Excerpt from Africa Housing Finance Yearbook 2014


The East African nation of Kenya has the largest economy in South East and Central Africa, and over the last 10 years has seen steady economic growth albeit from a low base. While GDP growth in 2003 was 1.7 percent, the last three years have shown significant growth: 4.4 percent in 2011; 4.6 percent in 2012; and 4.7 percent in 2013. In the first quarter of 2014, the economy slowed down to 4.1 percent growth, attributed to poor weather which suppressed production in the agricultural sector. There was also contraction in the hotel industry because of security concerns and accompanying travel advisories in key tourist markets. This will remain a major challenge to growth going forward given the constant insecurity from its unstable neighbour, Somalia.

In 2011, Kenya faced particular challenges as the global economic crisis and increases in the cost of food and fuel led to a weakening of the Kenyan shilling by 25 percent against the US dollar, triggering rampant inflation (measured at 19.7 percent in November 2011). Interest rates consequently surged, and have remained

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Excerpt from Africa Housing Finance Yearbook 2014


The East African nation of Kenya has the largest economy in South East and Central Africa, and over the last 10 years has seen steady economic growth albeit from a low base. While GDP growth in 2003 was 1.7 percent, the last three years have shown significant growth: 4.4 percent in 2011; 4.6 percent in 2012; and 4.7 percent in 2013. In the first quarter of 2014, the economy slowed down to 4.1 percent growth, attributed to poor weather which suppressed production in the agricultural sector. There was also contraction in the hotel industry because of security concerns and accompanying travel advisories in key tourist markets. This will remain a major challenge to growth going forward given the constant insecurity from its unstable neighbour, Somalia.

In 2011, Kenya faced particular challenges as the global economic crisis and increases in the cost of food and fuel led to a weakening of the Kenyan shilling by 25 percent against the US dollar, triggering rampant inflation (measured at 19.7 percent in November 2011). Interest rates consequently surged, and have remained high ever since. As a reactionary measure to high inflation and the volatile foreign currency exchange rate, the Central Bank of Kenya issued a sudden 11 percent increase to the central bank rate in November 2011, bringing it to 18 percent for about seven months until July 2012. By May 2013, the central bank rate was reduced to 8.5 percent. Today, more than a year later, this rate largely remains the same, a testament to the improved stability being experienced. Annual inflation was 6.6 percent in October 2014.

Kenya has consistently been implementing Basel guidelines since the mid-2000s. Currently all commercial banks are actively regulated on the Basel II Framework, which ensures greater stability, capital adequacy, liquidity management and loans management, and enhances banks’ resilience to macroeconomic shocks. The banking sector has registered improved growth in assets in the year to May 2014, driven by growth in deposits, the injection of capital, and the retention of profits. The sector also registered improved performance in earnings and capital and, given the decreased interest rate, the level of non-performing loans has reduced when compared with the same period in 2013.


Access to finance

Kenya’s financial sector is highly developed, comprising a strong commercial banking sector, non-bank financial institutions, microfinance institutions and building societies, all regulated by the Central Bank of Kenya. Savings and credit cooperatives are regulated by the Commissioner of Cooperatives. Some 44 commercial banks and one mortgage finance company are registered with the Central Bank. Of these, 30 are locally owned and 14 are foreign owned. The locally owned institutions comprise 30 commercial banks of which three have a significant state shareholding. In terms of real estate finance, a total of 37 financial institutions offer mortgage finance, and this comprises 14.1 percent of total credit to the private sector. Credit to building and construction industries comprised 4.6 percent of total credit.

Kenya has a dynamic mortgage industry, which is growing rapidly and becoming increasingly competitive. 37 financial institutions offer mortgage loans to customers (though all banks offer mortgages to their staff). KCB and Housing Finance Kenya control 55 percent of the market in terms of number of accounts, with CFC Stanbic, Standard Chartered, and Barclays following in that order. According to Central Bank of Kenya statistics, as of 31 December 2013, the total mortgage book was Ksh138.1 billion (about US$1.5 billion) – showing growth of 15.5 percent on the previous year. There were 19 879 mortgage loans in the market by December 2013, which is an increase from 18 587 the previous year. Nevertheless, mortgage lending is still accessible to only a tiny minority of the population. The average loan size has risen from Ksh6.4 million (US$71 708) to Ksh6.9 million (US$77 310) possibly brought about by house price inflation. NPLs have increased to Ksh8.5 billion (US$95 million) in December 2013 from Ksh6.8 billion (US$76.2 million) the previous year. According to the Central Bank, high interest rates in 2012 are the primary reason for this.

By December 2013, the average mortgage interest rate offered by Kenyan banks was 16.37 percent which is a drop from 19 percent in the previous year. Interest rates charged by the banks range from 8.5 to 22 percent. A press report notes that some of the lowest interest rates are provided by CFC Stanbic (13.5 percent) and Standard Bank (13.9 percent). Higher rates were offered by Equity Bank (18 percent), KCB (16 percent) Housing Finance Kenya (15.9 percent) and Cooperative Bank (15.75 percent). These bank rates fluctuate, also depending on the borrower. Not unusually, banks have special offers over certain periods. Most (over 97 percent) of loans have variable interest rates. The Central Bank suggests that the predominance of variable rate lending is constraining the growth of Kenya’s mortgage market.

New entrants and aggressive marketing has resulted in some newer products. Housing Finance Kenya allows plot owners to choose from 50 different plans offered, obtain finance, and then let the bank project manage the house construction within three to nine months. The mortgage loan size varies from US$18 465 – US$312 000. KCB has a “group microfinance loan” targeting savings groups. It uses monthly salary deductions and land title as collateral.

To promote greater affordability and deal with the problem of long term funding sources, micro-mortgages, in essence smaller and shorter term mortgages, are emerging. Real People, a South African based micro-financier which has ventured into Kenya, offers a micro-mortgage for up to nine years for “home construction” – basically development of a home from ground up. Amounts range from US$1 845 – US$46 125. Housing Finance also has a shorter term, five year product, for purchase of a residential plot.

Kenya has seen mortgage products that offer more than 100 percent financing, with Housing Finance Kenya offering as high as 105 percent. One lender has also introduced mortgage insurance against the risk of a loss of income, and another has introduced a rent-to-buy arrangement for those not able to access mortgage finance. The Retirement Benefits Authority in 2009 allowed that pension contributions of up to 60 percent could be used to secure a mortgage. This has the potential to leverage assets worth Ksh290 billion (US$3.24 billion) and increase access for lower earning people who have accumulated substantial pensions. Pension fund administrators are, however, still reticent.

A 2013 Central Bank survey of mortgage lenders which ranked obstacles to market growth provided similar responses to the year before. The primary obstacle raised was high interest rates (30 citations). This had ranked second in the previous year’s survey. Lack of access to long-term affordable funds was ranked the third main problem, with 20 citations. Housing Finance Kenya suspended its planned borrowing of US$224 million on the stock exchange, citing an expensive debt market environment. Other constraints highlighted by mortgage lenders included low levels of income (25 citations and the second ranked problem), the burden of banking regulations, the high cost of building materials and high purchase price of properties (11 citations each), difficulties with property registration (10), credit risk (eight), start-up costs (seven), stringent land laws (five) and lack of housing supply (four). Increasingly, the problem of difficulties in property registration are being felt by the industry due to the slow land reform process.

Kenya has a strong microfinance sector, with nine deposit taking microfinance institutions (MFIs), an increase of one from the previous year. In 2013, 41 MFIs reported to the Mix Market (an online source of microfinance performance data and analysis), representing 1.4 million active borrowers and a gross loan portfolio of US$4.2 billion. The sector also recorded 8.7 million depositors and US$2.5 billion in deposits. Within this, Kenya also has an emerging housing microfinance sector and there are a number of MFIs offering housing microloans. Jamii Bora Bank (US$50 million in total loan portfolio as of March 2014), Rafiki Finance (third largest deposit taking microfinance bank with over 57 000 deposit accounts and 4 800 loan accounts, December 2013) and the Kenya Women’s Finance Trust (the largest deposit taking microfinance institution with over one million deposit accounts and over 315 000 loan accounts, December 2013) all have new housing microfinance products. In recognition of this growing industry, Shelter Afrique, a pan-African provider of financing for affordable housing development has recognised housing microfinance as a specific asset class, and has set up a pilot for MFIs to lend, with six MFIs currently on the programme and over US$4.9 million lent to date. Rooftops Canada, together with Homeless International (now Reall), the Cooperative Housing Federation of Norway, the Swedish Cooperative Centre and other partners, is involved in a programme with the National Cooperative Housing Union (NACHU) to provide technical and financial support to scale up NACHU’s housing microfinance and housing support services. A crucial component of this work involves identifying appropriate and sustainable finance for NACHU to be able to extend housing credit to its members.

According to FSD Kenya’s Finaccess Survey, levels of financial access are improving. About one third (32.7 percent) of the population has access to formal prudential service providers[1]; 33.2 percent have access to formal non-prudential providers[2]; 0.8 percent to formal registered institutions;[3] and 7.8 percent to informal systems such as informal groups, employers, shopkeepers, and informal money lenders. This leaves 25.4 percent of the population, or more than 4.7 million people, excluded – an improvement from 2009. The biggest story in access to financial services is the large number of users of Mobile Phone Financial Service Providers. The use of MFIs has remained at 3.5 percent of the population or over 650 000 people, and the use of SACCOs has increased from 13.5 percent in 2009 to 29.2 percent or almost 1.7 million users in 2013.

Surprisingly, according to Global Findex, given the level of financial inclusion, very few Kenyans have an outstanding loan to purchase a home: only 1.1 percent of the top 60 percent of income earners and 0.6 percent of the bottom 40 percent of income earners. However, loans for home construction are more prevalent, although still very low: 3.4 percent of the top 60 percent of income earners and 3.8 percent of the bottom 40 percent of income earners had such loans.

In 2010, a credit information sharing mechanism was introduced, improving Kenya’s credit information framework. By 2013, about 4.9 percent of the population (981 924 individuals and 128 024 firms) were already covered by a private credit bureau. According to the World Bank’s 2014 Doing Business Report, Kenya ranks high globally in terms of ease of getting credit: 13th out of 185 countries, although this represents a decline of one position since 2013. The country’s judicial system also allows for non-judicial foreclosure, often considered the most conducive for mortgage lending.



Poverty statistics show high numbers of people living on less than Ksh2 913 (US$34) a month in urban areas and Ksh1 562 (US$18.41) in rural areas. Even in Nairobi, 22 percent of the population falls below this income, and in the city of Kisii, 54.5 percent fall below this line. The World Bank estimates that only about 11 percent of Kenyans earn enough to support a mortgage. This means that most middle income earners cannot afford an average mortgage necessary to buy an entry level house. The Kenya National Bureau of Statistics defines middle income households as those whose monthly incomes fall between Ksh23 671 (US$264) and Ksh112 717 (US$1,259). This is far too little for the average loan size of Ksh6.9 million (US$77 100) as reported by the Central Bank, where a 16.37 percent interest on loan over 20 years would require a monthly payment of about US$1 094, and therefore a monthly salary of at least US$3 282.

A highly speculative property market and high demand for housing has driven Kenya’s residential property price inflation up steadily over the last 12 years, especially, more recently in the rental market. According to HassConsult’s Quarterly Property Index, property prices have increased 3.46 times since 2000, though grew only by a marginal 0.05 percent in the past year. Rentals have risen rapidly, however, by 9.7 percent over the past year.

The National Housing Corporation provides three bedroom apartments on the periphery of Nairobi for 5 million Ksh (US$58,000) and considers that it is 30% cheaper than equivalent products by private developers. In Nairobi, a two bedroom house sells for around US$ 33,500 while bedsitters of 16m2 are available at US$11 170.


Housing supply

Kenya‘s urban population is growing at a rate of 4.2 percent a year, putting pressure on its cities to provide housing for this growth. An estimated 50 000 units were produced in 2012, up from previous years but still not enough to meet the estimated annual demand of about 150 000 units. This shortage of supply has been a major contributing factor to the rise in property prices, although more recently an unbalanced supply across market segments has been observed, with broad supply to the upper middle income and high end market, but insufficient supply to the low and lower middle income segments. African Economic Outlook reports that the building and construction sector has been a key driver of economic growth in recent years, with state investment in affordable housing being a key component. The City Council of Nairobi approved a total of 15 337 planned new homes in 2013 with 628 detached houses, 795 semi-detached houses, and 13 914 apartments.

Formal housing supply is undermined by a number of factors, including the limited availability of serviced plots in urban centres, a problem affecting housing delivery across all income bands, but especially affecting affordability for lower income developments because of the added cost of servicing plots. There are also major question marks over the capacity of local government to ensure good quality residential development.

Most of the population cannot afford housing built by formal developers, and as a result, the majority address their housing needs independently and often informally. This contributes to a growth in slum dwellings and poor quality housing. The housing backlog is estimated to be two million units. Research by a slum dwellers umbrella body, Muungano Wa Wanavijiji, found that 70 percent of Nairobi’s housing stock comprises single 10m² shacks made of wood, mud, tin galvanised sheets, or wattle. Recreational spaces in Nairobi have a bigger total landmass than the slum settlements.

The National Housing Corporation (NHC) is a government institution mandated to deliver affordable housing targeted at low income earners. The NHC has been at the forefront of promoting alternative building technology using Expanded Polystyrene (EPS). It is also an active developer, and recently, the corporation announced it would build 7 000 houses on Thika Super Highway and Mombasa Road at a cost of US$22 400.

The National Environmental Management Authority (NEMA) has been actively involved in the vetting and supervising of housing projects that have an impact on the environment to ensure a clean and healthy environment for all. Apart from NEMA’s enforcement of environmental rules, many developers are increasingly more conscious about green buildings. Although such buildings have a cost implication for the end-user, developers are putting up buildings that make provision for the future installation of cost-saving systems such as solar, water harvesting and recycling plants.

Building material costs are from US$7.71 – 8.00, depending on the location, reaching up to US$9.00 in the west, while 30 gauge (0.25mm) iron sheeting is KES 300 (US$ 3.35) per metre.


Property markets

According to Knight Frank, which reports on the high end residential market, a lethargic prime residential market has resulted in developers shifting focus to smaller residential apartments. It has recorded a notable reduction in activity in the second quarter of 2014, after a historic high in the first. Further, according to the report, developers in the Nairobi prime apartment market are shifting focus from three and four bedroom apartments to smaller units such as studio, one and two bedroom apartments, due to oversupply in the former.

In the last few years, the government has invested heavily in the development and expansion of infrastructure countrywide, and this has incentivised many investors in real estate who will require financing for various real estate projects. The infrastructure outlay however is still inadequate given the massive backlogs.

Since the gazetting of Reits Regulations in 2013, five REITS managers have been licensed. A major challenge to launching the instruments at the Nairobi Securities Exchange, however, has been the scarcity of land and high property prices.

Access to land has always been an issue in Kenya and land ownership patterns in cities are highly skewed. In most large cities, less than 10 percent of people actually own the land they live on. Some 10 percent of slums are located on uncontested public land, 40 percent on riparian and utility reserves and the remaining 50 percent on private land that was previously public property. According to UN-Habitat, 57 percent of structures in slums globally are owned by ministers, civil servants, government officials or politically connected businessmen, who are the main beneficiaries of the continued existence of slums. Slum dwellers in Nairobi have sought and in some instances succeeded in buying the land they occupied.


Policy and regulation

Housing is recognised as a basic right in the Constitution. The introduction of the Housing Bill was to see the creation of the Kenya Housing Authority, mandated to monitor and evaluate the housing sector, conduct research on housing and also drive certain aspects of social housing in Kenya. The state announced that through the Housing Bill, the government would be more involved in housing by allocating five percent of the annual budget to housing and infrastructure development. A National Housing Development Fund is also expected, with an allocation of about Ksh10 billion (US$114 million) annually. It is planned to raise funds from the capital markets through housing bonds. The Bill provides for a Guaranteed Mortgage Scheme that would protect lenders against risks in housing and make lending more attractive. The Bill also recognises new building technologies which are cheaper and therefore more affordable to a larger proportion of the population. Progress on the Bill has been slow however, and it is yet to be finalised.

The adoption of a National Land Policy in 2009, as well as the new Constitution in 2010, was a positive step towards resolving the protracted question of the reliability, accuracy and legitimacy of the land administration system in the country. The National Land Commission was created with a range of functions including advising the national government on a comprehensive programme for the registration of land titles throughout Kenya, management of public land, implementing settlement programmes, developing an effective land information system, and managing a land compensation fund. The progress of the commission has been slow however with much political bickering, and many reforms to Kenya’s land sector remain to be implemented. It also remains to be seen if there will be greater consideration to more equitable sharing of the land resource and allowing greater access to lower income earners and the poor.

The process of harmonisation and creating transparency and accountability in land transactions began with the introduction of the Land Registration Act and the Land Act. To create greater affordability, the stamp duty on property purchases was cut from 25 percent to five percent of the principal amount, and the tax on mortgages was reduced to 0.1 percent from 0.2 percent. To encourage greater supply, developments of more than 20 low-cost units are exempt from VAT.

Housing was explicitly addressed in the 2013 election manifesto of the Jubilee Coalition, which rose to power after the March 2013 elections. Special attention was given to affordability for first time home buyers, with promises that the party will pursue the lowering of mortgage rates. The most innovative commitment was to provide microfinancing loans for new home construction to low income Kenyans. Further, the manifesto commits government to encouraging the establishment of local housing co-operatives and savings unions to give all Kenyans better access to credit. Progress in these areas has been slow however.

The World Bank’s 2014 Doing Business Report ranked Kenya 163rd out of 189 countries on the ‘ease of registering a property’ indicator, a decline of six places since 2012. In 2014, it took about 73 days and costs about 4.6 percent of the total property value to go through the nine procedures involved in registering a property, .



According to the World Bank’s 2014 Doing Business Rport, Kenya ranks 129th out of 185 countries for ease of doing business, down eight places from 2013. The country has been on a decline for the last three years. While it is relatively well ranked in dealing with construction permits (47th) is does less well in getting electricity (166th), registering property (163rd ) and enforcing contracts (151st). Kenya’s rapid urbanisation, demographics and the under-supply of housing points to a consistent need for middle and low cost housing in the range of US$10 000 to US$40 000, where demand is highest and supply least. Research published in 2012 by the World Bank estimates the potential size of the mortgage market to be about Ksh800 billion (about US$9.9 billion) – that is about 13 times its current size. The report identifies a number of obstacles to growth in this area, however, including affordability constraints, limited capacity for effective risk management, limited availability of long-term funds for mortgage lending and insufficient housing supply.

Housing microfinance is a critical niche, given the housing finance needs of lower and informal income groups, which make up the majority of the population. More and more commercial providers are entering the market, in recognition of the demand as well as the short supply of affordable, formally delivered housing. This niche market has room for even more growth.



Central Bank of Kenya (2013). Bank Supervision Annual Report 2013.

Central Bank of Kenya (2014). Monthly Economic Review, March 2014 .

Demirguc-Kunt, A. and Klapper, L. (2012). Measuring Financial Inclusion: The Global Findex. World Bank Policy Research WP 6025.

FSD Kenya (2013) FinAccess 2013. Available from Accessed on 05 October 2014.

Harmonized Jubilee Coalition Manifesto (2013). Available from Accessed on 05 October 2014.

Habitat for Humanity (2013) Mapping of the Housing Value Chain in Kenya.

Hass Property Index (2013). Fourth Quarter.

Kantai, C. et al (2013). Recent Information and Developments on the Housing Finance Sector in Kenya. Unpublished note prepared as input to the 2013 Housing Finance in Africa Yearbook.

Knight Frank (2014). Kenya Market Update Quarter 2, 2014.

Mutero, J. (2007). Access to Housing Finance in Africa: Exploring the Issues (No. 3) Kenya. Paper commissioned by the FinMark Trust with support from Habitat for Humanity.

Ndungu’u, N. (2011). Mortgage Finance for Increased Access to Housing. Presentation by Shelter Afrique.

Shelter Afrique (2014). Our adventure in housing microfinance, presentation at the Lafarge/IFC housing microfinance academy July 2014 Nairobi.

Walley, S. (2011). Developing Kenya’s Mortgage Market. World Bank.

World Bank (2014). Doing Business Report 2014: Kenya.




[1] This includes commercial banks, Deposit Taking Microfinance Institutions and SACCOs, forex bureaus, capital markets, insurance providers etc

[2] This includes Mobile Phone Financial Service Provider (MPFSPs), Postbank, National Social and Security Fund, National Hospital Insurance Fund.

[3] Credit only MFIs and SACCOs, Hire Purchase Companies and the Government of Kenya.


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