When he decided to pursue the affordable housing market in Kenya, his family and friends thought it was a mistake. But more than six years later, Ravi Kohli (Managing Director of Karibu Homes) is already mulling his next project after building over 500 affordable houses on the outskirts of Nairobi.

Take us back to the beginning of this business.

Kohli and co-founders Nick Johnson and Irfan Keshavjee were looking for ways to capture the biggest housing market in Kenya: the low-income earners currently excluded from any hope of owning a home due to high prices.

“In Kenya you basically have an annual shortfall of 200,000 housing units. You have a situation where 92% of the population in Nairobi has to rent. And yet you have a population that is hungry for property. Demand outstrips supply by over ten times,” he says.

Their dream was to bring the home-ownership model, mostly witnessed in developed countries, to Kenya. According to Kohli, most people in developed markets, such as the US and UK, can easily access mortgage finance and own homes.

“What happens is that you end up securing your family’s financial security for generations. These are the kind of opportunities that Karibu Homes wanted to offer in the market,” he adds.

According to Karibu Homes' research, home ownership also adds values, such as patriotism, to the country. Home owners feel that they have invested a lot of resources and in turn they protect their investments from threats such as political violence.

“Around the 2007 election violence that was a big trigger for us, because from our research we saw that where there were high levels of home ownership, there were low levels of violence,” Kohli states.

Currently Karibu Homes has launched over 500 low-cost housing units and is gearing to add another 500 units at its Athi River development.

Noted. How did the company grow into the business it is today?

“We had to look for land, which took a long time, and then for investors. It was a chicken-egg moment for a while. As the founders, we put in our equity first, but that wasn’t enough. We had two other investors who were ready to put in money to buy the land,” he says.

Since Karibu Homes's first project was mostly seen as a social impact project, the founders attended impact conferences around the world where they met investors such as the Blue Haven Initiative. They also work with finance institutions like Shelter Afrique to fund their projects.

“Once we bought the land, we rolled out a design that would achieve affordability. We have a standard unit, which is not tiled and the owners can finish them to their own taste but live there from day one; and enhanced units, which are fully finished. The standard units allow the customers to bring their own touch and we can lower the price,” Kohli says.

Using extensive value engineering and other cost efficiencies, the company aims to bring affordable, decent and dignified housing to Kenyans. Karibu Homes' unit prices range from approximately US$20,000 to $50,000.

It couldn’t have been that easy. He must have faced some challenges?

Being a pioneer in this field was definitely a challenge for Kohli and his co-founders. Convincing financiers to get on board with this idea was a major hurdle. Most banks gave short-term repayment conditions whereas real estate is a long-term investment.

“When we started this we thought the SACCO (Savings and Credit Co-Operative) movement and the banks would offer loans to our customers to complete their purchase," Kohli says. The banks would tell them that the only reason they were not providing mortgages in the lower end of the market was because there were no housing stock. Karibu Homes has since addressed the housing stock challenge, but the banks were still reluctant to lend long-term to the customers in this market.

Kohli applauds the government’s move to set up the Kenya Mortgage Refinance Company (KMRC) that will work with SACCOs and other financial lenders to offer affordable, fixed rate and subsidised mortgages to those who are currently cut off from accessing home loans.

The cost of land was also a challenging factor. “The closer you are to Nairobi the higher the prices. We had to find a peri-urban region where this works,” he adds.

“You need to have honest developers because the numbers are so big. You also need a team that understands value engineering and a project team that understands cost control,” Kohli advises.

Anything we can learn from his experiences?

Kenya’s real estate is competitive with many high-rises and complexes coming up on every corner. However, due to cost, most are financially out of reach of the majority of the population. This offered an opportunity for Karibu Homes.

“When we started this no one believed us. Our families and friends thought we were crazy. So you got to be resilient. You got to know your numbers and know it will work out financially,” Kohli says.

“You have to believe in yourself because you will have a lot of hurdles along the way. In Kenya administration and the lands office is quite difficult. Closing cost is also difficult. You have to work really hard to get the formula right so that your customer wins,” he explains.

“Our investors are putting money into the most expensive asset in their lives,” Kohli says. "This means that you as a developer have to think of the customer first, when putting up affordable housing and estimating favourable pricing."

Kohli's resilience has turned many to believers. Next up is a 1,300 unit development, based in Tatu City - a mixed-use development that has special economic status in Nairobi. This is set to begin at the end of this year.

Developing affordable housing in Kenya…