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Why mortgages are not  the best option for first-time home buyers

Why mortgages are not the best option for first-time home buyers

African Union High Representative for Infrastructure
Development in Africa Raila Odinga commented on how expensive it is to own a
home in Kenya when breaking ground on a Sh3.5 billion housing project in

“Some of these houses are said to cost Sh1.5
million.” “That’s still too expensive; many people can’t afford
it,” he remarked.

“We want it to reach hundreds of
thousands of people.” That is what the majority of our working poor people
can easily afford.”

For developers, the government, and home
buyers, the issue of housing affordability has long been a grey area.

The gap between what a potential homeowner
can afford and what is available on the market has always been the disconnect.

“The question of what is cheap is
pervasive, yet we still don’t know the answer. Housing affordability is a
result of the purchase price, financing, and the cost of living, according to
Muhammad Gambo, Shelter Afrique’s Head of Policy, Research, and Partnerships.

“However, if public or private sector
developers do not appropriately assess household affordability, there is a
substantial risk that there will be inadequate effective demand by households
to purchase or rent the houses created.”

, a Pan-African housing firm with African countries as shareholders,
and the Centre for Affordable Housing Finance in Africa developed the housing
affordability calculator in response to this disparity.

The calculator informs you how much you can
pay for a property mortgage after you enter your household wages, distance from
Nairobi’s Central Business District (CBD), and other variables such as interest

According to the affordability calculator,
if you earn Sh100,000 and want to live 50 kilometers from the CBD, the house
you can afford will be priced at Sh2.04 million.

You have a mortgage of up to Sh2.27 million
available to you. This is based on a ten percent deposit and a 25-year bond,
assuming you only have Sh20,000 in your monthly budget for housing.

If the distance is reduced to 30
kilometers, the house price rises to Sh2.5 million, with a financing of Sh2.24
million available.

A 15-kilometer distance from the CBD raises
the value of the house to Sh2.7 million and the mortgage to Sh2.45 million.

These calculations are based on an interest
rate of 11% in 2021 and the assumption that you will spend no more than 20% of
your monthly income on housing.

It is clear from the above figures that a
mortgage is still not a particularly affordable option to own a home. You may
end up with a home that does not meet your needs or be forced to relocate
outside of Nairobi.

A three-bedroom property in Ruiru, which is
29 kilometers from Nairobi’s CBD, costs Sh6.5 million, for example. This is Sh4
million more than the mortgage calculator suggests for places 30 kilometers
from CBD.

A mortgage is still expensive in
the long term, according to Nashon Okowa, a property manager and author of Don’t
Buy That House.

“If you’re going to pay something for
20 or 25 years, it’s expensive.” It would undoubtedly drag you down
financially,” he stated in an interview with a local news outlet.

He claims that if you decide to build it
yourself, you eliminate the developer’s profit, lowering the cost of the house.

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“As a couple or family, you’re already
aware of your cash flow. “Developers have made it simple to set up a
payment plan,” Mr Okowa explained.

“It makes sense unless you work in a
bank where you can obtain it (mortgage) at four or three percent.” But if
you’re not a bank employee, it’s a lot of money at the end of the day.”

Even if the distance is changed to 100
kilometers from the city center, the property price that can be afforded with
the same wage of Sh100,000 is Sh2.27 million, according to the calculator. This
is based on a ten percent deposit.

According to Dr. Gambo, the push for
housing development in Africa has resulted in a surge in new homes, but the
high costs of building, infrastructure, land, and compliance mean that the bulk
of these homes are out of reach for those who need them the most.

“In most African countries, even the
cheapest newly-built house is still out of reach for the majority of the urban
population, resulting in significant vacancy rates,” he said, citing
Nigeria and Kenya as examples.

Developer-built housing, he explained, is
usually aimed at the upper end of the market and is rarely provided in large

“However, even a Sh2.32 million house
is out of reach for most people – and these are only accessible in a few
projects,” Dr Gambo said.

Poor affordability targeting, he said,
might put pressure on governments to offer further subsidies, as in the case of
Vision City in Kigali, Rwanda, or the Kilamba Development in Angola, while also
imposing target prices that developers can’t meet.

“Our goal is to increase the
availability of affordable housing in Africa, and we hope that the
affordability calculator will aid us in this effort by making such projects
possible and sustainable on both the demand and supply sides,” he said.


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