The Ministry of Transport, Infrastructure and Housing through the national treasury has plans to raise part of the funds required for the affordable housing project by floating bonds in the capital markets. The mortgage-backed securities (MBS) will be secured by completed houses to raise capital for the affordable housing fund.
A mortgage-backed security is a type of asset-backed security that is secured by a mortgage or collection of mortgages. This security must also be grouped in one of the top two ratings as determined by an accredited credit rating agency, and usually pays periodic payments that are similar to coupon payments
The securities, which will be targeting various classes of investor, will add to the number of sources of financing for the affordable housing project which so far include deductions from employee salaries, grants from development partners, debt and voluntary contributions.
Treasury guidelines for the plan indicate that the MBS will be issued in three categories including short-term notes of up to five years, medium term notes of up to five to 10 years and long-term notes of 10-20 years targeted at institutional investors like pension funds and banks.
However, the plan could take up to at least five years as the Ministry of housing recently revealed that interested individuals may have to wait for five years before they can buy houses. The ministry expects to raise at least Sh. 57 billion from employee deductions every year.
In the 2018/2019 budget, the National Treasury allocated Sh. 6 billion to the programme, which requires Sh2.3 trillion to complete. Investors have in the past shied away from the risky low-cost housing markets but government backing could be sufficient incentive to reverse their sentiments.