The Kenya Mortgage Refinancing Company (KMRC), an initiative of the National Treasury and the World Bank, is expected to help address Kenya’s housing deficit by extending the range of qualifying mortgage borrowers which will, in turn, lead to the growth of homeownership rate and a vibrant mortgage market.
Through increasing of the amounts of monies available for mortgage lending and lengthening typical mortgage tenures in Kenya from the current average of 12 years to 20 years, KMRC will, according to Cytonn Investments, bring down monthly payments by 14 percent.
In February this year, Central Bank of Kenya (CBK) published draft regulations intended to provide a clear framework for licensing, capital adequacy, liquidity management, corporate governance, risk management and reporting requirements of mortgage refinance companies. Once approved, the regulations will guide the launch and beginning of operations of the KMRC.
KMRC’s main objective according to Cytonn’s report dubbed ‘Kenya Mortgage Refinancing Company Update’ is to grow Kenya’s mortgage market by providing long-term funding to primary mortgage lenders.
The initiative aims to support the affordable housing agenda by increasing the availability and affordability of housing finance, thus boosting home ownership.
The Kenyan mortgage market still lags behind, with a mortgage to GDP ratio of 3.1 percent in 2016, significantly lower than more mature markets like South Africa, and the United States of America.
To help bridge the funding gap in the housing finance market, there is a need for better systems encompassing alternative sources of long-term financing, improved land and property registration, an expansive credit bureau coverage, and an efficient legal system.
The Need for Housing Finance in Kenya
Affordability is a major constraint to the growth of the housing and mortgage markets, and a key challenge to accessing decent housing in Kenya.
According to the2015/16 Kenya Integrated Household Budget Survey (KIHBS), only 26.1 percent of Kenyans living in urban areas own the homes they live in, with the main factor causing this being the unaffordability of housing units in the market.
Those who own homes rely mainly on savings and other sources of financing including mortgage loans, commercial bank loans, local investment groups commonly referred to as chamas, and Savings & Credit Co-operative Societies (SACCOs).
Out of an adult population of about 23 million, there were only 26,187 mortgage loans as at December 2017, according to the CBC Bank Sector Annual Report 2017.
While the number of mortgage loans has been growing by an annual CAGR of 5.7 percent since 2013, the average mortgage size in Kenya has been growing at a higher CAGR of 9.6 percent, from 6.9 million shillings in 2013 to 10.9 million shillings in 2017.
Mortgage Refinancing Companies address the liquidity issue, by using the capital markets to raise large amounts of funds to support the lending activities of PMLs in a sustainable manner and increased liquidity also helps to reduce risk premiums on mortgages for borrowers.
Some of the capital market products that could be considered include Housing Bonds, Asset-Backed Securities, and Real Estate Investment Trusts (REITs), targeting both retail and institutional investors. Institutions such as pension funds and insurance firms offer a viable market for these securities, especially given their rapidly growing pool of long-term funds.
Insurance companies are also potential investors, holding 2.4 percent of their portfolios in loans and mortgages as at September 2018.