Kenya's Oldest Mortgage Lender Wants to Jettison Its Entire Book

(Bloomberg) -- Kenya’s oldest stand-alone mortgage provider plans to offload its entire home-loans book only to build it up again.

HF Group Ltd. expects to benefit from the government’s push to construct 500,000 affordable homes over the next five years to try narrow a shortfall at least five times that size. The government is creating Kenya Mortgage Refinance Co., which will provide funding to lenders, and allow companies like HF Group to sell existing loans to the new entity to free up capital, Chief Executive Officer Sam Waweru said.

“We can release, off the top of my head, about 50 billion shillings ($498 million) from our own book,” Waweru said in an interview in the capital, Nairobi. “That would mean we can lend another 50 billion shillings to the economy immediately. We’ll bundle together the mortgages we have written over the years.”

HF Group plans to provide housing loans of as low as 2.5 million shillings for about 200 new housing units over the next year, Waweru said.

President Uhuru Kenyatta’s administration has made low-income housing one of its four top priorities after winning a second term last year by offering tax relief and stamp-duty exemptions for first-time buyers. It may also breathe new life into the sector after interest-rate caps introduced in August 2016 caused lending to slow.

Slowing Market

The size of the market is also relatively small, weighed down by property prices beyond what most Kenyans can afford, high lending rates, difficulties with registration and undeveloped loan-underwriting procedures, Cytonn Investments Management Ltd. said in a report in April. The number of Kenyan mortgages declined 1.5 percent in 2016 to 24,085 even as the value increased by 8.1 percent to 220 billion shillings, as property prices rose, the Nairobi-based money manager said.

HF Group’s loan-book growth slowed by 9 percent in 2017 as the limits on interest-rate charges took hold, elections slowed down activity and the failure of three lenders a year earlier caused credit demand to slow, according to the company’s annual report.

HF Group is helping the government set up Kenya Mortgage Refinance Co., or KMRC, by the end of the year, Waweru said. The state will inject 1.5 billion shillings into the company in exchange for a 20 percent stake, while the remainder will be owned by commercial banks, credit unions and development finance institutions. The World Bank will provide $160 million in financing to KMRC, which will issue bonds to investors to fund its lending.

The establishment of KMRC should set the stage for mortgage-backed securities, Waweru said, helping to ease the housing shortage. The World Bank estimates that 50,000 homes are built a year, not enough to meet demand in a country where 61 percent of urban households live in slums.

“The benefits will start accruing very early in 2019 and into the future.” Waweru said. “The market has been ready for mortgage-backed securities,” he said.

©2018 Bloomberg L.P.