Tuesday, August 7, 2012

Co-op helps Kenyans own homes amid soaring mortgage rates

Business Times: Tue, Aug 07

[NAIROBI] Nearly six years ago, Nairobi resident Moses Chenyi thought of buying a house through a mortgage scheme.

"It was a dream that I had nurtured for long and I wanted to fulfil it. I believed that I would realise my wish through mortgage," Mr Chenyi told Xinhua during the weekend.

However, after visiting a mortgage institution and later seeking advice from his colleagues, Mr Chenyi backed off from the plan.

"I wanted to buy a house worth US$65,476, but I saw paying it through mortgage will cost me almost double that amount. This was if interest rates remained constant in the 15 years that I was to pay for the house. But it occurred to me I was going to pay more or I could even lose the house if I default in payment. This was not viable for me," he recounted.

His dream having collapsed, Mr Chenyi decided to increase his contributions to a Sacco (Saving and Credit Cooperative Society) at his workplace so that he may later take a loan, buy a piece of land and build a house at his own pace.

"I doubled my contributions from US$59 a month to US$130. This saw my savings rise," he said.

Luckily, about two years ago, the Sacco bought a piece of land in Mlolongo on the outskirts of the capital and started to resell it to its members at affordable prices.

"Each member was buying the 50ft by 80ft piece of land at US$3,571. The piece of land was subdivided and each one of us was given a title deed," he said.

Now, as many other members of the Sacco, Mr Chenyi took a loan from the institution and has started constructing a house on his plot.

"I am about to reach the lintel and thereafter start roofing. My dream of owning a house is coming to fruition," he said proudly.

His is a path many Kenyans are taking to own houses, especially in the capital, as mortgage rates remain high and out of reach of many people.

Mortgage companies in the East African nation charge interest rates of 14-19 per cent. The rates, however, sometimes fluctuate to reflect market conditions.

For instance, when the Central Bank of Kenya in January increased its benchmark lending rate to 18 percent to rein-in on inflation and stabilise the local currency, banks and other financial institutions increased their lending rates, with interest on mortgage rising to about 25 per cent.

With such high rates, mortgage schemes are a mirage to millions of people in the East African nation. Real estate experts have noted that the majority of Kenyans cannot afford mortgage on their salaries.

With a salary of about US$600 a month, saving about 15 per cent of the money each month for five years will enable one raise a 20 per cent deposit for a house worth US$30,955 in a low-income settlement in the capital. That is if the current prices and mortgage rates remain constant.

Similarly, for a person earning a salary of US$1,200, saving 15 per ent of the money for five years will enable him raise a 20 per cent deposit for a house worth US$62,606 in a middle-income settlement in Nairobi.

This is an impossible feat to achieve for most Kenyans owing to the fact that the cost of living in the East African nation has gone up, salaries have stagnated, people have other needs and prices of houses are rising fast.

The inability to afford a mortgage, according to Hass Consult, a mortgage company, has stalled the sector and industry players are finding it difficult to attract new customers.

Saccos, however, are filling the gap that has been left by mortgage companies as they enable their members to own homes affordably.

"Our aim is to help members own land in the city at cheaper prices then they can build houses on their own in a controlled fashion," explained Bernard Ndunda, who works for a health institution Sacco.

Mr Ndunda noted that the institution, through its investment arm, acquires huge tracts of land then sells to members.

"You do not need to pay cash and one can buy the plots depending on his ability. Once you own the plot, you can sell it or build a house. Most members, however, are building houses on their piece of land," he said.

Mark Kirithe, who bought a piece of land through a Sacco in Kitengela, a suburb on the fringe of the capital, said he is building a house.

"I bought the piece of land about a year ago through our Sacco. Then, after giving us title deeds, they came up with plans of houses we can build. I am building the house at my own pace. This is better than if I had taken a mortgage, where I would be worried of high interest rates or losing the property if I default in repayment," he said.

Mr Chenyi and Mr Kirithe noted that they are going to spend about US$25,800 and US$34,500 respectively to build their three-bedroom and four-bedroom houses.

"This is affordable when you compare it to taking a mortgage where one would buy a three-bedroom house at US$107,142 and a four bedroom house at US$142,857," said Mr Chenyi.

The medical worker is hopeful that he will complete building his house by the end of this year. – Xinhua

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