CENTRAL BANK OF KENYA
Remarks by
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GOVERNOR
CENTRAL BANK OF KENYA
Kenya School of Monetary Studies
Wednesday, June 23, 2010

The Permanent Secretary, Ministry of Housing, Mr. Tirop Kosgey
The Counsellors of Real Estate
Distinguished Guests
Ladies and Gentlemen
It is my great pleasure to warmly welcome you all to this important interactive forum
on “Growing Real Estate through Finance”. I thank all present for accepting our
invitation. In particular, I wish to thank the Counsellors of Real Estate represented
here for joining us to deliberate on growth and financing of such an important sector
in the Kenyan economy.
Ladies and Gentlemen: In any economy, long-term finance is one of the key drivers
of economic growth. Long-term finance allows for the provision of affordable and
adequate housing which is a major thrust of Kenya’s Vision 2030. Indeed, in line
with the objective of this forum, one of the flagship projects under the “Housing and
urbanization” as stipulated in the Vision 2030 is ‘Mortgage Financing Initiatives’. At
an estimated annual demand of about 150,000 housing unit, the supply is barely at
35,000 leaving a gap of 115,000. The sector thus portends enormous opportunity
and a major market; appropriate and innovative financing mechanisms are therefore
absolutely essential.
This forum brings together bankers, regulators, practitioners, researchers, academics
and senior government policy makers to discuss this vital agenda – Real Estate
Financing in Kenya, but I do believe that one of the solutions is not only the source of
long-term finance but also the collateral technology and its process must be improved
and simplified. The outcomes and policy conclusions of this interactive forum are,
therefore, an important input into policy responses in addressing the binding
constraints in this sector and the economy.
The Kenyan financial system through its intermediation role remains the key pillar in
providing mortgage financing. Although there is evidently enormous opportunity in
the sector, lending to the building and construction and real estate sector stands at
12.2% (Ksh 92.5 billion as at end of 2009) of the total credit by banks and mortgage
finance companies. The bulk of financing, it does appear, is through household
savings. This is a clear indication that financing is one of the major constraints. While

most deposits are of short term nature, mortgage finance is long-term. The traditional
mismatch constraint therefore comes into play. This requires a well developed
mortgage market to address long-term funding requirements of the sector.
Developing mechanisms for long-term finance is good for monetary policy
transmission as well. The MPC has been trying to address the issue of long-term
finance; we do hope this forum can provide some viable and feasible options.
Ladies and Gentlemen: The Government’s commitment to growth of real estate sector
is in our blueprint for Vision 2030 and is also well articulated in the Finance Bill,
2010. The Finance Bill outlines a number of measures to spur growth in the property
market. In particular, in order to facilitate provision of adequate housing to Kenya’s
growing population, The Finance Bill, 2010 contains proposals to amend the Banking
Act:
(i) To allow mortgage finance companies to operate current accounts; and
(ii) To allow banks to advance up to 40% of their total deposit liabilities up from
25% for purchase, improvement or alterations of land.
These measures will unlock the sector’s potentials by availing funding required to
finance growth of real estate in Kenya. The Central Bank will continue to work with
the sector to improve the operating environment.
It is equally important for the players in the real estate sector to design innovative
ways of securing funds to exploit opportunities available. For instance, pension funds
are needed for guaranteeing members’ mortgages. This is happening in Kenya, but
still at a low scale. Leveraging on such long-term instruments will lower costs and
make decent and low cost housing available to potential borrowers. Also, other
investment vehicles such as unit trusts have the potential of pooling funds required for
specific projects.
In addition, the success of the Kenya Government infrastructure bond as well as other
corporate bonds that have followed, demonstrates enormous potential of the bond
market. In 2009 alone the Government raised a total of Ksh 54.7 billion through
bonds issues, and the infrastructure bonds were oversubscribed every time. This is a
clear testimony of the market’s ability to provide cheaper source of funding for longterm projects such as mortgages. To further deepen the bond market, the Central

Bank has implemented a number of measures, including introduction of benchmark
bonds and re-opening of these benchmark bonds to create liquidity and facilitate
trading. We can then use this infrastructure bond platform to develop housing bonds.
Ladies and Gentlemen: In all this, a vibrant financial sector with adequate and
dynamic human capital is a vital component. The Kenya School of Monetary Studies
as the capacity building institution of the Central Bank of Kenya and the region is well
placed to develop and implement a curriculum that fits 21st century Real Estate
Financing. This curriculum is expected to be broad and multi-disciplinary cutting
across various fields in demand for capacity building. Such a multi-faceted capacity
building program will provide the requisite skill sets to unlock potentials of the real
estate sector in Kenya.
Distinguished Guests, Ladies and Gentlemen, with these remarks on the future of this
market, it is my pleasure to declare this interactive forum officially open.
I wish you all fruitful deliberations.
Thank you.