State creates a company to offer cheap loans to banks to target civil servants and self-employed persons. [Photo: Courtesy]

If you earn less than Sh100, 000 and can spare a third of your income, owning a home will be within your reach under a Government plan to spur a housing boom.

The State has created a company to offer cheap loans to banks to target civil servants, self-employed persons, or salaried employees with mortgage of up to 30 years to reduce the pressure on repayment.

The Kenya Mortgage Refinancing Company (KMRC) will receive a Sh16.1 billion ($160 million) from the World Bank to start operations this month and will be owned by the Government and the private sector.

“KMRC will contribute to the broad objective of the Government of Kenya to deliver 500,000 affordable homes by 2022 targeting households with incomes of up to Sh100,000 per month,” the National Treasury said in a document pitched to bank bosses and sacco CEOs.

Treasury Cabinet Secretary Henry Rotich yesterday told financial institution bosses in Nairobi that the Government aimed to own about 20 per cent of the firm and would pump in Sh1.5 billion fully paid share capital.

The rest of the Sh5 billion authorised share capital will come from development partners, banks, and saccos interested in owning part of the remaining 80 per cent stake in a bid to professionalise it and release it from the clutches of bureaucracy.

There is a shortage of more than 200,000 housing units every year. Even with growing disposable incomes, Kenyans still find it difficult to buy homes using the mortgages currently in the market, which are usually short-term and expensive.

In 2016, for the first time in five years, the number of mortgages in the country declined by 1.5 per cent from 24,458 to 24,085 attributed to less issuance of housing loans by banks, which tightened their underwriting standards following the implementation of the Banking Amendment Act 2015. The law capped lending rates at 4 percentage points above the Central Bank’s benchmark rate.

A study by the Government showed that only 7 per cent of Kenyans living in rural areas can afford a house worth Sh1.7 million while in towns only 40 per cent can buy the least expensive built property.

"The average bank mortgage of Sh9.1 million would only be available to a very small percentage of people. It is no surprise that only about 26.1 per cent of Kenyans in urban areas were residing in their own dwellings,” Rotich said.

Even the much anticipated Big Four agenda to put up 500,000 social housing units and 800,000 affordable units by 2023 at a cost of Sh2.6 trillion has elicited concerns over affordability to the common man.

On average, this puts the cost of each unit at Sh2.6 million, to be constructed by private equity firms that will presumably charge a markup.

This means that on average a unit will be sold at over Sh3 million despite the fact that the Government is offering free land to the investors, a cost that is out of the reach for a majority of Kenyans. Mortgage is, therefore, the surest way the Government can offset the houses it intends to help build, adding incentives such as tax exemptions to sweeten the deal.

The mortgage market is also being hurt by too much bureaucracy, with Housing and Urban Development Principal Secretary Charles Hinga Mwaura stating that it takes nine months to register a mortgage and transfer land. This adds between 15 to 20 per cent extra cost to complete mundane processes.