Housing

Partnership to support the affordable housing project

Partnership to support the affordable housing project

Thursday July 5 2018

Cytonn Investments Senior Research Analyst Patricia Wachira. PHOTO:COURTESY

In Summary

  • According to a Cytonn Investments weekly report, the first-half of 2018 performance of the real estate sector improved slightly, with sectors such as office, retail and industrial registering a marginal increase in yields of between 0.1 per cent points and 0.7 per cent points.
  • This performance has been bolstered by the continued demand for investment in property from multinationals, individuals and the growing middle class, government efforts to enable the environment for developers through key statutory reforms such as the National Land Use Policy, and initiatives such as the National Housing Development Fund, noted Ms Patricia Wachira, senior research analyst with Cytonn Investments.

Fusion Capital has entered into a strategic partnership with Optivwen Group to support the government’s affordable housing agenda. The two companies have launched the Amani Ridge — The place of peace— an ultra-modern high-end mini-city in Kiambu County. Amani Ridge, which neighbours Tatu City and Nova Pioneer, will offer first-class experience with top-of-the-range amenities.

Under this project, Amani Ridge will sell the plots as well as develop them, said Mr Daniel Kamau, the CEO of Fusion Capital. The project, which is ongoing, will comprise 400 homes. It is expected to be worth more than Sh8 billion upon completion.

“Real estate investors would benefit more if the government leads the affordable housing project from a marketing perspective so that it can create demand for houses being released into the market. The government remains a key market for real estate developers in Kenya and in commercial development,” Mr Kamau noted.

For instance, in the office-space market, the government is still the largest single occupier of developed office spaces.

“The State should be discouraged from undertaking n developments that the private sector can ably supply. This would also help the government to cut on unnecessary capital expenditure,” he shared.

“Once the government exits office-space development, the private sector will be encouraged to continue partnering with the government as a client,” he added.

This will spell double gains for the sector, which will no doubt excite the market which has been on a two-year low and has only just begun picking up.

According to a Cytonn Investments weekly report, the first-half of 2018 performance of the real estate sector improved slightly, with sectors such as office, retail and industrial registering a marginal increase in yields of between 0.1 per cent points and 0.7 per cent points.

This performance has been bolstered by the continued demand for investment in property from multinationals, individuals and the growing middle class, government efforts to enable the environment for developers through key statutory reforms such as the National Land Use Policy, and initiatives such as the National Housing Development Fund, noted Ms Patricia Wachira, senior research analyst with Cytonn Investments.

“This growth can also be attributed to the expanding middle class, and continued infrastructural improvements in the country,” added Ms Wachira.

NEW LIFELINE

Further, the government has the capacity to synergise the real-estate sector so that it can gain a new lifeline.

“In the affordable housing project, the government has the capacity to supply the private sector with a ready market for developed units/homes considering it has a workforce of over 700,000 employees,” observed Mr Kamau.

These include teachers, the police, and doctors, among others.

“With creative check-off housing plans such as tenant-purchase schemes, the government could accelerate home ownership by civil servants while enabling the private sector in the real estate space to continue growing as a result of an available market,” added Mr Kamau.

In addition, the government has also made arrangements for home-buyer financing to increase the uptake of home ownership.

These include the extension of lines of credit from institutions such as the World Bank to enable borrowing for as low as 5 per cent interest rate, and the extension of background checks to include the informal sector.

“The proposal to provide incentives for first-time buyers such as a waiver on stamp duty and multi-generational mortgages that have long tenors and can be passed on to one’s heir will attract mortgage uptake,” observed Ms Wachira.

Others measures include the setting up of a national housing development fund (NHDF) whose role will be the management of funds set aside for the planning and provision of social housing.

A NHDF will also enable potential home-buyers to save towards home ownership and, consequently, give impetus to housing development.

Home ownership in Kenya has been a distant dream for low-income earners. According to Cytonn, while 74.4 per cent of Kenya’s working population requires affordable housing, only 17 per cent of housing supply goes into serving this low to lower-middle income segment.

The National Housing Corporation estimates that Kenya has a cumulative housing deficit of 2 million housing units, which grows by 200,000 units per year.

“This is driven mainly by a rapid population growth of 2.6 per cent per annum, compared to the global average of 1.2 per cent. A high urbanization rate of 4.4 per cent against a global average of 2.1 per cent further contribute to this spiralling deficit,” said Ms Wachira.

Supply, on the other hand, has been constrained, with the Ministry of Housing estimating the total annual supply at 50,000 units.

Notably, the ministry indicates that 83 per cent of the existing housing supply is for the high-income and upper middle-income segments, with only 15 per cent for the lower-middle and 2 per cent for the low-income population.

“If well-implemented, without corruption in the housing supply chain, the government’s affordable housing project is likely to bring homes closer to the people who need them most,” he notes.

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