Kenya’s real estate market, which saw significant growth between 2010 and 2012, has since experienced a notable slowdown, a trend attributed to persistent market shocks.

Speaking on TV47’s “Morning Cafe” show on Tuesday, financial and insurance analyst George Munga delved into the reasons behind this sluggish growth in recent years.

Munga explained that many companies in the real estate sector have struggled, citing examples like “Soraya” and “Saito” as firms that faced considerable challenges due to prevailing market shocks.

He attributed this slowdown primarily to a fundamental mismatch between the short-term liquidity available in the market and the long-term financing required for mortgage facilities.

“Most mortgage borrowers typically seek financing for periods ranging from 10, 15, or even 20 years,” Munga elaborated. “This means they require long-term capital to service their mortgages. Yet, what we predominantly have in the market are short-term facilities or short-term liquidity.”

The analyst further highlighted that for most banks, the primary source of liquidity comes from customer deposits.

He explained that these are largely current account deposits or deposits on demand, which customers expect to withdraw readily.

Even time deposits, he noted, generally have a maximum tenure of one year, meaning customers expect their money back relatively quickly.

“So, in most cases, the liquidity market is more short-term, while the liquidity required for mortgages is longer-term,” Munga stated. “That has been the mismatch that we have in the market, and if we can bridge that, we can be able to finance more mortgages.”

Munga suggested that pension funds could offer a viable solution to this challenge, given their inherently longer-term nature. “If I enter into employment today, I start saving for my pension immediately, and I might only withdraw it after 20 or 30 years,” he noted.

However, he also pointed out a key hurdle in Kenya, where pension laws and regulations dictate that only a small percentage of income goes into pension schemes, with another portion going to the government.

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