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Affordable housing in Kenya

• Affordable housing is at the core of Kenya’s new government having already launched 30,000 housing units between November 2022 and January 2023.
• To support the affordable housing initiative, the national government has identified REITs as an avenue from which it can increase the rollout of affordable housing.
• The Capital Markets Authority (CMA) in collaboration with Sanduku Investment Initiative, Association of Pension Trustees and Administrators of Kenya (APTAK) and the Nairobi Securities Exchange (NSE) have made significant progress towards the creation of a Kenya National REIT (KNR).
• KNR will register all REITs for the development of affordable housing via Special Purpose Vehicles (SPV).
• KNR has conceptualized as an accreditation body for REITs and thus ensure the investment grade REITs are structured for immediate investor uptake.
• The Sanduku Initiative, a funding initiative seeking to raise Ksh1 trillion in five years (2022-2027) is targeting financial sector players such as pension funds, SACCOs, Insurance companies, Islamic finance institutions, Banks as well as global investors.
• A significant amount of the funding will be channeled into the affordable housing project to buttress the Kenya Kwanza administration’s bottom-up economic model.
• The initiative still has some challenges to face, the East African highlighted that property development funding through REITs may be undermined by capital markets products such as company shares, Treasury bills, and corporate bonds, which offer more attractive returns as well as the lack of knowledge by investors on the subject of the REITs space.
• Furthermore, Estate Intel noted the high cost of construction materials due to rising inflation and supply chain disruption that have seen materials such as steel go up by about 30% in January. This may undermine the cost minimization efforts for development through the provision of land at no cost and having the building materials used, zero-rated and the corporate tax of the property developer slashed from 30 per cent to 15 per cent.

Our View

• The use of REITs to raise finance for affordable housing projects will also enhance liquidity and offer good returns for investors which might also boost their uptake in the coming years.
• Despite several policy initiatives undertaken by the government including formation of Kenya Mortgage Refinancing Company to enhance long term mortgage affordability, National Housing Development Fund to bridge the gap for affordable housing by de-risking private developers through guaranteed offtake and provision of affordable financing solutions to end buyers, the supply function is still far from making significant strides.
• Furthermore, the industry players need to further look into the proposed model to ensure they have all stakeholders’ interests covered as well as address the challenges recognized in REITs space.
• REITs have the ability to raise funds to support the development of affordable housing. Further the creation of the National REIT could go along way to directing a greater amount of funds into the same and thus reduce the deficit in supply of affordable housing.

Source: The East African, Estate Intel, Business Today, Business Daily and Sterling Real Estate Advisory