HF Group is helping the government set up Kenya Mortgage Refinance Company, which will be charged with supporting the affordable housing programme, by the end of the year, Chief Executive Officer Sam Waweru told Bloomberg in an interview.
The remainder will be owned by commercial banks, credit unions and development finance institutions. The World Bank will provide Kshs 16 billion ($160 million) in financing to KMRC, which will issue bonds to investors to fund its lending.
HF Group also plans to offload its entire home-loans book only to build it up again. It expects to benefit from the government’s push to construct 500,000 affordable homes over the next five years to try narrow a shortfall at least five times that size. The government is creating KMRC., which will provide funding to lenders, and allow companies like HF Group to sell existing loans to the new entity to free up capital, Waweru said.
“We can release, off the top of my head, about Ksh 50 billion from our own book,” Waweru said. “That would mean we can lend another Ksh 50 billion to the economy immediately. We’ll bundle together the mortgages we have written over the years.”
HF Group plans to provide housing loans of as low as Kshs 2.5 million for about 200 new housing units over the next year, Waweru told Bloomberg.
President Uhuru Kenyatta’s administration has made low-income housing one of its four top priorities after winning a second term last year by offering tax relief and stamp-duty exemptions for first-time buyers. It may also breathe new life into the sector after interest-rate caps introduced in August 2016 caused lending to slow.
The size of the market is also relatively small, weighed down by property prices beyond what most Kenyans can afford, high lending rates, difficulties with registration and undeveloped loan-underwriting procedures, Cytonn Investments Management Ltd. said in a report in April. The number of Kenyan mortgages declined 1.5% in 2016 to 24,085 even as the value increased by 8.1% to Ksh 220 billion, as property prices rose, the Nairobi-based money manager said.
HF Group’s loan-book growth slowed by 9% in 2017 as the limits on interest-rate charges took hold, elections slowed down activity and the failure of three lenders a year earlier caused credit demand to slow, according to the company’s annual report.
The establishment of KMRC should set the stage for mortgage-backed securities, Waweru said, helping to ease the housing shortage. The World Bank estimates that 50,000 homes are built a year, not enough to meet demand in a country where 61 percent of urban households live in slums.
“The benefits will start accruing very early in 2019 and into the future.” Waweru said. “The market has been ready for mortgage-backed securities,” he said.
HF Group, initially called Housing Finance Company of Kenya, was established in November 1965, to promote a savings culture and home ownership among the citizens of newly independent Kenya.
Major investors in the company included the Commonwealth Development Corporation (CDC), whose shareholding at one time was as high as 60%, and the Government of Kenya, which at one time owned 50% of the company. CDC has since divested from Housing Finance Limited and the government substantially reduced its shareholding to 2.41% or 8.42 million shares.