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The case for tenant purchase home schemes

This is not a new concept, but has traditionally targeted salaried civil servants under the Housing Act Cap 117. Private developers are now being encouraged to target informal income earners

Muriithi Karanja has lived in a city council house for nearly 40 years. His father from Kibirigwi, Kirinyaga county, was a supervisor in the cleaning department of the then Nairobi City Council.

That is how the council employee was allocated a house in the sprawling populous Eastlands area. “I inherited the house after my dad retired and went back to the village.

Now I can only pass it on to my son. There was a rumour in the past that tenants would be sold these houses, but the house still belongs to the county government,” he says.

Still in Eastlands, a personal aide to Kayole estate chief, John Kamau Gitumbu, has spent a fortune in rent payments to landlords in the last 18 years.

During the period, rent has averaged Sh7,000 a month depending on the house. “Without a permanent job and lacking savings, buying or building my own home has been a challenge. The little that I earn is spent on basic needs and on school fees,” he says.

There is now good news for some house tenants long accustomed to paying monthly rent. In two months time, an investor will break ground for a mix of houses whose occupants will get a chance to own.

National Housing Corporation MD Andrew Saisi (left) with Genghis Capital CEO, G Gangla. Photo/WAHINYA HENRY

“The rent a tenant pays after a period will become like a mortgage payment and the tenant eventually becomes the owner of the property,” said Johnson Mwangi of Paradigm Property Developers.

Speaking at the launch of the unique concept during a daylong real estate investors’ forum held in Nairobi, Mwangi said the tenants will need not approach banks for assistance.

The concept is dubbed Home, an abbreviation for Home Ownership Made Easy. Genghis Capital, an investment bank, is handling the financing aspect whilst Paradigm Projects, a real estate development adviser, is handling the technical aspect.

Genghis Capital CEO, Geoffrey Gangala, says there are currently 30,000 mortgage accounts in Kenya, which means many prospective homeowners have no chance to own a house via mortgages.

Under the project, that will see the tenant home buyers acquire property at residential suburbs around Nairobi without the need for a conventional bank loans, was hailed by the managing director of National Housing Corporation (NHC), Andrew Saisi who attended the launch.

The project will allow home buyers to obtain a long-term purchasing facility from the developer at favourable credit terms, with monthly repayments priced at equal or close to prevailing rental rates in the target areas.

Paradigm Projects director, Austin Ogada, said: “Majority of developers are unable to exit from their projects due to unaffordability of houses since they are usually not able to attract both equity and debt capital for funding.”

He said Home will allow long-term investors to fully underwrite a real estate project, thereby significantly de-risking the project for the sake of equity and debt investors.

Tenant purchase scheme. Photo/Courtesy

This will also provide an alternative financing platform for eventual home buyers to enable them purchase the properties.

The developments will kick off from July in the Southern suburbs of Nairobi such as Dagoretti, Uthiru, Kikuyu and Ngong Road.

“Home targets to offer ownership for the lower middle-income market segments in areas presenting suitable neighbourhoods for the development of gated residential housing projects,” Ogada said.

According to a 2017 report by the World Bank, Kenya Economic Update: Housing Unavailable and Unaffordable, the housing deficit in Kenya stands at 250,000 units annually.

With a constantly growing population, the deficit can only get worse. “Millions of potential buyers have been turned away due to ten-fold rise in house prices and exorbitant bank mortgage interest rates,’’ said Isaak Mungai, a founding partner in MMC Africa Law, a Nairobi firm of lawyers that specialises in banking, finance and real estate.

To tackle this anomaly, various parastatals and more recently, private developers have utilised the tenant purchase scheme (TPS) concept to provide an affordable avenue of home ownership for Kenyans.

This is basically a traditional lease agreement that also gives the tenant an option to purchase the rental property sometime after the beginning of the tenancy.

“Tenant Purchase Scheme is not a new concept, but has traditionally targeted salaried civil servants under the Housing Act Cap 117.

Recently, private developers have been encouraged to invest and target informal income earners, the youth and unsalaried business- people who make money on a monthly basis,’’ said Mungai.

To debunk the mystery surrounding the operation of a TPS, the starting point is a tenancy, not necessarily a house purchase transaction.

The underlying agreement is, therefore, identical to a regular lease agreement between a landlord and a tenant, including terms such as the duration of the lease period, the amount of rent to be paid, and repair and maintenance responsibilities of landlord and tenant.

To succeed, TPS will require more exposure and support from the government, which has identified housing as one of its Big Four development agenda, with plans to build 500,000 social housing units and 800,000 affordable units by 2023 at a cost of Sh2.6 trillion.

“Saccos around the country also have a huge role to play in fostering the growth of TPS by structuring the members’ savings to purchase homes,’’ said Mungai. xxxx

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