In its annual Bank Supervisory Report, CBK describes the structure of the Kenyan banking sector as of 31 December 2015 as having comprised of 43 banking institutions (42 commercial banks and one mortgage finance company), eight representative offices of foreign banks, 12 microfinance banks (MFBs), three credit reference bureaus (CRBs), 15 money remittance providers (MRPs) and 80 foreign exchange (forex) bureaus. Out of the 43 banking institutions, 40 are privately owned, while the Kenyan government had majority ownership in three institutions. CBK also reports that the total net assets in the banking sector stood at Ksh 3.694 trillion (US$ 36.4 billion) as at 31 August 2016.

The Central Bank Rate (CBR), the lowest interest rate charged on loans to banks by the Central Bank, decreased by 50 basis points in September 2016 to 10 percent, down from a high of 11.5 percent in July 2015. The 91-day Treasury bill rate was 7.69 percent on 24 October 2016, lower than the 9.81 percent it was in December 2015. The interbank lending rate spiked in June 2015 to 11.78 percent, from 6.91 percent in December 2014, before dropping to its current rate of 4.39 percent. Commercial banks loans and advances lending interest rates rose to 18.10 percent in July 2016, from 17.45 percent in December 2015.

On financial inclusion and innovation, CBK reports that the number of bank branches increased by 80, to 1 523, between 2014 and 2015. Similarly, customer deposits increased by 8.73 percent from Ksh 2.29 trillion (US$ 22.5 billion) in December 2014 to Ksh 2.49 trillion (US$ 24.5 billion) in December 2015. CBK has financial inclusion as one of its key focuses, and has increased the number of microfinance banks by issuing licences to Daraja Microfinance Bank Ltd and Choice Microfinance Bank Ltd, and a nationwide licence to Caritas Microfinance Bank Limited.

Specific to housing finance, CBK, once again, undertook a survey on the development of the mortgage market for residential housing in Kenya. From this survey, it was revealed that the value of mortgage loan assets outstanding increased from Ksh 164.0 billion (US$ 1.6 billion) in December 2014 to Ksh 203.3 billion (US$ 2 billion) in December 2015, representing a growth of Ksh 39.3 billion (US$ 386.9 million) or 23 percent. It was also revealed that non-performing loans (NPLs) for mortgages increased from Ksh 10.8 billion (US$ 106.3 million) in December 2014 to Ksh 11.7 billion (US$ 115.2 million) in December 2015. The NPL rate to gross mortgage loans was 5.8 percent, which was below the industry non-performing loans to gross loans ratio of 7 percent.

The survey also showed that there were 24 458 mortgage loans in the market in December 2015, up from 22 013 in December 2014—an increase of 2 445 loan accounts, or 11.1 percent, due to increased demand from the expanding middle class. At the same time, the average mortgage loan size increased from Ksh 7.5 million (US$ 73 841) in 2014 to Ksh 8.3 million (US$ 81 717) in 2015 due to increased property prices. Despite this growth, the number of institutions offering mortgages dropped from 37 in 2015 to 34 in 2016. The decline in the number of commercial banks offering mortgage loans is attributable to the liquidation of the Dubai Bank and placement of the Imperial Bank Limited and the Chase Bank Limited in receivership.

The interest rate charged in 2015 on mortgages, on average, was 17.1 percent and ranged between 11.9 percent and 23 percent as compared to 15.8 percent average in 2014.  The majority of mortgage loans (89.3 percent) were on a variable interest rates basis in 2015, slightly down from the 2014 figure of 92.5 percent. Interestingly, the loan to value was still being pegged below 90 percent by the majority of the banks in 2015 and 2014 but the average loan maturity was 9.6 years in 20, compared to 10.6 years in 2014. Finally, the survey showed that the high cost of houses, high interest rates on mortgages, low levels of income and difficulties with property registration and titling remain the major inhibiting factors to the growth of the Kenyan mortgage market.

Cooperative movements remain important stakeholders with regards to supporting the mortgage market. The National Cooperative Housing Union (NACHU), an apex organisation made of registered primary housing cooperatives, works to provide affordable and decent housing to Kenyans within the low and modest income communities. NACHU has more than 800 housing cooperatives in eight regions of Kenya and has become a leading organisation in the provision of housing microfinance, capacity building and technical services. NACHU has supported various community housing and real estate projects. Currently running projects include the Alfa Mwanda Housing Project in Nakuru (33 units), Faith Foundation Housing Project in Nairobi (52 units), Kabiria Housing Project in Nairobi (37 units), Mutindwa/Good Neighbours Housing Project (39 units), Ngumo Mbega Housing Project (20 units) and the Royal Housing Project (50 units).

On 24 August 2016, President Uhuru Kenyatta surprised many by signing into law an amendment to the Banking Act. The amendment, which was passed by parliament, stipulates that the maximum interest rate a bank can charge on loans is four percent above CBR, while banks have to offer a minimum of 70 percent of the CBR on deposits. With commercial banks loans and advances lending interest rates at 18.1 percent, with the average mortgage being offered at 17.1 percent, and with the option to invest in treasury bills, it is likely that lending to the market, including lending for housing, will decrease. With a 15.5 percent equivalent yield on a tax-free 15-year infrastructure bond issued by the government, Cytonn Investments state that ‘it is hard to see why a banking institution would lend to an individual at 14 percent as opposed to the government at 15.5 percent.’

Kenya ranks 92 out of 189 countries in terms of the ease of doing business according to Doing Business. The significant improvement from 2015, where Kenya ranked 113, and 2014, where it ranked 136. The improved ranking from last year is due to better protection for minority investors, making it easier to register a business and making insolvency easier. Kenya ranks 121 in terms of the ease of registering property, an improvement from the ranking of 122 last year. Obtaining construction permits involves 17 procedures, takes 160 days and costs 6.3 percent of the property value.

Inflation remains around six percent, credit as a percentage of GDP increased slightly from 34.42 to 34.89 percent, while cost of a 50 kilogram bag of cement decreased from US$ 7.6 to US$ 7.29 in 2016. Average mortgages as a percentage of GDP stands at 2.63 percent, while the number of mortgages has increased to 24 458. The average mortgage size is high, at US$ 81 717, showing that mortgage lenders continue to favour the higher end of the market. The price of the cheapest newly built house recorded by CAHF has decreased, from US$ 17 000 last year to US$ 15 753 this year.

For the majority of Kenyans, mortgage finance is not an option due to limited affordability and Kenya’s still limited mortgage sector. Using C-GIDD (Canback Global Income Distribution) 2015 income data for Kenya and 2016 CAHF survey input, we have explored housing affordability. The number of rural and urban households is illustrated per income bracket, defined below. Additionally, the graph provides the national average annual urban household income in 2015 (in constant 2005 US Dollars) and the average annual household income needed to afford the cheapest newly built house in 2016 (also calculated in constant 2005 US Dollars, for comparative purposes), built by a developer. This was calculated by CAHF and is a rough estimate, based on a number of assumptions. 

The most notable recent changes in policy in Kenya are the interest rate cap and the lower tax rate for developers of 400 residential units or more. Other significant developments concern land: The National Land Commission (NLC), an independent body created by the 2010 Constitution, is responsible for administration of land, along with the Ministry of Land, Housing and Urban Development.

The NLC, which was formed in 2012, has a range of functions including advising the national government on a comprehensive programme for the registration of land titles, management of public land, implementing settlement programmes, developing an effective land information system and managing a land compensation fund. Another important function of NLC will be the allocation of public land. The allocation of public land to private individuals has been a concern for many Kenyans for a long time, as it was within the control of public officers at the Ministry of Lands, who were likely susceptible to influence by the executive arm of the government.

The Ministry, addressing laws that resulted in a complex land management and administration system, fragmentation and breakdown in land administration, disparities in land ownership and poverty, embarked on the reformulation of several land laws in line with the 2010 constitution. The resultant new laws include the National Land Commission Act of 2012, the Land Registration Act of 2012 and the Land Act of 2012. The Indian Transfer of Property Act, the Government Lands Act, the Registration of Titles Act, the Land Titles Act, the Registered Land Act, the Wayleaves Act and the Land Acquisition Act were all repealed; the Land Control Act, the Landlord and Tenant (Hotels, Shops and Catering Establishments) Act, the Sectional Properties Act and the Distress for Rent Act were, however, retained.
 

Visit our Kenya page to access blogs, documents and other useful publications on the housing finance system in Kenya.

Key CAHF resources include:

• Housing Finance in Africa Yearbook 2016 – Each year, CAHF publishes its Housing Finance in Africa Yearbook. The 2016 edition has an up-to-date profile for Kenya and the East African Community.
• The Transformation of the Housing Finance Company of Kenya – The Housing Finance Group (previously Housing Finance Kenya) underwent a remarkable transformation, from what was once a state-owned mortgage bank in Kenya with a non-performing loan rate of over fifty percent to a fully privatised, commercial bank whose success enables it to offer bonds on the open market. This case study looks at how Housing Finance found new anchor shareholders, entered new markets through diversification, and sourced additional financing through the issuing of rights and corporate bonds. 
• HOFINET Survey Kenya – The Housing Information Network (HOFINET) survey for Kenya covers general macro-economic data, and data on housing finance systems and housing policy. It is freely available to download.
• News on Housing and Housing Finance in Kenya – CAHF maintains an up-to-date list of all relevant news on its website, covering Kenya and all other African countries.

Other useful resources include:

• African Development Bank – The aim of the African Development Bank (AfDB) Group is to spur sustainable economic development and social progress in its regional member countries (RMCs), thus contributing to poverty reduction. In order to achieve this, the Bank mobilizes and allocates resources for investment in RMCs and provides policy advice and technical assistance to support development efforts.
• BuildingKE – A blog that offers interesting insights on a range of topics affecting the Kenyan real estate market.
• Cytonn Investments – An investments and real estate company that publishes a weekly newsletter that offers a comprehensive overview of the Kenyan financial sector and property markets.
• Doing Business – Doing Business is a World Bank publication on quantitative indicators on business regulations and the protection of property rights that can be compared across 189 economies over time.
• FSD Kenya – An independent trust, part of  the FSD Africa network, with the objective to increase the use of a broad range of quality financial services provided by a stable and competitive financial system in a way that benefits the livelihoods of under-served lower income groups in Kenya.
• HassConsult – A real estate consultancy established in 1992, HassConsult tracks asking prices of properties with the Hass Property Index.
• Kenyan Bankers Association Housing Price Index – Established in 2015, this quarterly publication tracks housing housing prices using the Laspeyers index method.
• Kenya Property Developers Association (KPDA) – A representative body of the residential, commercial and industrial property development sector in Kenya. KPDA has a weekly newsletter covering developments in the sector, and regularly hosts events for stakeholders.
• Making Finance Work for Africa – The Making Finance Work for Africa Partnership is an initiative to support the development of African financial sectors. 
• NACHU – An apex organisation made of registered primary housing cooperatives, which works to provide affordable and decent housing to Kenyans within the low and modest income communities.
• Mix Market – A data hub where microfinance institutions (MFIs) and supporting organisations share institutional data to broaden transparency and market insight.
• World Bank – Provides data and research on a country basis.