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Mortgage financing on the rise in Kenya

NAIROBI, Kenya, Nov 12 – Mortgage financing in the country is on the rise according to a joint Central Bank of Kenya (CBK) and World Bank report that indicates Kenya’s mortgage finance market has more than tripled in the last five years, from Sh19 billion in 2006 to Sh61 billion in 2010.

The report reveals that the number of mortgages in the banking sector grew from 7,834 to 13,803 over the same period demonstrating great potential in the sector.

Releasing the report, CBK Governor Njuguna Ndung’u said the survey report was being used as a baseline study of the current state of Kenya’s loan market for residential housing with a view to assessing the size and obstacles to the development of the mortgage finance market.

It also seeks to identify and track the primary mortgage finance market, housing supply and demand constraints and the potential for a secondary mortgage finance market.

Prof Ndung’u however pointed out that in terms of mortgage debt to GDP ratios, Kenya’s share is low by international standards at 2.5 percent compared with India at six percent, Colombia seven percent and South Africa at 33 percent, but ahead of the other East African Community countries.

With regard to the mortgage portfolio quality, the survey indicates that non-performing loans have been declining over time, which may be attributed to prudent mortgage evaluation by commercial banks.

The weighted mortgage interest rate reported by institutions in the survey stood at 14 percent that compares favorably to the banking sector average lending rate of 14.6 percent.

The survey identified access to long-term funds, low levels of income, credit risk (absence of historical information), high interest rates and difficulties with property registration as the major constraints to the mortgage market in Kenya.

On the constraints to the mortgage market, the Governor noted that institutions have started issuing corporate/housing bonds as one way of mobilising long-term resources to correspond with the long-term nature of mortgages.

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In addition, the roll-out of the credit information sharing mechanism in July 2010 will enable banks to enhance their credit risk management processes.

The CBK remains committed to working with the Government and market players to create an enabling environment for the banking sector to play its’ mandate of financing the country’s development aspirations.

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