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Investors likely to buy state securities which have returns of up to 12.5pc

By People Reporter
Wednesday, January 15th, 2020
Housing. Photo/Courtesy
In summary
    • While Kenya Mortgage Refinancing Company is offering a nine per cent yield on its security, to enable it  to provide affordable homes to Kenyans, Treasury is rolling out bonds with upwards of a 12.5 per cent return.
    • Treasury is still expected to offer even higher rates for borrowers after the repeal of interest rates cap.
    • Lack of long-term affordable finance options is one of the major obstacles that the state corporation is expected to face given that many investors normally want to exit after three to five years.

John Otini

Kenyans’ hopes of owning affordable homes following the successful launch of the Kenya Mortgage Refinance Company (KMRC) last year could be thwarted as Treasury continues to offer higher yields on bonds.

Treasury is currently offering a risk-free rate of 12.5 per cent on a 15-year bond compared to KMRC’s nine per cent target.

Analysts say property investors are seeking at least a 13.5 per cent return on investment compared to KMRC’s nine per cent.

“We expect KMRC to face difficulties in raising funds through issuing of bonds due to competition from government instruments such as treasury bills and government stocks,” Cytonn said in their 2020 Market Outlook report.

Speaking to Business Hub Johnson Ndege, Pep Real Estate Development Consultants analyst, says investors want 15 per cent returns on investment and given that Treasury is offering 12 per cent, traders are likely to forego the KMRC bond in favour of Treasury’s

Affordable finance

Lack of long-term affordable finance options is one of the major obstacles that the state corporation is expected to face given that many investors normally want to exit after three to five years.

Treasury has for several years been accused of crowding out other players due to the high yields it offers and a heavy appetite for credit.

Treasury is still expected to offer even higher rates for borrowers after the repeal of interest rates cap.

According to Central Bank of Kenya, there were only 26,504 active mortgage accounts in Kenya as at December 2018 against a adult population of about 23 million, leading to low real estate uptake.

Access to mortgages in Kenya remains low mainly due to low-income levels that cannot service a mortgage.

This is also due to very high property prices alongside high interest rates and deposit requirements which lock out many borrowers.

There is also the exclusion of the informal sector due to insufficient credit risk information, and lack of capital markets funding towards real estate purchases for end buyers.

There is also the issue of prolonged due diligence processes due to bureaucracy in departments offering critical services such as registration of properties.

The government has previously enlisted the help of the private sector for financing and development of affordable housing.

Land transfer

This has, however, not achieved the optimal intended objective due to regulatory hindrances such as lack of a mechanism to transfer public land to facilitate access to private capital through the use of the land as security.

There is also the issue of lack of clarity on returns and revenue-sharing and the extended time-frame of public-private initiatives while private developers prefer to exit projects within three to five years and bureaucracy and slow approval processes, according to Cytonn.

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