Low-cost housing in Kenya

June 13, 2015

A recently published study on low cost housing in Kenya revealed that property developers are increasingly targeting the middle and upper class property segment and are abandoning cheap homes that remain marred by bureaucratic hurdles and low profit margins.According to the report, rising purchasing power, low interest rates and moderate inflation has encouraged people to buy housing in the range of Kshs5million to Kshs10 million ($55,000 to $101,000) a unit as opposed to low cost housing that has a subsidized price of less than Kshs 5million.An expert in Real Estate Kenya, said that developers started to switch to middle-class home projects last January, when most banks opted out of financing liquidity facility loans on houses smaller than 30 square meters.Because of that problem, low-cost housing developers have switched to middle-class housing, Apparently, the medium class was sold out.I wondered why they need to sell cheap houses.Limited supply in small-plotted homes has also driven up the price in that segment. The price of small houses rose by an average 5 percent in the first quarter compared to a quarter earlier, according to a survey by the central bank of Kenya. That was almost double the average increase of 3.9 percent for all homes.

The central bank of Kenya defines a small house as one with an area of 30 square meters or less, while medium types have areas of between 30 square meters to 65 square meters. A home at more than 65 square meters is classified as a large house.However, those definition varies depending on the area houses are constructed or are to be constructed.In Mombasa, a coastal town, a small house is the one with 36 square meters or less, medium is 36 to 70 squares meters and over 70 square meters is considered to be a large house.Home prices increase due to rising prices of building materials, the increase in the wages of workers, as well as the still-high cost of acquiring building permits,” the central bank of Kenya said in its survey.According to the expert, the Kenyan government should maintain consistency in its policy regarding homes for the low-income population. He noted that coordination between government institutions is still lacking, leaving developers confused about overlapping authorities and complicated permits especially in Nairobi and Mombasa counties.

If regulation stops, government should not blame the developers if they are reluctant to supply small houses.He did however told me that developers remain focused on developing low-cost housing. There are developers that switched to a commercial house because of the better margins. But there is still a lot of subsidized housing development, particularly in the Greater Nairobi area.Supply of low-cost housing in the first quarter of this year was low, because many were still under construction and were slightly delayed due to the rainy season.Additionally, developers were still coping with new regulations that required them to divide their plot of land into individual certificates before selling the house on that piece of land. Developers in Nairobi used that delay in the process to keep home prices low.Price will remain the stable for Nakuru, Eldoret, Kisumu while outside those in Nairobi, Kiambu, Kajiado, Machakos, Mombasa, Kilifi, Malindi and Lamu regions, prices will go up.Even if electricity and fuel price hikes push up the cost of building materials, Kenyan property developers can keep the price stable with a smaller acreage areas.

Contador Harrison