What you need to know:
- Construction loans are much preferred. Incentives available to mortgagors should be extended to construction loans.
- Construction loans, which are essentially personal loans, are secured against future salaries and, in some cases, to pension benefits.
On September 14, 2020, the Treasury Cabinet Secretary presented the Retirement Benefits (mortgage loans) (amendments) Regulations, 2020. The regulations, made in line with the housing pillar in the Big Four agenda, allows pension scheme members to access up to 40 percent of their savings as a mortgage loan.
The idea of using retirement savings for mortgage purposes is not new in Kenya. Mortgage laws regulations 2009 provided for the use of 60 per cent of the member’s accrued benefits as a guarantee to secure a home mortgage. The 2009 regulations made no impact on the housing sector. Little wonder they are being amended.
The entire concept of mortgage needs a closer scrutiny.
The housing shortage in this country is a matter of dire concern. Reuters news agency in May 2019 reported that there was an estimated 200,000 annual housing shortfall expected to rise to 300,000 by 2020. One would expect this shortfall to make the mortgage industry quite vibrant. Not at all.
The Central Bank reports only 26,187 active mortgage loans by December 2017. Housing PS Charles Hinga indicates that 18,000 of these mortgages are on concessional rates to employees of banks, corporations or government.
So, why are mortgage loans not resonating well with Kenyans?
To answer this question, we need to ask ourselves what is the alternative to mortgage and what Kenyan home-owners prefer. Mortgage conditions require buying an already constructed unit at a grossly inflated price, and that is where the problem lies. Because of the exorbitant prices, the preferred alternative is constructing one.
This is evidenced by the many estates in urban areas interspersed with elegant maisonettes and bungalows. This trend extends even to rural areas; home construction is booming, and none of these units are constructed for sale.
So as a country what would we rather do, incentivise what doesn’t work or perfecting what is already working? Incentives towards home construction is the answer to housing shortage. Construction materials are expensive due to taxes.
The second incentive needs a thought. Construction loans are much preferred. Incentives available to mortgagors should be extended to construction loans. The fact that Kenyans shy away from mortgages does not mean that they abhor loans altogether.
Construction loans, which are essentially personal loans, are secured against future salaries and, in some cases, to pension benefits. Again the concept of construction loans is not new; six banks offer this facility.
In the spirit of inclusivity, we need to realize that the mortgage concept works only in Nairobi and a few major towns. The devolution idea is to encourage people to live a decent life in decent structures across the country.
Incentives covering the cost of construction materials and access to credit will go a long way in fixing housing challenges in Kenya.
Faustin Mwinzi, Nairobi