After many years of waiting, property developers have begun to shift their attention to the lower segment of the market which they previously viewed as unprofitable and unsustainable.
In the wake of growing criticism, and as the higher end of the housing sector becomes saturated, many firms are now rolling out low-cost housing plans targeting those who earn less than Sh30,000 a month.
And that is reason to celebrate for many because, faced with an acute housing shortage due to the high cost of land, high interest rates, and the complicated process of acquiring housing plans, the low-income bracket has been largely circumvented by the property boom of the past decade.
Now developers and financiers are putting up housing units that cost as low as Sh1 million for a 50 square metre two-bedroom house.
According to The Mortgage Companyâ€™s managing director, Ms Carol Kariuki, the attention on the bottom end of the market is a natural shift by property developers to generate new sources of revenue.
â€œThe next market is the lower end of the pyramid,â€ says Ms Kariuki. â€œThat is where most people who donâ€™t own homes are, and many of these developers have realised that there is money in the numbers.â€
For one to get a Sh5 million mortgage at the prevailing interest rates, they must earn at least Sh100,000 a month, and much more if they expect to live comfortably as they repay the loan.
Needless to say, most of Kenyaâ€™s working class, the primary target of the mortgage business, can hardly qualify for such loans. And this is where low-end products come in.
Designed to be as rudimentary as possible, they are proving to be a hit within the low-income circles.
The Mortgage Company, for instance, has designed a product that could see people own houses for as low as Sh990,000 within â€œa very short timeâ€.
The company says loan approvals are done within seven days if all the requirements are in place.
According to Housing Finance managing director Frank Ireri, different financiers and developers have different strategies on the approach to the property market, one of which is based on competition.
â€œEverybody has a strategy. Our supply strategy is aimed at ensuring that there are adequate houses in the market which the Kenyan populace can afford,â€ says Mr Ireri.
On the other hand, Ms Claire Anami, the Urbanis Africa general manager for the Kisaju low-cost housing project, says the bottom end of the market is becoming more attractive for developers and the only way to go about it is to make do with small profit margins and capitalise on volumes and use of low-cost materials.
â€œMany people in this group would want to own houses but the barriers to entry are very many, including high cost of land, high interest rates, and the tendency by many financiers and developers to shun them,â€ Ms Anami said.
Last year, Jamii Bora Makao, managed by Urbanis Africa, rolled out a number of low-cost housing projects in Kisaju on the outskirts of the city.
In the first phase of the project, the firm set out to construct 950 housing units targeting low-income earners, with the units going for as low as Sh1.5 million for a two-bedroom house.
In the second phase, rolled out in the last quarter of 2012, the company broke ground for an additional 1,250 low-cost housing units in Isinya, Kajiado.
The units to be built in the second phase would comprise of three and four bedroom houses going for Sh2.5 million and Sh5.4 million respectively.
And last week, Urbanis Africa unveiled another low-cost housing project to be developed on a 115-acre piece of land in Kisaju plains, about 55 kilometres from Nairobi.
Mr Ireri says the supply of affordable housing for low and middle-income households in the country has not risen fast enough to meet the current demand.
Economic growth, an increasing urban population, and swelling rural-urban migration have compounded the pressure on existing infrastructure and increased the demand for houses.
Housing supply is currently hindered by unavailability of serviced land, while the rising cost of building materials further contributes to increasing the cost of constructing housing units.
â€œThis limits the provision of affordable housing, affects demand for housing loans, and impedes the ability of loan applicants to satisfy the affordability criteria, even for loans that they would otherwise have qualified for,â€ says Mr Ireri.
The government estimates that of the about 150,000 housing units required annually in the urban areas, only about 35,000 are constructed each year, many of which are also beyond the reach of the low-income market.
In the past few weeks, Housing Finance has announced plans to develop low-cost housing units targeting the lower end of the market.
Two weeks ago, the company entered into a joint venture with a property owner in the Riruta area of Nairobi to develop 328 housing units comprising a mix of one-, two-, and three-bedroom houses to be completed by 2014.
The units are to be sold for Sh3.95 million for a one-bedroom unit, Sh5.25 million for a two-bedroom unit, and Sh6.5 million for a three-bedroom unit. The latter two are targeted at the middle and lower-middle segments of the market.
Many prospective home owners have decided to pool resources through group dynamics in order to realise their dream of owning a home.
The chama (investment group) concept has further made low-income earners even more alluring to developers, thanks to the practice of buying land in groups with the intention of building low-cost houses.
â€œThe profit motive in many such chamas is not there as many of the group members are keen to bring down the cost of owning a home through joint property acquisition,â€ says Ms Kariuki.
One such investment group, Bethosawa, comprising 80 members who live in the low-end Nairobi residential areas of Kayole and Soweto, has acquired a 10-acre piece of land in Kamulu, about 30km outside Nairobi, and is planning to set up an estate.
One of the group members, Mr Joseph Wambua, said the group had already broken ground in preparation for constructing two-bedroom houses with the support of Rafiki Microfinance.
The group has members as young as 22, who are also on their way to home ownership, barely two years after acquiring the 10-acre piece of land which they have subdivided among themselves.
Rafiki Deposit-Taking Microfinance general manager George Mbira is a happy man, thanks to this project, and says the fraction of the population that can access mortgage to the tune of Sh3 million and above is very small.
â€œThe whole issue here is about demographics,â€ says Mr Mbira. â€œRight now, if anybody can focus on the under-Sh3 million mortgage financing area, they would be swamped by the opportunities.â€
The microfinance company has also structured its mortgage products to suit the low-end of the pyramid, with a prefabricated house going for as low as Sh700,000. Setting up such a house takes about eight weeks, according to Mbira.
Although, Ms Kariuki says the financing options are many, the high interest rates have kept away many prospective homeowners, even in the lower end of the housing segment.
Many institutions are currently charging as high as 18 per cent on their mortgage products.
Last year the African Development Bank (AfDB) pumped a Sh609 million ($7 million) equity into the Pan African Housing Fund for investment into low-cost residential units in Kenya.
The fund is also currently seeking to raise about Sh87 billion ($100 million) before the end of the year to be used in the construction of 5,100 housing units targeting the middle and lower middle class on the African continent.-Nation