As we engage in research on the developments in the property market, we collect useful information. We here highlight some of these as featured articles.  

 

president-signs-interest-bill

 

From 1906 to 1992, interest rates in the Kenyan Banking Sector were effectively capped by market forces and banks thrived while making reasonable profits. From 1993, banks increasingly collaborated on setting interest rates, and the sector began registering exceptionally high profits, from average interest rate spreads of 11.4% compared to the world average of 6.6% .

In the past weeks there has been heated debate over the assent by President Uhuru Kenyatta of the new Amendment of the Banking Act. The Amendment of the Banking Act puts a cap on the lending rates at 4% above the Central Bank Rate (CBR) and a floor on deposit rates at 70% of the CBR.
This news was received with jubilation by many Kenyans, who see it as opening the doors for access to affordable credit from the Kenyan Commercial Banks. For the banking sector stakeholders it was not the greatest news, as it will inevitably translate into lower earnings or profitability for the remaining half year and possibly into the future.

One of the key drivers in the real estate sector is access to reasonably priced construction financing and mortgage facilities.

Risk is mitigated by the fact that the lender holds a legal charge on the subject property during facility amortization, and repayment ability is based on income accounts. Further, earning or employment history, credit score information, guarantors or employers’ commitment to remit dues, mortgage and life insurance covers are taken up to ensure seamless loan repayment. Despite security near perfection in the property market, the banks have been receiving almost double the principal during the term of the facility. For this reason, home ownership remains a dream for many Kenyans.

Saccos have taken up some of the mortgage/home ownership financing space, with some aggressively developing housing scheme projects where their clients are able to own homes and land at reasonable lending rates normally pegged at 12% per annum. The new bank rates will bring them closer to the Sacco lending rates, but are not likely to derail Sacco competitiveness and growth.

It remains to be seen how exactly Banks will respond in totality. There is the possibility that citing the new developments they may levy additional fees on non-funded income transactions in the short term, so as to sustain their quarterly budgets and profit plans.

There are also fears that smaller developers and mortgage customers, and small and medium-sized businesses in general, may have reduced access to credit, as banks may shift from traditional markets to lending to corporates and individuals of high net worth only. But are there really enough of these to sustain the entire commercial banking sector?

Over the medium to longer term, most Kenyans would hope that many banks will adjust their commercial models towards a lower margin higher volumes framework.

Although outcomes from around the world have been mixed, many Kenyans including those of us in the real estate sector, remain hopeful that the naysayers will not carry the day on this one.

As we brace ourselves for the economic downturn that inevitably accompanies the election cycle, we trust that Kenyas capping of interest rates will indeed bring the much awaited relief to many businesses and individual investors and entrepreneurs, and ignite a healthier, more sustainable growth trend in the real estate sector and the country’s economy as a whole.

Sources

  • The Business Daily
  • Kenya Bankers Association Journals
  • Institute of Certified Public Accountants of Kenya(ICPAK)Journals

We welcome your feedback on this article. Please send it to info@realtyplus.co.ke

 

 

Most of the adult population which accounts for nearly 56% of the entire Kenyan population dream of home ownership. The Kenyan middle class (income ranging from kshs.23,670 to kshs.199, 999  per month) is estimated to host 45% of the country’s population. Statistics from  the National Housing Corporation of Kenya show a housing deficit of 200,000 units per year. Yet despite the foregoing the uptake of mortgages and construction financing, which would facilitate the home ownership dream for the majority, remains highly constrained by the high interest rates levied by Kenyan Commercial Banks.
CBK

The banking sector has realized tremendous growth since the early 80s, with different financiers playing an active role in long term credit advancement through mortgages. However the middle class has been largely marginalised from the property finance sector of this growth. Infact lower tier financiers such as SACCOs and CHAMAs appear to be doing far better than the formal banking sector in this area. We aim to look into that in a subsequent article.In this article we present a ranking of mortgage interest rates charged by a sample of 10 of Kenya`s mainstream commercial banks in April 2016 on house purchase and commercial construction mortgages.

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Kenya Revenue Authority (KRA) revised the rental income tax for landlords of residential property. The revised taxation regime was effective from  in January 2016. All 2014 and 2015 rental income tax will therefore follow the previous graduated rate system.

The previous graduated rate system, introduced in 2013 calculated tax on the net rental income received per year, after deduction of “allowable expenses” related to maintenance of the property.

KRA-Times-Tower
However, most landlords declaring their rental income for 2014 were not able to determine or claim how much precisely they spent on allowable expenses incurred on maintenance during the year, due to a lack of sufficient documentation. This is what triggered the revision ;to provide an easier system of calculating tax owed by allowing landlords to be taxed a percentage on the gross rental income as opposed to the net income.

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In the real estate game, when we are talking rental properties, one of the most important things that will help you earn more money is long term tenants. The longer the tenant stays, the lower the number of unit turnovers you will have. Turnovers cost money! So as owners, we should do everything possible to keep our tenants – and yes, occasionally there is a bad one we might unfortunately have to “fire” and let vacate! So, let’s talk about a few ways to help the cause!

nairobi-skyline

The Nairobi Skyline.

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