Urithi Housing Finance Co-operative Society has renewed the push for the government to create a Sh50 billion revolving fund as part of a stimulus package to low-cost house developing firms.
The call comes on the back of the crippling Covid-19 pandemic which has depleted household incomes, precipitating a slowdown in the real estate segment.
Samuel Maina, the chairman, said real estate was the most hit because of the capital intensity in the sector.
The capitalisation is very high…unlike other sectors you have to inject a lot of money to buy land and develop with financing coming from lenders,” he told Business Hub.
But from the outset of the coronavirus, financial institutions have been cautious to invest in real estate due the crunch recorded, especially in the top stratum of the economy.
Maina said the bottom of the pyramid had remained secure in terms of demand, with the upper segment of the sector suffering from a crippling glut due to low uptake.
Four years ago, there was huge uptake of high end investment in houses in Kileleshwa and Westlands before the bubble burst in 2017.
Shrinking earnings
Malls also recorded a significant drop in tenancy leaving investors reeling from shrinking earnings that is pushing them on the edge of default.
But the demand for low end housing still remains high on the back on an annual deficit of 200,000 units, and a backlog of more than one million houses.
On the mortgage, the sector has only 25,000 subscription out of a national population of 47 million.
To service low cost segment, the off-the-plan housing plan emerged as the best solution to plugging the gap as they offer a snug entry point to home ownership.
It, however, takes long as prospective owners have to buy and wait for a period of time for more financing to be mobilised before the project is actualised.
“The government should inject some seed capital in co-operatives to give them a kick-start for the simple reason that they have the infrastructure to reach out to the consumers, and cut across different divides and geographically spread,” Maina said.
It is on that premise that Maina is pushing for the government to create a revolving fund to shore up the fortunes of co-operative societies.
Revolving will mean that the funds invested will eventually flow back as interest or gains on participation and will be made available for a new (innovative) project and investment.
This is in contrast to subsidies, which can only be handed out once and without issuing a refund.
For Urithi, turning to a revolving fund structure becomes important when the investment has a longer payback or when the capital market cannot bear the associated risks.
Due to the fact that a revolving fund gathers a package of different projects, it has the flexibility to incorporate more risky and innovative projects.
Property market
Institute of Budget and Devolution director Elias Mbau projected that the property market would face tougher times as builders, buyers and sellers lose cash due to the fallout from Covid-19.
He said for the housing sector to rebound, the economy will need to grow at over six per cent, which is unlikely due to the virus.
Such a percentage, Mbau added, depicts high cash flow, less inflation and low demand on credit hence relaxed repayment terms. He said currently, coronavirus and floods had slowed economic growth projection to below two per cent.
“More reason why the government should pump money to critical sectors, housing being one of them,”added Mbau.
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