Exploratory study of new housing finance in Kenya
Ochieng', Vincent Michael
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This dissertation is an exploratory study of new housing finance in Kenya which is viewed as ‘risky’ and is largely avoided by financial institutions. This is against the background of a housing industry where 80% of the houses are constructed as opposed to purchased. The study is justified by the fact that Kenya suffers from a problem of inadequate housing with approximately 60% of the urban population living in slum settlements. The main objective is to understand how banks in Kenya handle the risk associated with new housing lending and the building process within it. A comprehensive literature review section of the dissertation surveys relevant theories around the topic of housing finance, risk and the building process. The literature review demonstrates that overall, new housing finance is faced by challenges of quantifying and mitigating risk. Three leading new housing lenders were studied and compared focusing on how they assess and make decisions to lend and how they manage the risk of the construction process. The methodology involved is case study based and descriptive. The dissertation concludes that banks can successfully mitigate risk associated with new housing lending and succeed in it by such actions as securing of long term finance and working closely with construction professionals. The study has implications for the government which needs to institute reforms to improve the finance sector and for the building industry in general, which will better play their role in risk mitigation. The dissertation recommends further research on other forms of new housing finance such as housing micro-finance.