MUTIGA: How corruption blocks dream of home ownership among wananchi


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A young Kenyan looking to buy a housing unit today will typically be shown roughly 20 apartments before they make a choice of one.

In a market where supply far exceeds demand, you would expect that prices would be steadily in decline.

Instead, apartments in Nairobi are among the most expensive in Africa with the Knight Frank Prime Global Cities Index placing Nairobi as the priciest city on the continent, ahead of Cape Town.

What explains this phenomenon and why does the property market defy market fundamentals?

Some answers were provided in an article by the writer Christine Mungai last week that contained a string of eye-opening statistics.

Drilled down, the basic answer is corruption. The vast number of properties in the market are bought for speculation.

Many of these buyers do not purchase the units to live in them but they simply use them as a “safe store of money” as Mungai’s article put it.

The buyers, a huge number politically connected tenderpreneurs, have acquired the apartments or town houses in cash and are under no pressure from the sort of bank loans that would force them to lower prices in a normal market. That keeps values artificially inflated.

The middle class in Kenya and many other parts of Africa is famously disengaged from the political process.

Explaining to them how corruption affects their lives by keeping them off the property market may be one way to show them that it is in their own best interests to pay attention to how the public sector is run.

Look at the numbers. Fully 91 per cent of Nairobians rent the houses they live in with the figures standing at 87 per cent in Mombasa, 86 per cent in Eldoret and 73 per cent in Kisumu.

Unsurprisingly, the properties being taken off the market are bought by people who don’t end up living in them.

Seventy-five per cent of buyers purchasing apartments rent them out and another 16 per cent are speculators hoping to sell them when the value rises. Only nine per cent live in the units they buy.

This is at the higher end of the scale. For low-income earners, no attention is paid to them.

Anything between 61 and 65 per cent of Nairobians live in informal settlements that occupy less than 10 per cent of the land area in the city.

Against a demand of 150,000 – 200,000 housing units in the capital city, the government delivered 3,000 units between 2009 and 2012.

Few incentives exist to help the private sector bridge the gap.

There is constant speculation that the “bubble will burst” and prices of housing units will come down.

However, this ignores the fact decision-makers in positions of power invest most of their ill-gotten wealth in the property market and have no incentive to change the situation.

Both at the national and county levels, wheeler-dealers with access to looted funds are the people purchasing property left right and centre.

They can afford to leave them unoccupied for long periods.

In other countries that suffer crony-capitalism such as Turkey, China, Malaysia and others, at least a lot of well-connected figures that make millions of dollars corruptly pump the money into ventures that employ thousands such as construction firms and industrial concerns.

In Kenya, looted funds are typically parked in unoccupied apartments.

The looters inflate the property market and lock out normal income earners from getting onto the ladder to home ownership.

That’s yet another of the many costs of corruption.

As expected, the banks have launched an all-out assault on the interest-capping law.

They predicted doom and had the tools to ensure they could make that a self-fulfilling prophecy.

A friend points out that the frenzied media reporting on the subject shows how spoilt the banks have been.

They are not reporting losses but some have seen reduced profitability, which they have cast as a catastrophe.

They should adapt to the new realities and innovate to survive. If the government controls its spending (why, for example, does Kenya have a Nuclear Electricity Board?) it can stop its habit of excessive domestic borrowing and force the banks to lend to wananchi.

The banks have got away with predatory tactics for too long and are now fighting to sway the public mood.

The government should not move with haste to accept those demands. Tweaking the law (maybe to have different caps for different categories of loans) might make sense.

Dropping it altogether merely to allow the banks to continue making mega-profits will be a terrible decision.

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