#7Billion and counting.

The Kenya housing sector is characterized by inadequate affordable and decent housing, the shortage of housing for low-income houses in particularly acute in urban areas with only an estimated 6,000 units or 20% of all houses produced catering for this group.

This is attributed to under investment in low and middle-cost housing by both the public and private sectors. More than 80% of new houses constructed are for high and upper middle-income earners. Considering that more than 60% of the Kenyan population is younger than 25 years, it is clear that the demand for adequate housing will rise steadily.

Key facts from Central bank Kenya and World bank report 2010 on real estate in Kenya

According to the report by the Central Bank of Kenya and the World Bank indicates that only 1 in 10 Kenyans can afford to buy the home they live in, even if they get a mortgage (assuming they even qualify to get it).

In my mind, this report clearly indicates that the Kenyan real estate market is in the middle of a bubble. Real estate prices have gotten to be so high that the great majority of Kenyans just cannot afford real estate.

Some shocking revelations also indicate that the total mortgage loan book in the country is only 16,000 accounts, while the total value of mortgage loans, as at the end of December last year was Sh133.6 billion. This means that, technically, only 16,000 people/organisations in the whole of Kenya have taken up mortgages

This is also an indication that buying property in Kenya is predominantly for the rich, who opt for cash sales as opposed to mortgages. Professionals in the housing sector say the findings reflect the high level of speculation on land that has pushed property prices through the roof

According to the survey, the annual housing demand in 2010 was estimated at 210,000 units against a current supply of about 50,000 units – resulting in a shortfall of two million houses.

Only eight per cent of the urban population – representing about 1.4 million people or 350,000 households – can qualify for mortgage loans.

The income distribution shows that only one per cent of the population earns Sh2.6 million or more and only four per cent earns between Sh1.8 million to Sh2.6 million. Only this top-end market can afford to purchase in cash and do not rely on financing.

Typically, for a property valued at Sh4 million, banks give a mortgage loan amounting to Sh3.2 million (or 80 per cent of the property value), with a maturity period of 15 years at an average 14 per cent interest rate.

Even though the average mortgage loan size has increased from Sh2.5 million in 2006 to Sh4 million in 2010, Kenya’s potential mortgage market is about Sh133,6billion, with only 16,000 outstanding mortgage loans.

To qualify for a mortgage loan for such a property, a typical borrower has to be earning a minimum of Sh1.3 million annually (or about Sh108,350 monthly), with savings of at least Sh1.2 million to cater for a 20 per cent deposit (Sh800,000) and 10 per cent (Sh400,000) mortgage fees which include stamp duty, legal fees, valuation, arrangement fees and mortgage protection policy premium.

The high fees charged on mortgages only serve to lock out hopes of potential homeowners in country where the bulk of housing funds come from household savings and the housing finance market is yet to move downstream. “If we want to expand this (mortgage) market, we have to minimize these fees and costs. People in the rural areas cannot afford mortgages due to meager incomes, far too low to make economic sense for the fledgling Kenyan mortgage market.

Although the Kenyan government has a guiding policy document, 'Vision 2030', also adopted a human rights-based approach in its housing, water policy, good policies are not enough if they are not followed up by real action, needs to be followed by a genuine commitment to allocate sufficient resources to actually implement agreed policies that would benefit all Kenyans. The realization of basic human rights will remain a pipe dream for the majority of Kenyans living in inadequate housing.

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