Cytonn urges repeal of rate cap, says it stifles growth

Investment firm Cytonn has called for urgent review of the interest rates capping law as a means to address the widening demand-supply gap for affordable housing in the country.

In a new report titled ‘The Total Cost of Credit Post Rate Cap’, the company says that lack of access to affordable credit has seriously undermined housing development in the country, leading to a huge number of incomplete and delayed projects.

“The constraints have made developers seek alternative funding methods. They want cheaper, easier-to-access, and more reliable means to fund their development activities,” Cytonn said in the report dated January 2018.

The firm argues that reviewing the law will encourage many financial institutions to venture into construction and mortgage financing, unlike the current situation where most lenders are limiting credit to individuals in favour of buying government papers.

“Most of the banks [55 per cent] interviewed in the survey indicated that interest rate capping negatively affected their lending as it compelled them to tighten their credit standards,” the report reads.

Cytonn said that non-performing loans have increased in seven sectors: building and construction, trade, real estate, tourism, transport and communication, manufacturing and household sectors.

This development is believed to cause anxiety to would-be new recruits in mortgage, with the end result being “low financial participation with fewer than 25,000 mortgages in the country.”

Cytonn’s report comes as the World Bank suggests the creation of a Kenya Mortgage Refinance Company that borrows from successful models such as Morocco and Malaysia that guarantee up to 70 per cent of mortgage loans.

According to the World Bank, this will help raise the number of mortgages in the country to an average of 60,000 mortgages from 25,000.

This, together with the government’s plan to build a million low-cost homes in the next five years, will help ease the national housing shortage that currently stands at about 1.85 million homes.

The State is seeking to partner with the private sector to deliver low-cost homes that will target individuals earning Sh25,000 and below per month – who form the bulk of the country’s working population.

The project is estimated to cost Sh2.6 trillion, according to the ministry of housing.

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