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How Mortgage Refinance Is Able To Work In Kenya

Nigeria is grappling with the challenge of creating an enabled housing finance environment. Various experts in the Nigerian built and mortgage industry have noted that one of the primary problems plaguing the Nigeria sector is the issue of finance.

Sustainable housing finance market bestows great benefits to households and the economy of nations.

While this particular challenge may seem insurmountable, the East Africa nation of Kenya is showing a record of novel solutions and initiatives, pioneered by policy makers, financiers, developers and households themselves, suggesting that there are new opportunities for making the housing finance sector work and Nigerian stakeholders should learn from it.

The Kenyan housing finance system has grown rapidly over recent years in both value of loans and number of loans.

The market has now gone through the initial ‘germination’ stage and is preparing to enter its next development phase. The mortgage market is the third most developed in Sub-Saharan Africa with mortgage assets equivalent to 2.5 percent of Kenya’s GDP compared to Nigeria’s 0.6%.

Speaking on a special One-on-One with CEOs Zoom Interactive Session anchored by Nigeria’s leading affordable housing advocate and Executive Director of the Housing Development Advocacy Network, Festus Adebayo, the Managing Director of the Kenya Mortgage Refinance Corporation (KMRC), Mr Johnstone Oltetia and Florah Muthaura, the Finance Operational Risk Manager gave insight on how the Kenya mortgage subsector works and why the KMRC is achieving huge level of success.

Muthaura explaining the operations of the corporation said the KMRC has nine banks and eleven SUKUKs which are primary lenders. These banks also double as shareholders of the KMRC.

It receives its pipeline from the primary lenders after which they go on site to conduct a portfolio review. The portfolio review checks the compliance level with the KMRC eligibility requirements.

Once the eligibility requirements are met, the corporation requests for application from the primary lender based on the amount of the portfolio that has met the requirement.

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The KMRC model only lends against collateral which ensures that all lending carried out by the corporation is secured. There is also constant check to monitor the collateral performance and when any collateral falls short, the corporation calls for it to be changed or paid for by the primary lender.

The KMRC has refinanced about KSH7 Billion in mortgage loans till date.

Mr Oltetia noted that while the way the KMRC may not be different from the Nigeria Mortgage Refinance Company (NMRC) in terms of refinance, there may be difference when it comes to funding by both corporations.

He stated that the KMRC lends to its primary lenders at 5% and that the primary lenders are also required to lend to their customers who are the end users at single digit.

The KMRC itself according to the CEO is a “lean machine” as it aims to reduce operational cost to the minimum.

The KMRC has also defined affordable housing in clear terms. Mr Oltetia said, “The definition of affordable housing in Kenya is based on two parameters. One is on the income threshold, where we say an earnings of  KSH180,000 and below, about $1,500 and a home that does not cost more than KSH8,000,000 about $80,000.”

The two major drivers of the Kenya mortgage sub-sector according to KMRC MD are the low rates and tenure of the loans which is 25 years which creates affordability.

He also praised the role the government have played in address the housing deficit in the country by placing it as a central issue by making and implementing policies that have created enabling environment for mortgage to flourish.

He stated that government policies are aimed at address the demand and supply of housing simultaneously. He said that the government has also created incentives for companies who build more than 100 housing units annually by reducing its corporate tax by half.

Other areas of government assistance highlighted include digitalization of land and title processes, removal of stamp duty for first time home buyers, provision of government lands for housing development, providing of funds by covering cost of forex for loans collected from Africa Development Bank and The World Bank. Read more here

The KMRC also generates funding through the capital market by issuing bonds. It also allows commercial banks to collect borrow for home loans purposes.

Mr Oltetia stated that government should take housing as a priority for social purposes and that government efforts in raising the welfare of its people cannot be complete without housing.

His words, “Housing is a human right and need and so government should be keen in ensuring that its people have decent and affordable housing because housing has a couple of multipliers and creates other externalities such as jobs creation and others.”

Mr Oltetia charged housing stakeholders “to ensure that people live in decent and affordable housing and do whatever they can to make that objective happen.”

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