Kenya Bankers Association chief executive Habil Olaka during a media briefing. [photo/standardmedia.co.ke]Real estate development has been impacted negatively a year after a law to regulate interest rates charged by banks came into force.
And a bankers’ lobby group wants the law repealed as the real estate sector has been hurt just like the wider economy as access to mortgage has remained subdued. “A blanket capping for all products is not a good thing. A mortgage is a long-term investment.
The restriction has affected real estate,” says Kenya Bankers Association (KBA) CEO, Habil Olaka. The Banking (Amendment) Act, 2016 came into force on September 14, last year. It caps loan charges at four percentage points above the Central Bank Rate (CBR), presently standing at 10 percent.
It also required banks to pay 70 percent of the CBR as interest on savings.
The head of Mortgage Business at KCB Bank, Caroline Wanjeri Kihara, says a major impediment to mortgage qualification arises from the lack of affordable housing. “Incomes in Kenya average about Sh40,000 per month.
For one to qualify for any kind of mortgage, we need to supply houses that will retail in the market at between Sh1 to Sh2 million for us to meet the affordability criteria,” she says.
Low-income levels, the high cost of land and interest rates also contribute to the low mortgage uptake. There are also competing financing avenues such as saccos, housing co-operatives and personal loans that find their way into housing development yet they are not recognized as formal mortgages.
Worse, says Kihara, the Banking Amendment Act 2016 that resulted in the capping of interest rates has made long-term lending less attractive for financiers. “Small and Medium-term Enterprises are now being starved of cash on account of risk profiling diminishing the potential mortgage market,” she says.