Kenya’s Housing Finance Sees Industry Investment Slowing in 2012, MD Says

Housing Finance Ltd., Kenya’s only publicly traded mortgage company, said investment in housing may slow in 2012 ahead of an election that may aggravate political tensions that exploded into violence three years ago.

“The political situation is of great concern due to the ongoing international criminal court cases against prominent politicians, the implementation of the constitution and the expectation of a divisive campaign for the 2012 elections, which carries a lot of risk for investors,” Managing Director Frank Ireri said by phone yesterday from, Nairobi, the capital.

Kenya’s mortgage-finance market more than tripled in the five years to May 2010 to 61 billion shillings ($711 million), as the number of mortgages almost doubled to 13,803, according to the central bank. Housing Finance’s mortgage book totaled 20.4 billion shillings in the first quarter of 2011, Ireri said.

A dispute over the country’s previous presidential election in December 2007 sparked ethnic fighting that left 1,500 people dead and forced 300,000 more to flee their homes. The violence ended after incumbent President Mwai Kibaki and rival candidate Raila Odinga agreed to form a coalition government and to write a new constitution. The charter was enacted in August and is currently being implemented.

“While we don’t anticipate violence, investors are cautious of the expected prolonged election campaigns,” Ireri said.

The International Criminal Court has accused six Kenyans, including Finance Minister Uhuru Kenyatta and lawmaker William Ruto, of playing leading roles in the violence at the last election. All six deny the charges.

Candidates

Kenyatta, Ruto and Kenyan Vice President Kalonzo Musyoka are among officials that may seek nominations for the presidency, the Daily Nation, a Nairobi-based newspaper, reported on May 9. Odinga, the country’s prime minister, and former Justice Minister Martha Karua have declared their intention to run in next year’s vote.

Accelerating inflation, boosted by higher crude costs, may also dampen investment in the housing industry, Ireri said. Kenyan annual inflation was 12.05 percent in April, exceeding the central bank’s 5 percent target for the fourth straight month, according to the Kenya National Statistics Bureau.

Oil prices, which have risen 46 percent in the past year, will “raise the cost of business, which will be reflected on the final prices,” Ireri said, without elaborating.

The company earlier this month posted a 65 percent increase in first-quarter profit to 120.1 million shillings ($1.4 million) as net interest income, the money earned from interest charges on loans, jumped 32 percent to 434.6 million shillings.

Housing Demand

Demand for homes in Kenya increased after the central bank cut its benchmark interest rate eight times between December 2008 and January 2011 to help boost economic growth. Urban areas in Kenya need 150,000 housing units a year, compared with the 35,000 currently being added, resulting in overcrowding and informal settlements, according to Housing Finance.

“The outlook for the remainder of this year is promising as we come to the end of our five-year strategy and we expect last year’s sales momentum to carry us through,” Ireri said.

In 2008, the company began a program that included steps to reduce operating costs and raise additional capital.

Last year, Housing Finance raised 7.1 billion shillings, the first portion of a planned 12 billion-shilling corporate bond. The funds enabled the company to undertake large-scale projects, Ireri said.

“Due to the expected challenging times ahead and slow absorption of the funds, there are no plans to raise the balance in the immediate future,” Ireri said, citing rising interest rates as an additional concern.

The central bank in March unexpectedly raised its benchmark interest rate by a quarter of a percentage point to 6 percent, reversing a cut announced two months earlier.

Shares in Housing Finance were unchanged today at 26 shillings. The stock has dropped 1.9 percent so far this year, outperforming a 10 percent decline in the benchmark NSE 20 index over the same period.

To contact the reporter on this story: Johnstone Ole Turana in Nairobi at jturana@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson in Nairobi at pmrichardson@bloomberg.net.

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