Why Kenyans are turning to ‘mitumba’ houses

May 15th 2013, The country’s resale market is becoming an important source of housing supply, with about 60 per cent of Kenya’s total mortgage accounts belonging to people who bought secondhand homes, writes LYDIA LIMBE

“When I first came to Nairobi a few years ago,” says Shailender Singh, “the maisonette next to my house on Lenana Road was worth Sh14 million. The same house is now Sh45 million.” Singh, the director of food and beverage operations at a major hotel chain in the country, says he cannot afford to buy a house in the Lenana Road area in Nairobi.

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“It is cheaper to rent,” he notes.

Singh is among millions of Kenyans the society regard as well-to-do, but who still find it hard to buy a new house because of the prohibitive costs of new housing stock.

Indeed, according to The Hass Property Index, housing prices in the country have witnessed a meteoric rise for the last decade, putting off thousands of would-be buyers.
The average price of a stand-alone house, according to the index, currently stands at Sh32.6 million, up from Sh8.8 million in December 2000. The average price of a townhouse, on the other hand, is Sh19.1 million, up from Sh6.5 million in December 2000. 
In 2001, an apartment unit was going for about Sh5.3 million. That figure has risen to about Sh11.7 million. Rentals have also risen rapidly – ten times the rate of the last two years, as landlords have sought to manage rising costs and deal with increasing demand.
According to the Central Bank of Kenya, only about eleven per cent of Kenyans earn enough to support a mortgage.  This means that most middle-income earners cannot afford an average mortgage necessary to buy an entry-level house. 
This, reveals a new report, has led aspiring homeowners to turn to the resale market for secondhand houses, which are usually cheaper than new ones. Titled, Housing Finance in Africa: 2012 Yearbook, the report by South Africa-based Centre for Affordable Housing Finance in Africa, says Kenya’s resale market is becoming an important source of housing supply, as households trade up to better accommodation, making their current housing available for purchase by the new demand.

Resale market
It reveals that as a proportion of mortgages, the resale mortgage market constitutes as much as 60 per cent of all transactions. That means about 10,200 of Kenya’s 17,000 mortgage accounts belong to people who bought secondhand homes, or in Kenyan parlance, mitumba homes.
Justus Munene, a director at Dayton Valuers, concurs with the findings, noting that people in Kenya sell their houses for various reasons.
“The first driver,” he says, “is the market trends.” As couples grow in their economic power, and their families grow bigger, he says, they opt for homes as opposed to apartments, or move to more plush locations. To finance this, they sell off their initial houses to acquire new ones, he says.
“Couples in their old age, after the children are all grown up and have left, opt for a gated community living where they have a sense of safety, security and belonging,” he adds.

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He says that other people sell off their houses when they cannot service the mortgage. With the sales money, they can recover the cost they have paid so far, and still pay off the debt.

What is alarming, Munene points out, is the rate at which houses are being auctioned on a daily basis: “Usually, there are about 50 successful auctions of houses daily, in Nairobi only. And that is after the due process under the Auctioneering Act has been followed to the letter.”
Prior to the enactment of the Land Act last year, properties of mortgage defaulters were being auctioned at a bare minimum as long as the money owed is recovered.
The Land Act 2012 requires that all properties auctioned are sold for not less that 75 per cent of the prevailing market value of the property. This is to protect the borrower, and after the sale of the house, the balance of the amount owed is deducted from the total sale, with the property owner pocketing the balance.
So are Kenyans constantly on the lookout for second hand homes?
“Most of the mortgage lending requests we receive are for new homes. However, it is not a secret that people like pre-owned homes because they are cheaper,” says Joam Kiarie, the Head of Mortgages at the Kenya Commercial Bank’s S&L.
According to the Centre for Affordable Housing Finance in Africa survey, the resale market is, however, restricted by the limited supply of good housing stock, given that as much as 50 per cent of the existing structures in urban areas are in need of repair and rehabilitation.

Geographically restricted
“Mortgageable stock is also generally geographically restricted to the largest towns of Nairobi and Mombasa,” it says, noting that most of the population cannot afford housing built by formal developers, and as a result, most households address their housing needs independently and informally.
This, it notes, contributes to the growth of slum dwellings and poor quality housing. The housing backlog in Kenya is currently estimated to be two million units.
But S&L’s Kiarie says they only finance property in a good state of repair.  “I have not come across a property that we have not been able to finance due to its current condition, unless it has a structural defect that cannot be insured. People who buy these houses upgrade the fittings and finishings to suit their needs. Some sell them after the upgrade,” says Kiarie.
However, the Ministry of Housing, in recognition of the fact that there has not been any law to regulate the state and maintenance of buildings, has drafted a bill that they hope will be discussed in the current Parliament.

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“The local authorities used to use the Health Act as the basis of looking at a building’s state of repair and use. But this was restricted to the health implications to the users,” says Housing PS Tirop Kosgey.

“When the bill is finally passed, all properties will be required to have an occupancy certificate, which will stipulate the number of people to be in it at one time, and the type of usage,” says Kosgey.
He adds: “The law will authorise building surveyors to look at the house in terms of structural integrity, the types of fittings and finishes used, as well as the possible hazards and measures to protect it against those hazards.” This authentication will be done periodically, with a certificate issued each time, he says.
David Onsongo is a beneficiary of a second-hand house, which he bought through an auction.
“I bumped into the information about the auction, looked at the house and compared it with the amount they were asking for, and thought it was a super deal. At that time, the bank was looking for the balance owed, therefore as the highest bidder, I got the house at Sh2 million,” says the businessman and a resident of Kisumu.
A highly speculative property market and high demand for housing has driven Kenya’s residential property price inflation up steadily over the last 12 years especially, more recently in the rental market.