Plot purchase and construction topped the uses of loans taken out by Sacco members, a new report shows, pointing to an increased desire for home ownership despite shrinking pay slips.
A Financial Sector Deepening Kenya (FSD Kenya) survey that involved Sacco Societies Regulatory Authority (Sasra) and Kenya Mortgage Refinance Company PLC (KMRC), showed members took out most loans for buying small parcels of land followed by construction of multiple residential units such as apartments and single units.
“Plot purchase is the dominant purpose for Sacco land and housing loans, presenting a clear opportunity to drive uptake of construction mortgages, enabling members to develop purchased land,” the report read in part.
Sacco members took Sh17.4 billion to purchase plots, followed by Sh4.05 billion for building apartments and other income generating rentals and Sh3.7 billion for the construction of single residential units, according to the loans portfolio of the institutions that participated in the survey.
“Construction is the second most popular use of funds, suggesting that most land purchased by members is likely earmarked for future development,” the report added.
“Construction loans are in higher demand than outright purchase loans, as they allow members to build customised homes while maximising perceived value for money and affordability compared to ready-built options… [They] are also popular for building income-generating rentals.”
These loans also support incremental building —using multiple loans to gradually build over time. This is highlighted by the lower average principal amounts compared to mortgages pegged on most members earning below Sh100,000 monthly.
The number of loans taken out for the purpose of buying land were 13,343 at an average principal of Sh1.3 million, accounting for the larger share of loans.
Construction of multiple residential units accounted for 10.1 percent or Sh4.05 billion, with 3,097 loans taken out at an average Sh1.3 million. Some members took loans of about Sh1.03 million for the building of a single residential unit.
Incremental building lets members who cannot qualify for a full construction loan build their homes in stages using smaller, short-term loans over a period of time.
“This approach differs from KMRC’s construction or buy-and-build products, which require qualification for full funding upfront for the entire project cost. Saccos could respond by creating a structured incremental building product that mirrors this phased borrowing pattern while meeting refinancing criteria,” the report recommends.
The report aggregated data on the 19 sacco loan portfolios under land and housing loans, including mortgages, based on statistics provided by the participating lenders.
All saccos that participated in the study were deposit-taking institutions, with the majority classified as ‘larger tier’ by asset size and 84 percent of them had assets above Sh5 billion in 2023.
