This archive report was first published on 22 August 2019.
Kenya's Real Estate Sector Faces Funding Crisis ¶
Kenya's real estate sector is facing a significant funding crisis due to the rate cap legislation, which has led to a drying up of traditional bank funding. This has resulted in some real estate developers relying solely on bank financing running into financial trouble.
According to a recent report, only 40% of business funding in developed economies comes from banks, while 60% comes from alternative sources such as capital markets funding. In contrast, in less developed economies like Kenya, businesses rely on traditional bank funding for 90% of their funding.
To address this issue, alternative financing sources such as structured real estate investments and capital markets instruments are being explored. Structured real estate investments involve packaging solutions to enable investors access a return supported by the performance of real estate in a form that meets their needs.
However, developers need to come together to make some changes in order for the alternative financing and structured real estate finance markets to develop. This includes educating the public on structured finance, forming an association to set standards and provide governance on structured finance issuance, reducing the minimum amount investable in all Real Estate Investment Trusts (REIT), and expanding tax relief for regular savings towards home purchase.
Additionally, allowing specialized collective investment schemes and expanding the meaning of 'approved institution' that hold deposits intended for the Home Ownership Savings Plan (HOSP) to include fund managers would also be beneficial.
These changes would help not just developers but also significantly advance the government's Affordable Housing initiative. At a time when banks are not lending to the Real Estate sector, alternative sources of funding are critical to helping meet the housing demand and real estate needs of the country and provide affordable housing.
Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.
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Source: Tuko Kenya
