On 14th September 2020, the Cabinet Secretary, National Treasury and Planning made the retirement benefits (Mortgage Loans) (Amendments) Regulations, 2020. The regulations made in line with the housing pillar in the big four agenda allow pension scheme members to access up to forty percent of their savings as a mortgage loan.
Using retirement savings for mortgage purposes is not quite novel in Kenya. Mortgage Laws Regulations 2009 provided for the use of 60% of the member’s accrued benefit as a guarantee to secure a home mortgage. The 2009 regulations made no impact to the housing sector, little wonder they are being amended. We expect the new regulations to bring good tidings to the housing sector but the entire concept of mortgage needs closer scrutiny.
The housing shortage in this country is a matter of dire concern. Reuters news agency in May 2019 reported that there was an estimated 200,000 annual housing shortfall expected to rise to 300,000 by 2020. One would expect this shortfall to make the mortgage industry quite vibrant. However, that does not seem to be quite the case. The Central Bank of Kenya (CBK) reports that there were only 26,187 active mortgage loans by December 2017.
Housing PS Charles Hinga indicates that 18,000 of these mortgages are on concessional rates to employees of banks, corporations, or the government. The most generous tax concession of up to Sh. 25,000 per month on mortgage interest has not made things any better. We need to pause for a moment and ask ourselves why mortgage loans are not resonating well with Kenyans.
To answer this question, we need to ask ourselves what the alternative to mortgages is and what Kenyan homeowners prefer. In the first place, what is the problem with mortgaging a home? I opine that even if mortgage facilities were interest-free, still few people would go for them.
Mortgage conditions require buying an already constructed unit at a grossly inflated price and that’s where the problem is. Because of the exorbitant prices charged on the purchase of homes, the preferred alternative is constructing one. The mushrooming estates evidence this in urban areas interspersed with elegant maisonettes and bungalows. This trend extends even to rural areas; home construction is booming and none of these units are constructed for sale.
So as a country, what would we rather do, incentivize what doesn’t work hoping it would work, or perfect what is already working? I submit that incentives for home construction are the answer to the housing shortage and everyone who is sincere should see it that way. Construction materials are obviously expensive due to taxes. Giving a tax break at least for some years would help bridge the housing gap. We may lose the taxes but the home construction model creates so many jobs for the youth.
The second incentive needs a thought outside the box of mortgage loans. Construction loans are much preferred. The incentives available to mortgagers should be extended to construction loans. The fact that Kenyans shy away from mortgages does not mean that they abhor loans altogether. Moody’s report of April 2020 indicates that as at June 2019, a quarter of all loans given by Kenyan banks were personal loans. Bear in mind that personal loans are not attached to any asset as it is with mortgages. Personal loans are secured against future salaries and in some cases pension benefits. The thought of giving employees loans to construct houses is a brainer, it has been happening. Employers and financial institutions need to re-engineer this thought.
In the spirit of inclusivity, we need to realize that the mortgage concept works within the Nairobi metropolis and a few major towns. Even if mortgage loans were very attractive, where would a school teacher based in Wiyumiririe Laikipia buy a house or a community worker in Pap Onditi Kisumu? The devolution idea is to take Nairobi out of Nairobi and part of it is to encourage people to live a decent life in decent structures across the country. Incentives covering the cost of construction materials and access to credit will go a long way in fixing housing challenges in the city and in the countryside