Should you buy a home under state's affordable housing programme?

Tens of aspiring homeowners have bought 208 houses that are being set up in the Bondeni area, Nakuru, by the national government. According to data from the department of housing, these acquisitions make up about 30 per cent of the housing units that are expected to be completed in December 2023.  The units are being constructed under the government’s Affordable Housing Program. 

The units will cost between Sh1.55 million to Sh4.25 million depending on their size. In April, the State shall also commence the construction of a Sh18 billion housing complex at Mowlem Estate, in Nairobi. 

This project will comprise 4,900 units which will be done in three phases. They will cost between Sh1.8 million, and Sh5.4 million. Housing units under the AHP program have been a hot cake due to the high demand for houses. Kenya has an annual housing demand of 250,000 units with an estimated supply of 50,000 units, culminating in a housing deficit of 2 million units, or 80 per cent deficit.

The big question is: should you join the race for these houses? Are they an ideal investment for both home owners and aspiring landlords? According to economic analyst Ephraim Njega, while affordable houses are okay to invest in, there is a downside. 

“The problem is on the supply side. Not everyone contributing to acquire the units will manage to get the houses. When their funds are refunded to them it is not clear what interest will be paid to them,” he says. 

Njega also highlights the current election year and the change of government that will happen after the General Election of August 9, 2022. “With the change of government and the ever tightening fiscal space, there is a risk that these affordable housing projects could end up being white elephants unless the next administration brings in private investors,” he says. 

Some of the biggest concerns have been return on investment, the house designs and space, and their locations. “The returns are low.  Due to the location of some of these houses, the service charges plus the quality and size of the houses, and in comparison to the rent they can fetch, it would take a long time before they can recoup their initial investment,” says investment and financial analyst at Acemt Consulting Rhina Namsia. 

She singles out the units in Dandora, Nairobi. “The cost for a three-bedroom unit is around Sh4 million. However, the size of the unit doesn’t match the amount you’ll have to cough up," she says. 

You will also need to know if you want to buy to rent or buy to live. You must also know if you have preference for apartments, and possible shared amenities. 

“It’s dicey. If you put down your Sh4 million, the returns could be as low as nine percent in comparison to other investments such as infrastructure bonds that give 12.5 percent return on investment,” she says.

On the other hand, if you are on the lower earning curve, the rate of appreciation for the unit in a high-demand area such as Ngara or Parklands could be worth considering. 

The target customers

According to Robert Ochieng’ the founder of investment firm Abojani Investments, not everyone will be a good fit for the houses. He says that the target customers are Kenyans who earn less than Sh150,000 per month. “The aim is to guarantee affordability, which refers to the relationship between the housing expenditure and household income,” he says. Ochieng’. 

He adds that your household should spend a maximum of 28 percent of its gross monthly income on total housing expenses and no more than 36 percent on total debt service, including housing and other debt such as car loans. 

A spot check on the Boma Yangu government portal where registration is done shows that there are three contribution schemes:

• Statutory contributor: Mandatory contributions are capped at Sh2,500 per month per employee and employer
• Voluntary contributor: Monthly contributions are not capped. These contributions will not be taxed at time of withdrawal.
• Joint contributor: Spousal or joint contribution can be made towards ownership of one house at a time. There is also an option to apply for one individually.

For one to purchase a unit, they will need to register on the BomaYangu online platform portal. Applicants will be required to be Kenyan citizens with proven ability to buy. This means that after registering, you will need to review your income profiles ahead of the lottery-based allocation, and indicate your current job, and income and tax details. 

You can still fail to get a house after contributing and choosing your preferred location. For instance, 128 houses in Ngara in 2020 received expressions of interest to buy from 300,000 Kenyans. When an allocation is made, beneficiaries who are unable to settle the purchase price on the spot pay a 10 percent deposit with the balance paid over the next 25 years under a rent-to-own arrangement.

Kenyans who don’t prefer investing via the Boma Yangu affordable housing plan can opt to go for the affordable Kenya Mortgage Refinance Company (KMRC) homes which are giving home loans at lows of around seven per cent. “Mortgages are good in economies with abundant employment. If you fail to service the mortgage, then all your efforts to own a home will be in vain,” Njega says. Under KMRC, mortgage loans have been capped at Sh4 million in the Nairobi metropolitan area (Nairobi, Kiambu, Machakos and Kajiado) and Sh3 million elsewhere. These loans are only accessible to individual borrowers whose monthly household income is not more than Sh150,000.

Upcoming Boma Yangu Deals

·         King's Sapphire Bondeni project in Nakuru

·         Buxton Affordable Housing project in Mombasa

·         Kitui Affordable Housing along Kalawa Rd in Kitui Town

·         Pangani Affordable Housing Project 3 Bedroom Duplex in Nairobi

·         Starehe Affordable Housing Project in Nairobi

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