The government’s incentives for developers within the affordable housing realm, such as tax rebates and infrastructure cost subsidies, are expected to attract investment from additional private developers interested in affordable housing. This sector has also gained the interest of long-term financiers who are seeking to invest in opportunities that offer a social benefit.
The government’s incentives include: scrapping of stamp duty for first-time buyers; provision of bulk infrastructure such as drainage and utilities; reduction of corporate tax from 30% to 15% for developers who build more than 100 affordable units; and exemption of value-added tax (VAT) on construction inputs.
There has been limited supply of affordable housing units in the recent past, with government projects holding the largest market share of 83% from 2019 to 2021. This is compared to 17% delivered by private projects. This trend is expected to change in the next two years as private developers become more involved in the delivery of affordable housing with the introduction of innovative building technology.
Affordable housing yields in the capital Nairobi range between 7% and 13%. Projects achieving high yields are largely government projects because land in prime locations is easily available, and projects are also highly densified at an average of 240 units/acre thus achieving higher economies of scale.
Private developer projects are noted to achieve lower yields, mainly attributed to increased project cost due to the inclusion of land cost coupled with lower densities achieved. Density for private developments averages 216 units/acre as most of these developments are located on the periphery of the Nairobi metro, offering fewer numbers of floors and lesser ground coverages.
Additionally, most affordable housing projects present investment opportunities for other complementary users such as retail, offices, educational institutions and medical clinics.
“We anticipate the market accommodating the asset class in securitised real estate vehicles such as REITs. Other than traditional financiers, such as a banks and mortgage refinancing companies, the market is also expected to be receptive to non-traditional financing sources – such as savings and credit cooperative organisations (SACCOs) – to propel demand. We foresee long-term financiers such as pension funds, investment banks, insurance companies and private equity firms, to present more interest in the development of affordable housing,” notes Broll.
In an earlier interview with How we made it in Africa, David Owino, founding partner of private equity firm Ascent Capital Africa, also highlighted opportunities in affordable housing. “In Kenya, we’ve seen a lot of high-rise apartments and office space developments that cater for the upper-middle-class and upper-class population, but there is a shortage of housing for the lower-middle-class which makes up the majority of people moving into the cities. The government is implementing policies to encourage investment in that particular space, so there’s definitely an opportunity there.”
Boma Yangu is an online platform that provides information on Kenya’s affordable housing programme. The site lists recent, ongoing and proposed housing projects offered by the government and some private developers and partnerships. Boma Yangu also provides a live counter of the increasing number of Kenyans applying for affordable housing units, thus providing a basis for demand aggregation to various stakeholders.