MUTIGA: How corruption blocks dream of home ownership among wa... http://www.nation.co.ke/oped/Opinion/How-corruption-blocks-dream-of...

SATURDAY MARCH 25 2017

A picture of Blue Bells Gardens Apartments in Mlolongo, Machakos

County, on February 20, 2017. The vast number of properties in the market
are bought for speculation. PHOTO | EVANS HABIL | NATION MEDIA
GROUP

In Summary A young Kenyan

Anything between 61 and 65 per cent of looking to buy a
Nairobians live in informal settlements that housing unit
occupy less than 10 per cent of the land area in
today will
the city.
typically be
Both at the national and county levels, wheeler- shown roughly 20
dealers with access to looted funds are the
apartments before
people purchasing property left right and centre.
they make a

1 of 4 3/26/2017 9:27 AM
MUTIGA: How corruption blocks dream of home ownership among wa... http://www.nation.co.ke/oped/Opinion/How-corruption-blocks-dream-of...
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 Mungais 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.

PRICE DECLINE
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 dont end up living in them.

Seventy-five per cent of buyers purchasing apartments rent them

2 of 4 3/26/2017 9:27 AM
MUTIGA: How corruption blocks dream of home ownership among wa... http://www.nation.co.ke/oped/Opinion/How-corruption-blocks-dream-of...
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.

PREVENT OWNERSHIP

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.

Thats yet another of the many costs of corruption.

3 of 4 3/26/2017 9:27 AM
MUTIGA: How corruption blocks dream of home ownership among wa... http://www.nation.co.ke/oped/Opinion/How-corruption-blocks-dream-of...
*****

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.

mutiganews@gmail.com, Twitter: @mutigam

4 of 4 3/26/2017 9:27 AM