CBK pushes for housing bonds in Kenya

June 2, 2010

, NAIROBI, Kenya, Jun 2 – Mortgage financiers have been challenged to consider issuing a housing bond to finance long term investments in the sector.

Central Bank of Kenya (CBK) Governor Prof Njuguna Ndung’u said mortgage financing is a capital intensive venture and therefore lenders cannot continue to rely on short term deposits alone.

Instead, he said, they should seek to take advantage of the vibrant bond market or utilise the pension funds in order to increase the supply of affordable housing to potential homeowners.

“As Central Bank, we are willing to help because if you have a company that has a strong balance sheet, it means that you can raise your own bond and perhaps target a housing project,” he said.

Citing the successful infrastructure bonds that have been issued in the recent past, Prof Ndung’u reiterated that the secondary market had come of age and was a cheap avenue to raise medium and long term funds to finance development projects.

“The signal that we are also seeing in the market is that once we have some of these corporates with strong balance sheet, the pricing of the interest rates also comes down,” he said.

The Governor regretted that despite recording tremendous growth in the last few years, lending to the building and construction sector was still low, registering Sh92.5 billion or 12.2 percent of the total credit as the end of 2009.

He said this possibly stemmed from the fact that the mortgage market is underdeveloped having only one core mortgage lender in the country, which called for the need to urgently address the constraints that face the property sector.

However, he assured that the government would continue to facilitate the formulation of proper legislations for expanding finance in this industry in order to bridge the housing deficit in the country.

The operationalisation of credit information sharing, he pointed out was one such way that would enable lenders to share data on their customers which will be used to determine their creditworthiness. This would enable the financiers to limit the number of serial defaulters who borrow money with no intention of repaying and thus reduce their non-performing loans portfolio.

Prof Ndung’u spoke during the handover of Waterfront Gardens Estate to Housing Finance where Managing Director Frank Ireri said industry players are looking forward to the enactment of the long awaited Housing Bill which will soon be presented to the cabinet for approval.

Once it comes into force, the Bill which has taken nearly four years to formulate, will see the establishment of the Kenya Housing Authority whose mandate will among other things be to uphold housing procedures and maintain a data bank on housing developments in the country.

While they await this law, Mr Ireri reiterated the need to address the high cost of inputs which translates into high mortgage rates for the end users. The lack of trunk infrastructure was also touted as a major factor that increases the total project costs by about 12 percent and thus called on the government to urgently ensure the provision of such facilities.

He said the government could also consider having local authorities reimburse developers who meet the cost of putting up this infrastructure which would mean lower mortgage pricing for homeowners.

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