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Easy loans drive investments in real estate to satellite towns
Real estate enterprises and individual developers have spread their wings to satellite towns of Nairobi as banks step up mortgage financing. Photo/JAMES NJUGUNA
For several weeks now, a giant billboard erected by Fidelity Bank at the Nairobi railway station intersection has been attracting the attention of thousands of people who use the busy Uhuru Highway each day, announcing easy loans for construction.
Today, such commercial bank offers targeting salaried workers are commonplace and have been credited with extending Nairobi’s real estate boom to the city’s satellite towns.
Mr Andrew Mutwiri, who nurses a childhood ambition to amass wealth in real estate says such offers were almost unthinkable six years ago, forcing him to make what he calls “the bet of lifetime” to realise his dream.
Voluntary retirement
Mr Mutwiri was only 28 when he accepted a voluntary retirement package of Sh2.5 million to give up his position as a bank teller, a job he had held for close to eight years.
He walked out of his Sh74, 000 a month job before drafting an investment plan for his new found wealth.
His gamble to put money in real estate has paid off and now he is the owner of over five housing units, helped by the ongoing rush by commercial banks to introduce mortgage products to cash in on the segment’s boom.
Data from Central Bank of Kenya indicates that the credit that the banking sector extended to the private sector increased by 20.3 per cent from Sh738.3 billion in 2009 to Sh888.4 billion in 2010, with real estate absorbing the single largest share at 30.7 per cent of the total.
The financing outpaced 22 per cent of the private sector financing that were channelled to households — the traditional volumes driver of the easy loans of the banking sector.
The credit to the construction sector also dwarfs the 17.2 per cent that went to business services and the manufacturing sector’s 16.2 per cent.
In the absence of easy mortgage six years ago, Mr Mutwiri said he finally met a buyer who accepted to pay him Sh4.1 million for his Ongata Rongai home allowing him to clear the outstanding mortgage with the former employer.
The extra money raised from the sale became the seed capital that together with remittances of his partners living in the diaspora has enabled him to launch a multi million property business that is now working on its fifth unit on the outskirts of Nairobi.
Many other real estate enterprises that have spread their wings to the satellite towns of Nairobi have also reported rapid growth.
When the Business Daily first visited a freshly cleared site in Kiserian town early last year, the harsh climate and perennial water shortage made the area seem like an unlikely location for residential property.
Today, the first phase of the estate — situated just 100 metres off the road to Magadi —is now complete with all the nine houses already sold.
The houses have been bought by individuals for at least Sh3.9 million each with the new owners erecting plastic water tanks for the tenants in Kajiado County where water from nearby boreholes is pumped just once a week.
Officials of Megaracks Trading Company, the firm that is developing the multi-million project in Kiserian said they aim to construct up to 38 units by the end of 2015.
“Since we started the groundbreaking activities for the phase two of this project early this year, potential home buyers have deposited a total of Sh4.2 million to book the new units,” said an official found at the site last week.
The role that commercial banks are playing in fuelling the rapid spread of Nairobi’s property rush to the outlying towns can also be gleaned from the business model of Chigwell Holdings Limited, a Nairobi-based real estate company that has lined up several housing projects, including the newly developed units at Athi River to be financed by banks.
Under the model, a home-buyer interested in any of the property developed by Chigwell Ltd can walk into any of its six partner commercial banks — Barclays, Diamond Trust, Cooperative Bank, Standard Chartered and I&M Bank Ltd to negotiate mortgage financing.
With the demand for new housing units in urban areas currently standing at 150,000 units annually and only 23 per cent of this demand being met, sector players are confident that the current growth momentum will hold for many years to come
“This growth is not about to burst any time soon. We expect the trend to continue for at least 20 years to come,” Villa Care Kenya Managing Director Daniel Ojijo said in an earlier interview.
Under the vision 2030, the number of people living in urban centres is expected to grow to 38.2 million people in the next 20 years.
It is feared, however, that the current real estate boom— mostly driven by diaspora remittances and increased access to mortgage financing for workers — has alienated Kenyans a bottom end of the economic pyramid.
Government figures indicate that the current housing shortfall is more acute among low-income households whose present demand is about 48 per cent of total new houses required in Kenya.
But even as the construction sector buying rush extends beyond traditional boundaries, officials at the Nairobi Metropolitan Development ministry remain helpless over an emerging infrastructure headache.
The ministry was created in 2008 to prepare and enforce an integrated spatial growth and development strategy to guide the city’s expansion but officials said their hands are tied as the many local authorities around the city continue to observe separate by-laws in licensing new projects in their areas.
“At the moment, our hands are tied because there is no regulatory framework to authorise us to intervene in planning structures under the jurisdiction of several local authorities although we see new hope in the ability of the new constitution to reverse most of what is happening now,” said Mr John Ndirangu Maina, the Physical Planning Secretary at the Nairobi Metropolitan Development Ministry.
Local authorities
The ministry’s recent attempt to take control of 15 local authorities around Nairobi through its Nairobi Metropolitan Area Bill 2009 has drawn sharp reaction from affected communities, with pastoralist groups in Kajiado vowing to block any such attempts.
Mr Stephen Oundo, chairman of the Architectural Association of Kenya blames the current speculative and uncontrolled development on failure by major towns to upgrade their master plans, starting with Nairobi which depends on its archaic 1948 plan.
“This, together with the deeply ingrained culture of impunity has seen construction sector players routinely flout building plans and approval guidelines — but the expansion towards satellite towns is a good thing that will relieve Nairobi of its current population pressure,” said Mr Oundo.
To restore sanity in the fast growing real estate segment, Mr Oundo calls for the setting up of the National building and planning authority to harmonise and enforce the uniform regulatory standards throughout the country.
