The government has struggled to attract private investors into the affordable housing programme using one of its key incentives, the ‘guaranteed offtake agreement’.
The off-take model sought to ensure developers are paid all their dues within two-years after completion of the project.
Under the arrangement, the developer and the National Housing Corporation (NHC) enter into an off-take agreement prior to construction.
The agreement requires the developer to engineer, procure, construct and finance the units, and then sell the units to NHC upon completion at an off-take price of KSh 40,000 and KSh 50,000 per sqm (net internal sqm.).
Also, the developer is required to build 70 percent of the units to the AHP specifications and allowed to build 30 percent to market specifications. As part of the agreement, developers must provide cash collateral or a letter of guarantee of KSh. 100 million (US$1 million) to enter into the off-take agreement.
However a recent report by Centre for Affordable Housing (CAHF) shows that developers are not enticed by the off-take agreement in its current form.
Developers have cited difficulty in procuring construction finance and the poor credit rating of the government locally in reference to the government’s reputation for late and unreliable payments.
They also pointed out that the off-take agreement ignores development realities. For instance, the allowance that 30 percent of units can be built to market specifications as a lure to developers is only applicable to areas with high land-values, such as centrally located land in big cities where the market for higher-value housing can be established and not in peri-urban areas with longer commutes and lacking in amenities.
It also does not take account of the recent weakness in the Kenyan economy, which has softened considerably since 2017, resulting in a contraction of off-plan sales and diminished speculative interest in the residential real estate sector.
The report states that the proposed AHP off-take model offsets normal developer operations where cash flow financing is more aligned to market realities with regard to pricing of units and access to construction finance.