![[Column] Benard Onyango: Navigating the true cost of homeownership in different markets across Africa](/assets/components/phpthumbof/cache/Benard_Onyango_%20West_Kenya_Real_Estate_Africa_Business_Communities.8b9e9c238b4a37cc031afe849f0b91f7.jpg)
[Column] Benard Onyango: Navigating the true cost of homeownership in different markets across Africa
Owning a home is something that the world's families deeply aspire towards. To many Africans, however, that dream is rich with challenges and opportunities unique to the continent but varying from country to country.
As a real estate executive in Kenya, I have witnessed the intricate web of factors that shape the state of homeownership on our continent. It’s time we had that talk about the actual cost of homeownership in Africa and understand the natural barriers our people are going through.
Economic Disparities
The African Development Bank predicts that Africa’s population will reach 2.4 billion by 2050, setting the stage for a boom in housing demand that has never been experienced before. But how can this be matched? With an approximate GDP per capita of $2,010 in 2022, Kenya stands on approximately the same level as Nigeria, at $2,163, significantly below South Africa's $6,761. There are critical economic disparities here.
This is measured by the Housing Affordability Index, which sits at a mere 40% in Kenya, according to the Centre for Affordable Housing Finance in Africa—meaning that many families may find it very difficult to afford homes without severe financial strain. South Africa does a little better at 55%, but things are still very tight.
Cost of Land and Construction
Let us talk numbers. Land prices in the urban areas of Kenya have increased rapidly in the past ten years. Prime residential land situated within Nairobi's Upper Hill, for example, now goes for approximately KSh 480 million per acre. Compare this with Lagos, Nigeria, whose price of land hovers at around ₦200 million per acre on prime lands. Construction costs vary a great deal also: it stands at an average of KSh 35,000 per square meter in Kenya, ₦ 250,000 in Nigeria, and ZAR 10,000 in South Africa. These numbers reflect one thing: the real-life struggles involved as families struggle to make ends meet with the dream of a stable home are unimaginable.
Regulatory Hurdles
The determinants of homeownership costs, therefore, remain in regulatory environments. In Kenya, these comprise a critical part of the regime composed of the National Construction Authority and the Ministry of Lands and Physical Planning. While their guidelines are needed to ensure safety and order, bureaucracy is a challenge that inflates costs.
In South Africa, standards are enforced by the quite stringent National Home Builders Registration Council and hence an addition to compliance costs. In Nigeria, fragmentation in the regulatory system exists, with multiple authorities overlapping, further complicating things and raising costs.
The Funding Challenge
Affordable financing is quite essential. However, mortgage penetration in Kenya stands low at less than 4% of GDP, according to the World Bank. Interest rates have reached incredibly high levels and are very off-putting at an average of around 12-14%. For a KSh 10 million home ($77,391.26), with a 20-year mortgage interest rate of 13%, this translates into close to KSh 141,000 (1091.22) per month—a daunting figure for most middle-income earners.
Kenya’s mortgage scenario contrasts sharply with mortgage penetration of about 16.3% in South Africa, where interest rates are generally lower and average 9-10%. For instance, a home costing about ZAR 1.6 million (USD 89,067) at an interest rate of 9.5% equates to monthly payments of about ZAR 20,112 (USD 1,119.52). In Nigeria, with raging inflation and interest rates often above 20%, mortgages remain a dream for many.
Affordable Housing Projects: Hope at Last?
A low-cost housing project in Nairobi gives some hope to middle-income earners. It aims to offer affordable housing within reach at a reasonable cost per unit. But this can only be achieved if a parcel of land of moderate size is availed for the construction of several units designed to be comfortable but affordable.
This is challenging because it entails balancing costs—from land acquisition to building construction—with a low final selling price most families can afford. By keeping expenses as low as possible while retaining quality in land use and construction methods, this program can succeed. Although it is an affordable selling price, for many, it is still a loaded financial burden to bear.
Such a project could only be feasible with some additional fund options that provide preferred mortgage terms to reduce the monthly payments as much as possible, and the Kenya government has instituted unfavorable tax measures for this.
Affordable housing projects show just one critical step taken toward this vision of making more people homeowners. It represents a prototype of how intellectual planning, efficient use of resources, and innovative financing solutions can be combined to meet effectively the needs for affordable homes. While greater challenges abound with any such initiative, they do take us closer, after all, to the dream of realizing that the majority of our people own homes on the continent.
Policy and Market Interventions
Another attempt at this is in Nigeria, where the FHF targeted to deliver 500,000 homes in 2023 with specific regard to low-income earning families. In South Africa, RDP has delivered more than 3 million houses since 1994. However, it is not all smooth sailing. Issues in land tenure, inadequate infrastructure, and high construction costs are only the tip of the iceberg. Tenure security for increasing informal settlements was still elusive despite improvement through the new processes driven by the Kenya Land Registration Act 2012 and the Community Land Act 2016.
The Human Element: More Than Just Numbers
Homeownership is more than an economic issue; it's about safety, stability, and belonging. To most Africans, this means freedom from the rental markets and a chance to build wealth for generations.
According to Susan Parnell in her book on Africa's Urban Revolution, the property ladder will bring about the transformative power of urban house ownership: "Secure housing is a cornerstone of urban citizenship, enabling people to invest in their communities and futures." As Economist David Ndii agrees. "Homeownership can drive broader economic development by spurring local investment and entrepreneurship."
The numbers we have seen are a wake-up call. There is a need to streamline regulatory processes, enact policies and programs for making financing affordable, and leverage technological innovations in construction and funding. After all, homeownership costs go beyond financial metrics to the fundamental goal of inclusive, sustainable communities. Each home built is not just any structure; it testifies to the undying spirit of resilience and aspirations of the African people.
Going through these complexities with an eagle eye and a commitment to equitable development will make the dream of homeownership a reality for many across the continent.
Benard Onyango is the Managing Director of West Kenya Real Estate
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