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Keeping cartels from affordable housing

Measures aimed at deterring the infamous cartel culture from infiltrating and derailing the State’s affordable housing agenda

Milliam Murigi @millymur1

The national government, through the Ministry of Housing and Infrastructure, has put strict measures to determine developers who will be subcontracted to undertake different affordable housing projects in Nairobi.

This was revealed when the government invited bids from both international and local developers to build 1,500 affordable residential units at Nairobi’s Park Road estate situated in Ngara for low–income earners. The  project is expected to be delivered within 36 months.

According to the Request For Proposals (RFPs) advertised by the government, bidders are required to pay a bid security of Sh40 million during submission of the RFP. They should  also pay a commitment fee of 10 per cent of the project value within 30 days after notification of the award that will act as proof of financial capability of the developer to deliver the project.

However, Johnson Denge, Senior Manager Regional Markets at Cytonn Investments, says the bid, security and commitment fees required to be paid will force developers to incur huge upfront costs which is a limitation, given that access to funding for developers still remains a challenge. The demands also favour foreign contractors.

Competitive funding

This is because the growth of credit to the private sector has been declining by 21.5 per cent points over the last three years, coming in at 4.3 per cent as at June 2018 compared to 25.8 per cent in June 2014 as a result of introduction of capped lending rates at four per cent points above the Central Bank Rate (CBR). 

“The State needs to consider alternative ways to gauge the financial capability of developers such as requiring letters of commitment by financiers and evaluation of financial records of the firms.

The government also needs to look into ways to spur the development of alternative sources of funding at competitive rates such as structured products, which will reduce the over-reliance on banks and provide financing for affordable housing,” said Denge.

However, on the other side, these strict measures will bring back sanity in the industry and will ensure that no cartels will be involved in such projects.

Currently, the industry is facing enormous challenges in quality assurance because of the alarming rate of collapsing structures. Over the past five years alone, over 40 buildings have collapsed causing fatalities and injuring hundreds of people.

Denge admitted that the State has made some commendable steps towards development of affordable housing such as providing land for use and scrapping of Nema and NCA levies to encourage developers to construct more units due to the reduction in costs. 

A land bank has also been established whereby excess land will be consolidated in a bid to address the challenges faced by investors and developers seeking to acquire land.

However,  he said, there is need to review the Public –Private Partnership (PPP) framework ,which is guiding the projects to facilitate the approvals process and to aid in establishment of special purpose vehicles to facilitate access to private capital.

“There are lengthy and slow approval processes and uncertainty regarding revenue-sharing and the returns to private investors in PPPs. 

Extended PPP time frames also make them unattractive to private developers who prefer to exit projects in three to five years and lack of a mechanism to transfer public land to a Special Purpose Vehicle (SPV) are some of the challenges facing this project,” said Denge.

However, despite all the requirements, around seven companies have been awarded contracts to build the low-cost houses in Nairobi Metropolis. The companies are M/S Sovereign Group, which has been awarded the contract to develop 1,000 units at Pangani; Lordship Africa, contracted to construct 2,520 units along Ngong Road; and Jabavu Village Limited contracted to develop 1,500 units at Jeevanjee-Bachelors.

The  KCB/S&L Group has been contracted to build 1,500 units at New Ngara; Stanlib Group will construct  houses at Uhuru Road; Kiewa Group contracted to build 1,050 units at Old Ngara and Directline Assurance Limited contracted to  develop 1,050 units on Suna Road.

Public Private Partnerships

Projects not yet contracted for are Shauri Moyo with 5,000 units, Makongeni with 20,000 units and Starehe with 3,000 units.  This is in line with the government’s plan to develop 500,000 affordable housing units by the end of their term in 2022. The plan to use Public-Private Partnerships is to augument the government’s role to provide the land while the developer is tasked with the role of designing, funding and constructing the units.

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