Kenya Re eyes high returns in plan to triple its mortgage lending

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Kenya Reinsurance Corporation will triple its mortgage loan book in 2011 to tap into the high-yielding property market.

Acting CEO Jadiah Mwarania said the company will increase lending reserve from the current limit of Sh100 million to Sh300 million every year starting January.

“Mortgage will remain our non-core business, but we want to continue to tap its good returns,” said Mr Mwarania. “We have also decided to increase the amount we can lend because the cost of construction has gone up.”

Real estate

The average mortgage size has gone up to Sh4.4 million compared to Sh2.48 million in 2006, while the mortgage loan portfolio among the lenders rose from Sh19.5 billion in 2006 to Sh61.5 billion in May 2010, according to the Central Bank of Kenya (CBK) survey.

The increase is motivated by the popularity of the mortgage product it launched last year whose intake was “very fast”, said the CEO.

Mortgage is not entirely new product from the reinsurer, but previously the company lent customers to buy property it had developed.

But in 2009 it set up a Sh100 million fund to lend mortgage to individual and corporations to acquire or develop independent property.

It has gone slow on property development to stabilise its exposure through the 35 per cent it has in property assets.

The reinsurer lends at a fixed rate of 14 per cent compared to an average 14.07 per cent industry average, according to the CBK November statistics or 14.64 per cent average lending rate of commercial banks.

Kenya Re’s 2009 annual report shows that its mortgage loans averaged Sh404 million to the year ending December 31, most of which was borrowed under the previous system.

Interest from mortgage, however, dropped from ShSh62.3 million to Sh52.8 million.

The increase makes more money available for property development at a time when the sector is on paced growth that has resulted in an increase of land prices, especially within Nairobi and its environs.

Data from the CBK indicates that commercial banks lending in the real estate sector more than doubled in one year ending September 2010, from Sh46.4 billion to Sh93 billion.

An industry analysis by Stanbic Investments Management Services and HassConsult showed that on average, earnings from real estate since 2000 are three times more than stock market returns.

Kenya Re currently underwrites business for all the 43 insurance companies in Kenya, which are by law required to cede 18 per cent of their reinsurance to the company up to 2015.

Compulsory cessions account for 40 per cent of Kenya Re’s gross premium income.

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