The real estate and construction sector has not been spared the economic disruption unleashed by the Covid-19.
After recording slow growth in 2019, Kenya’s real estate sector was poised for accelerated recovery in 2020, with rising demand for housing and the State-backed affordable housing programme targeting 500,000 units on track.
However, the pandemic upstaged the much-anticipated growth, forcing developers to scale down projects.
Public health restrictions, including lockdown to contain the pandemic, also stalled the construction sector.
A consulting firm Deloitte report in May shows that supply disruptions, reduced demand, financial uncertainty and decline in project financing, are some of the challenges facing the real estate sector due to the coronavirus.
Delay in official approvals is another hurdle as operations in public offices have slowed down. The closure of land registries from February to May also affected property transactions.
As the country weighs options for re-opening the economy, it is time to re-think the existing real estate model and come up with innovative approaches to construction and project financing. Fortunately, the government has rolled out stimulus interventions, some of them aimed at boosting the housing sector.
Notably, an amendment to the Retirement Benefits Act allows the use of pension savings to purchase of a residential home or to secure a mortgage. This will unlock billions of shillings in pension savings for home acquisition.
Still, there is a need for innovation in construction technology. This not only improves the quality of houses but also makes them affordable, durable and environment-friendly.
The use of pre-cast technology is catching on in the market as it offers a cheaper and flexible construction method. Kenyans are cost-conscious and therefore, amenable to innovative products that help them save money. Other innovative technologies include the use of reinforced concrete that saves 30-40 per cent of the cost. Reinforced concrete is sturdy, neat and faster in the construction of houses.
Besides, the use of locally available materials such as soil instead of expanded polystyrene in rural areas saves 40-50 per cent of costs compared to traditional brick-and-mortar method. The homes constructed using this method are also strong and durable.
Such technologies can deliver thousands of decent homes for the lower-income market.
Mortgage uptake in Kenya is low as most products are unaffordable to the majority of Kenyans. However, an expanding middle class and rising disposable incomes have seen the number of mortgages increase.
Even when the Covid-19 crisis abates, the real estate sector will have to adjust to the new normal. Moreover, the real estate sector would play a leading role in economic recovery and the creation of jobs and business opportunities.
This is the right time to craft an innovative approach to housing. The government and the private sector should collaborate to deliver affordable housing to Kenyans.
- Mr Njeru is the Managing Director, Delta Homes Limited. (Story Featured by Business Daily)
There is a strange misconception that ‘affordable housing’ means cheap, low quality housing for the poor and low income earning members of society.
This is not true. Affordable housing is about ensuring everybody can access quality housing without compromising their ability to lead a decent life.
Article 47 of our Constitution provides that everyone is entitled to accessible and adequate housing.
International human rights instruments including the Universal Declaration of Human Rights and the International Convention on Civil and Political Rights also enshrine housing as a human right.
A decent house is probably the most significant investment many families will make. Besides providing shelter, a house can be used as collateral to finance the family’s economic activities and cater for emergencies like medical bills.
Affordable housing, therefore, enhances the capacity of families to meet important needs and save for the future, thus improving the standard of living.
A home is also important to the overall enjoyment of life. “A decent place to live creates stability, launching families into a promising cycle of possibilities and progress,” says Jonathan Reckford, CEO, Habitat for Humanity International.
Globally, an estimated 1.6 billion people lack access to adequate shelter. In Kenya, about 6.4 million people live in informal settlements. The country requires 200,000 new houses annually but only 50,000 are constructed. With the current high rate of urbanisation and the urban population growing at 4.2 per cent annually, the housing shortage, especially in towns and cities, will keep on escalating.
An average three-bedroom house in Nairobi is priced at Sh14 million, way beyond the financial ability of many middle-income families in Kenya, and a pipe dream for those in the lower-income category.
This shows affordable housing is not a concern only for the poor but also the middle class who comprise the majority of the population in urban areas.
There are several barriers to affordable housing. One is inadequate serviced land suitable for housing development. This means developers have to spend a lot of money connecting roads, power, water and sewer lines to the site; costs that are pushed to purchasers.
Two is lack of access to affordable construction finance making it costly to build and own a home. Third, many Kenyans cannot access or afford many of the mortgage products in the market. For instance, a Sh10 million mortgage loan for a 12-year period translates to Sh130,000 in monthly repayments, an astronomical sum for majority of Kenyans.
Four, entrenched bureaucracy and corruption make the process of acquiring a title deed and developing the property lengthy, thus discouraging potential investors.
Fortunately, a number of these concerns are being addressed under the affordable housing pillar of the Big Four Agenda. In the 2020 Budget Policy Statement, the government has pledged to provide free public land for the development of affordable housing projects. This will unlock huge tracts of land for housing development.
The newly established Kenya Mortgage Refinancing Company will facilitate those earning less than Sh150,000 to acquire loans to build houses from local banks and saccos for as low as seven per cent interest. This increases the number of Kenyans who can actually borrow money to build homes.
Ongoing reforms are geared to making land transactions more efficient while cutting red tape and corruption at the land registry. Streamlining the land acquisition and development process will attract more investors and provide much-needed capital and expertise for affordable housing.
Additionally, the government is forging strategic partnerships with the private sector and development partners. Public-private partnerships are key to unlocking resources and significantly reducing the country’s housing deficit.
However, developers and investors in affordable housing projects require additional incentives like tax rebates and reduction of import duties on essential materials like cement and steel to encourage local developers to scale up affordable housing projects.
Such incentives will help lower construction costs while encouraging innovation, key factors in reducing the price of houses to as law as Sh2 million, which more Kenyans can afford. In addition, affordable housing projects through Public Private Partnerships will also yield significant economic benefits by creating jobs and business opportunities across the construction value chain.
- Mr Njeru is the Managing Director, Delta Homes Limited. (Story Featured by The Standard Media)