Kenya: Investors Cautious on Kenya's Public Housing

Private developers in Kenya are cautious about investing in the government's ambitious public housing programme under the Big Four Agenda, citing low returns.

They are arguing that the government's plan of providing units whose cost ranges from $8,000 to $30,000 does not make economic sense because they are operating in a market where the capital-intensive real estate sector is largely financed by commercial banks--whose interest rates range from 14 per cent to 19 per cent per annum--making it a risky venture that a majority of developers are not willing to undertake.

Developers want to see at least a 20 per cent profit margin on development, a yield that is impossible to achieve from the low-end housing market.

"Looking at innovative ways of delivering affordable housing is crucial, because materials account for 70 per cent of construction costs," said Emma Miloyo, outgoing president of the Architectural Association of Kenya.

To ensure that private developers buy into the idea, the government has offered free land and established a mortgage refinance firm to provide medium to long-term funding to primary mortgage lenders.

However, this has been faulted by private developers, who are also concerned by the failure of government policy to address the regulatory hindrances--such as the lack of a mechanism to transfer public land to a special purpose vehicle (SPV) to facilitate access to private capital through the use of the land as security.

Other concerns are around clarity on returns and revenue-sharing, lack of exit mechanisms in the projects and bureaucracy and slow approval processes.

Disconnect

This reception of the government's plan to provide affordable housing is a damper on the Big Four Agenda development plan of President Uhuru Kenyatta's administration.

In the grand strategy to ensure the success of the plan to provide 500,000 new houses by 2022, the government had declared that the private sector would drive the programme, through financing and developing the housing units--to be sold to the public at affordable mortgage rates, with long tenures of up to 30 years.

Samuel Kariuki, the managing director of Centum Real Estate, said that while the government has a fairly advanced public-private partnership framework that has worked well in sectors such as energy, it has not been applied in real estate, and it is therefore uncertain.

"There are variations as to what the government is defining as affordable housing and what the private sector understands it to be and is willing to invest in," said Mr Kariuki, adding that most private developers have adopted a wait-and-see stance.

Kenya requires $22.6 billion over the next four years to actualise the programme, but the lack of buy-in by private developers puts the programme in doubt.

Since January, more than 100,000 Kenyans have registered for the housing plan through the Boma Yangu portal, which was created to collect data to be used for planning and the allocation of the units.

For the programme to succeed, the country needs a supply of 200,000 units annually, considering it is facing a housing deficit of two million units annually.

The development of housing is currently at less than 50,000 units annually.

See What Everyone is Watching

More From: East African

Don't Miss

AllAfrica publishes around 600 reports a day from more than 150 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.