Experts: High land prices hurting uptake of mortgage
The skyrocketing land prices remain a thorn in the flesh of home ownership in Kenya today despite a drop in the construction costs and relaxed interest rates.
As a result, new industry trends now predict that private sector players may struggle to complement the government’s quest to deliver 500,000 affordable homes over a five-year period under its Affordable Housing Programme.
As per the Big Four agenda bluePrint, Kenya intends to offer affordable housing at Sh800,000 to Sh3 million per unit, at lower interest rates of up to five per cent and longer mortgage tenors of up to 30 years.
“The said decline in the cost of construction notwithstanding, concern has been raised on the viability of investments in real estate given the rising prices of land,” according to status of the built environment report by Architectural Association of Kenya for the period running from July to December 2021.
Released on Tuesday, the report also notes that the cost of construction had dropped by a shocking 300 per cent in the last four years in spite of increase in land prices with the average construction cost ranging between Sh5 million and Sh50million.
Spur innovations
Such concerns are also raised by the Kenya Mortgage Refinance Company (KMRC), noting that the uncontrolled land prices in the country is one of the major challenges facing mortgage uptake which currently stands at only 2,5000 annually.
Figures by the Residential Mortgage Market Survey 2020 also show there were 26,971 mortgage loans in the market as of December 2020, down from 27,993 at the end of 2019.
This was a decrease of 3.7 per cent, according to the survey conducted annually by Central Bank of Kenya (CBK) to monitor developments and challenges in the mortgage market.
KMRC was granted a licence two years ago to conduct mortgage refinance business in the country with the main purpose of pushing mortgages down-market to underserved segments of the market through single-digit and longer-tenured facilities – but its impact is yet to be felt.
Freddie Mac’s weekly rate survey shows, mortgage rates went through a growth spurt to kick off 2022 and as of January 27, 2022 the average 30–year fixed rate slightly decreased from 3.56 per cent to 3.55 per cent.
