Ministry mulls Sh5b Kenya housing bond

June 23, 2010

, NAIROBI, Kenya, Jun 23 – The Ministry of Housing is mulling plans to float a Sh5 billion bond to finance property development in the country.

The move comes barely a month after Central Bank of Kenya (CBK) Governor Prof Njuguna Ndung\’u called on mortgage lenders to float bonds to meet the rising demand for houses.

This move, he argued, would ensure that the market has enough liquidity to lend developers willing to engage in housing projects at affordable costs.

Speaking during a housing financing workshop on Wednesday, Housing Permanent Secretary Tirop Kosgey said the ministry was working closely with CBK and the government to put in place guarantees around the bond that would make it attractive to the market.

The National Housing Corporation (NHC) will float the bond after a botched attempt in 2005 owing to the corporation’s high-risk rating.

Mr Kosgey said the ministry was considering offering government guarantees to sweeten the pot and make it more attractive in the market.

“These things are driven by market forces and what we want to do is float it at a competitive market price,” he said.

The CBK governor pointed out that lending by financial institutions to the building and construction sector was still low, registering Sh92.5 billion of the total credit in 2009.

He said a vibrant financial sector was one that supported long-term financing options and challenged banks to come up with more innovative products that support it.

“It is a well known fact that construction booms are known to pull the economy forward,” Prof Ndung\’u said.

It is believed 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.

Mr Kosgey revealed that the ministry was also toying with the idea of introducing pension-backed construction for homes, a move he believes would release more funds into the housing sector rather than using it to finance mortgages.

Discussions are currently at an advanced stage – working closely with Treasury – and the CBK to amend the current Retirement Benefits Act to allow the plan to be introduced in the market.

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