym and eating places.

Mr Bhanderi says that the inclusion of hotel and the gym in the high end office park was actually conceived by some of his tenants who include multinational companies with large numbers of visiting staff and clients.

“Our tenants wanted it and we decided to convert one block into such a facility and the results have been very positive,” said Mr Bhanderi, explaining that the all-inclusive office setting should help limit movement in and out of the complex, thereby easing traffic.

Located some 200 metres off Nairobi’s Riverside Drive, in the serene neighbourhood behind the University of Nairobi’s Chiromo Campus, the architecture of the complex has heavily borrowed from top business hubs in cities like Hong Kong and London.

Mr Bhanderi, the managing director of the property firm that developed the 14 Riverside Drive Office Park, says recent developments in Nairobi have produced a class of tenants who want top grade office space in a ‘productive working environment’.

14 Riverside Drive is the first significant development that brings together office and hotel space in a fast evolving real estate market.

This concept allows office space developers to play in the league of top notch hotels such as the Village Market’s Tribe and Westland’s Sankara who are focused on the business traveller.

It challenges the decades-old idea of an office, often at the intersection of streets downtown, where tenants and their workers walk across the road to the fast-food café for have lunch.

New trend

If Riverside Office Park’s occupancy rates of about 80 per cent are anything to go by, then there is a huge market out here for the kind of office space that is worlds apart compared from the contemporary high rise commercial blocks in the city centre and the upcoming business districts.

“Combining offices and hotels is what developers have identified as the next frontier in the property development, and you are going to see a lot more happening in that space,” Lee Karuri, the managing partner at Dimensions Architects and Interior Designers.

Mr Karuri says that combining the living and working environment has become a new trend that is increasingly dictating the development of office space throughout the world.

“The idea is to integrate the living and working environment, especially for the business traveller,” says Mr Karuri, adding that the model has been used in the fast developing economies such Hong Kong, Malaysia and Singapore.

“Residents have an office within their apartment, meaning they can work from their temporary home in the hotel,” said the architect whose firm has designed a multi-billion integrated office park in Nairobi.

The target clientele, he notes, are international travellers including top executives and researchers who ordinarily have to make presentations to different groups during their short stay.

Rosslyn Park Limited is developing a similar property in the high-end Kitisuru suburb, consisting of six blocks.

One block in the proposed project, whose construction is under way, is an offitel – a hotel with apartments, an office, where residents, who are expected to be on short business trips, can host small private meetings and perhaps close a business deal.

In the offitel, a resident has an office within the hotel or apartments for privacy and convenience.

It is estimated that construction of the complex, associated with the Waiyaki family that owns most of the land in the exclusive Kitisuru and Nyari suburbs, will cost Sh4.6 billion.

Plans by the Suraya Property Group to establish a similar project in Spring Valley neighbourhood are also at an advanced stage, though the actual construction has been delayed due to resistance by the residents’ association.

Sue Muraya, a director at Suraya Property Group said that such approaches in the development of commercial buildings had been embraced in other major cities across the Globe including Johannesburg in South Africa.

“There is an emerging segment in the commercial space segment where tenants demand extra amenities like conference facilities within the proximity of their offices,” said Ms Muraya adding “This is the trend the World over”.

Kilifi property wins global accolades

One of the villas at Mandharini in Kilifi. Photo/File

One of the villas at Mandharini in Kilifi. Photo/File 


After a decade of consistent returns for developers, the Kenyan housing industry now features prominently among top investment destinations globally for another first; style.

Mandharini resort developed along the shores of the Indian Ocean on the Kilifi lagoon is one of two projects that were awarded top honours for style in Africa, the other being Nairobi’s Sankara Hotel.

So step back, take a moment and imagine you own a four-bedroom villa within a resort that is built on a quarter of an acre where you can take your family on holiday at any time of the year and the same home is still able to give you an 11 per cent rental yield per year.

Developed on a 150-acre piece of land with a beach front measuring about 200 metres, Madharini consists of 120 homes and a ‘village’ developed like a high-end shopping centre that will also feature a five-star tourist hotel.

“This is one big resort where these villas will provide extra rental space when the owners are not using them,” says Friso Abbing, a director at Hello Properties, the firm developing the multi-billion housing project.

Mr Abbing says that the entire project design, conceived after a survey that sought views from top business executives on what an ideal second home should be, was developed to be a perfect getaway and a high-yielding investment at the same time.

About half of the homes have been sold off-plan through the show house whose fittings borrow heavily from the local community.

The lower level has embraced open spaces where the sunken living room opens to the dining area and the open-plan kitchen, which has fitted appliances and wooden hand carved stools.

In the outdoors, the project will feature a mini golf course and walk ways for the active residents, and a conservancy for protecting indigenous tree species.

Mandharini resort won the accolade for the best residential property award for 2011 on design and sustainability.

Already, a list of international hotel chains have been identified where one will be selected to manage the resort and provide five-star standard hospitality to attract tourists who are able to pay anything from Sh36,000 per night for a four-bedroom villa with its own swimming pool among other amenities.

Peak season at the Kenyan Coast covers the period from August to January, when the homes are expected to report a 60 per cent occupancy rates while the figures for the low season are projected to be significantly lower.

The all ensuite villas have been designed in a way that each of the bedrooms has a balcony opening towards the ocean ensuring that everyone can catch the fascinating views of the waters, watch birds or just enjoy the breeze at sunset.

It is envisaged that the home owners, who would most likely be second home buyers, will have a choice on when they want the villas let out as hotel rooms months in advance to allow for planning.

The proponents, who have also developed another tourist facility in Watamu, say that there have been shifting preferences in the local tourist market where international visitors moving away from just sun bathing to more active holidays.

While the Kenyan property space has been identified by different market intelligence reports as a global leader, consultants in the industry say that the stellar performance is likely to ease in the near future on increased supply.

King Sturge, an international real estate firm, projects that buyers of properties at Mandharini will enjoy an 11 per cent yield on investment, and 5 per cent long-term capital appreciation.

The expected return is significantly higher than what other key residential rental markets are delivering.

HassConsult estimates that the Nairobi rental market is offering investors anywhere between 5- 7 per cent, depending on the location and type of home.

Essentially it means that, if you bought one of these homes today, you are likely to get back the entire Sh52.5 million that it cost you to buy it by 2020.

The proponents at Mandharini say that about a third of the homes sold have been taken up by international buyers, indicating that the Kenyan Coast is emerging as a preferred retirement destination for well-to-do foreigners.

In Nairobi, Grenadier Ltd was recognised for the best new hotel construction in Africa for Sankara Hotel in Westlands where the partially suspended swimming pool is only one of the features that make the Sh2.8 billion hotel stand out in design and innovation.

Bill’s delay hurts land transactions

Ibrahim Mwathane

Ibrahim Mwathane


Not many people, including our political leaders, understand the full impact of the terse three sentence statement released by the Presidential Press Service freezing transactions on government land following a Cabinet meeting held on Thursday January 19th.

The dispatch announced that the Cabinet had resolved to freeze all renewals of expired land leases and review all those that may have been irregularly renewed with immediate effect until the national land commission is operationalised.

The statement further noted that this would include the renewal of leases for public, private and trust lands.

On January 23rd, Lands minister James Orengo followed this with a memo interpreting the implications of the decision to land transactions. In the memo, he directed that no new grants or allocations would be made on public land.

He also stopped the renewal of leases on public land along with the setting apart or acquisition of trust land.

The memo also advised that no transactions resulting in the transfer of or charge or mortgage on land belonging to public bodies would be registered. In addition, the memo suspended the process of compulsory acquisition. Very good and noble measures all meant to safeguard our stock of public land and public assets.

Only they pre-supposed the expeditious operationalisation of a national land commission established under the Constitution.

At the time of issue, the Lands ministry and the Cabinet were optimistic that the commission would soon be set up.

They were working on overdrive to ensure that the pertinent Bill was quickly enacted. But as fate would have it, Parliament thereafter extended timelines for the enactment of new land Bills by 60 days, citing the need for further consultations and a good understanding of the contents.

Unfortunately, this affected the National Land Commission Bill whose enactment holds key to lifting the above cabinet freeze.
As things stand, the earliest these Bills can be enacted, assuming there won’t be limiting divergence during debate, is April 26.

Thereafter, the Bill embeds a time-bound mechanism for the nomination of a selection panel, advertisement, processing, vetting and appointment of the chair and members of the commission that require a further eighty four days.

Allow for process hiccups and you are looking at another four months before we have a land commission in place.

And for it to effectively assume office, allow another two months. That’s a total of about six months, taking us to October 2012.

The above land transactions will remain on hold till then.

This is close to one year since the January freeze. To understand how vastly this hurts, please remember that a majority of the land leases in our urban areas and the big agricultural and livestock production farms around the country are derived from government or trust land.

Take a walk and talk to land owners with expired or near expired leases to understand how painful this has been. They can’t seek financing and aren’t sure how to handle sub-leases to their tenants.

Agricultural farmers and livestock breeders are unsure about prospects for lease renewals. This affects financing, inputs hence turnover.

Real estate financing is affected. Delaying the land Bill hurts these land transactions and related financing
Mwathane is an expert on land issues.

Tatu City’s investors have Nema approval

A model of Tatu City. file

A model of Tatu City. file 

The construction of Tatu City’s real estate showpiece has been approved by the National Environmental Management Authority (Nema), the developer said Thursday.

The announcement came amid shareholder disputes currently playing out in court and a determined media campaign by the promoters who have advertised several top management positions.

(Read: Setback for Tatu City cases after judge quits)

Tatu City, which will be built near Ruiru on the outskirts of Nairobi, is billed as one of the continent’s largest infrastructure projects, promoted by the Renaissance Group and Kenyan investors. Its construction is expected to have a major economic impact on Nairobi and its environs.

“Nema has issued Environmental Impact Assessment (EIA) licence to Tatu City Ltd after a rigorous audit process beginning last year,” the firm said in a statement.

This is one of the licences that Tatu has received so far ahead of the construction of the new city of 62,000 residents.

The Ruiru Municipal Council last year approved water and sewerage works.

Tatu City CEO Arnold Meyer said Nema’s approval underlined the environmental soundness of the project.

Nema started audits with a Strategic Environmental Assessment (SEA) covering environmental policies for adherence during the whole development process.

The environmental watchdog made the approval in September last year. Tatu City investors said an Environmental Impact Assessment (EIA) of the first phase of development was later carried out and approval given late March.

The EIA licence covers Phase 1AA of the project covering about 3,000 residential units, 86,000 square meters of commercial official space, 31,000 square metres of retail floor space, public service transport interchanges, health facilities and recreational parks.
Tatu City promoters said the investment expected to generate 300,000 permanent jobs and an additional 220,000 temporary ones will also accommodate 30,000 day visitors.

The developers say it represents a new face of the African city of the future and its success or otherwise is being watched keenly by financiers, contractors and property buyers.

Developers shift to residential buildings to tap higher returns

The value of commercial building plans approved by City Hall dropped eight per cent to Sh57 billion last year, from Sh62 billion in 2010.

The value of commercial building plans approved by City Hall dropped eight per cent to Sh57 billion last year, from Sh62 billion in 2010. 


The value of residential building plans approved by the City Council of Nairobi more than doubled last year as stagnating returns from commercial buildings saw construction drop by eight per cent.

Property dealers said developers were shying away from commercial real estate in favour of residential buildings which have a shorter payback period. Data from the Kenya National Bureau of Statistics shows that the value of residential building plans rose from Sh66 billion in 2010 to Sh154 billion last year. The value of commercial building plans approved by City Hall dropped eight per cent to Sh57 billion last year, from Sh62 billion in 2010.

“The price of land in the city centre has remained high due to speculation, this has pushed most investors away to the residential market,” said Mr Peter Kimeu, the head of projects administration at Housing Finance. Mr Kimeu said the selling price of commercial space has stagnated at between Sh11,000 and Sh15,000 per square foot since 2008 due to building of commercial houses in surburbs close to the city such as Westlands, Upper Hill, Kilimani, and along Mombasa Road, increasing supply of office space and shrinking rental returns. Many businesses have re-located to these suburbs, cooling off demand for office space in the central business district.

Recoup investment

A developer who puts up offices in a place like Upper Hill, where the price of an acre of land is between Sh152 million and Sh200 million, would take more than 20 years to recoup his investment compared to between 10 and 15 years in residential areas which have lower land prices.

“The cost of constructing one square metre of commercial space is very high making residential houses the choice for investors,” said Mr Daniel Ojijo, the managing director of Mentor Group Holdings, a property consulting firm based in Nairobi.

The cost of constructing one square metre of commercial space is Sh60,000, compared to Sh40,000 per square metre of residential space. “The high value of the projects was also driven by low interest rates for most parts of last year that saw the emergence of many mid-income market residential schemes,” said Farhana Hassanali, a property development manager at Hass Consult.

The shilling lost 30 per cent to trade at 107 units to the dollar from a high of 81, pushing up prices of construction materials such as steel and cement.

Nairobi’s continued growth as East Africa’s commercial hub has been attracting multinational corporations, raising demand for land in the city centre which has added to the prices of land, pricing out some investors.

“In the last two years people have been buying their own plots to build after it became apparent that they cannot afford houses or mortgages,” said Mr Kimeu.

Africa’s real estate awards on this week

Kenya will host the first real estate awards in Africa this week.

The awards will recognise key players in the market and create partnerships with prospective investors from other parts of the world.

The prizes seek to recognise the best players in the housing market across the continent in terms of sustainability and affordablity. Those to be recognised include property developers, mortgage providers, real estate private equity firms, best construction companies, and best architectural designs.

Major projects

There will be 15 categories for the awards spanning across commercial, industrial, residential, and hospitality sub-sectors. Kenya is in the process of implementing some of its largest infrastructure projects which have added value to the property market.

“We have chosen Kenya because of its busy real estate market with major projects such as Tatu City, Konza City, among others,” said African Real Estate & Housing Finance director Roland Igbwoba.

The academy specialises in showcasing opportunities, risks, and mitigation to foreign investors and investment banks that may want to venture into Africa. The panel is in the process of getting five nominees per category for the announcement of winners this Friday.

Huge capital base lifts KCB share of mortgage market

FILE | NATION Kenya Commercial Bank building on Moi Avenue, Nairobi.

FILE | NATION Kenya Commercial Bank Group more than doubled its mortgage book to Sh33.7 billion last year from Sh15.6 billion in 2009, raising its market share among the top six mortgage lenders to 40.8 per cent from 35 per cent in a similar period last year.  


Kenya Commercial Bank Group (KCB) has raised its share of the mortgage market, riding on the back of a huge capital base to increase its portfolio of the long-term loans.

It more than doubled its mortgage book to Sh33.7 billion last year from Sh15.6 billion in 2009, raising its market share among the top six mortgage lenders to 40.8 per cent from 35 per cent in a similar period last year.

This opened a huge gap between the bank and its closest competitor, Housing Finance, whose mortgage portfolio grew 66.8 per cent to Sh25.2 billion, with its market share dropping from 33.8 per cent to 30.5 per cent.

Other banks that ceded market share despite growing their lending to the real estate sector include CFC Stanbic and Standard Chartered.

The Co-operative Bank, which is a late entrant to the mortgage market, staged an upset raising its loan book more than nine times to Sh4.9 billion from Sh55.5 million.

Mortgages among the top six lenders nearly doubled to Sh82.4 billion from Sh44.5 billion, with KCB and Co-op emerging as the biggest beneficiaries of the new demand.

“KCB has benefited from its large capital base, which has been further strengthened by major fund raising in the past two years,” said Renaldo Desouza, an analyst at Genghis Capital.

He added that mortgages are long-term in nature and a large capital base like that of KCB is, therefore, critical for lenders to aggressively expand their lending in that segment.

The bank’s total assets stood at Sh330.7 billion in December — the largest in the country — after it raised Sh12.5 billion in a rights issue in 2010. KCB also received a Sh9.6 billion loan from the World Bank’s private lending arm, International Finance Corporation, to support its regional mortgage lending business.

“Banks identified access to long-term funds as the most important impediment to the growth of their mortgage portfolio,” the Central Bank of Kenya (CBK) noted in a survey report released in 2010. “Overlapping constraints of low level of incomes/informality and credit risk were listed as second and third respectively with high interest rates also being regarded as a major constraint.”

Lenders rely heavily on expensive short-term funds, which are misaligned with mortgages whose tenor usually exceed 15 years. A larger asset base allows banks to increase the size of an individual loan, a critical factor in tapping into mega real estate projects.

Last week, Housing Finance rolled out a current account — which is interest-free — to lower its cost of funds.

The company raised Sh7 billion from a seven-year corporate bond in 2010 to boost its lending muscle and managing director Frank Ireri has said the firm is seeking long-term finance to further enable it to lend more.

Rival banks have ridden on their financial muscle to eat into the market share of the mortgage-focused Housing Finance, with increased competition in the sector forcing down interest rates in recent years.

The company used to be the single-biggest mortgage firm until 2009 when its Sh15.1 billion portfolio was overtaken by KCB’s Sh15.6 billion. CFC Stanbic Bank also saw its market share drop to eight per cent last year from 13.6 per cent in 2009 despite raising its mortgage book to Sh6.6 billion from Sh6.1 billion in the same period.

“We are seeing a slow down in new mortgage applications primary due to the high interest rates,” says Mr Elly Odhong, head of retail banking at CFC Stanbic.

Barclays’ market share rose marginally to 7.2 per cent from 6.5 per cent as its loan portfolio nearly doubled to Sh6 billion from Sh2.9 billion.

Central Bank governor Njuguna Ndung’u said the number of mortgage accounts rose to 17,000 as of last December from 13,803 in June 2010, signalling increased activity in the property market that is benefiting the lenders.

Rapid urbanisation, population growth and expansion of the middle class are the key drivers of the property market, which has, however, come under threat from the high interest rates.

Lenders charge between 19 and 25 per cent interest on mortgages, up from a low of 12 per cent in mid 2010. The change is attributed to a tight monetary policy.