Strategic responses by housing finance company of Kenya limited to the environmental challenges facing the mortgage industry in Kenya

Abstract

The mortgage industry in Kenya faces a challenging environment. The study sought to determine the environmental challenges facing the mortgage industry in Kenya, and strategic responses adopted by Housing Finance Company of Kenya Limited to such challenges. The study revealed that industry faces high costs all around. From the cost of land, to cost of building and contruction, to interest rates, taxation, as well as the challenge of providing long term funding using short term funds. These high costs increase the costs of mortgages, causing mortgages to be out of reach for the majority of Kenyans. Many people are also afraid of taking up mortgages, due to the fear of consequences if they are unable to pay, causing them to seek for personal loans instead. From the reseach, it emerged that political factors also pose a big challenge to the industry. Government does not have a clear focus on the housing industry, and most of the solutions to the issues facing the industry lie with it. The research design applied in the study was a case study. The primary data was collected using interview guide administered to four interviewees who are part of the top management team. The analysis of the qualitative data gathered was done using content analysis. The study unearthed strategic responses by Housing Finance Company of Kenya Limited. Product innovation has been a major factor for the company, by addressing the affordability issue. Through flexible products that enable customers to save and offering a higher percentage of the loan amount, more people are able to afford mortgages. Restructuring along the real estate value chain has also enabled the organization to focus on different areas of the industry, including development, property sales and insurance. It has also diversified its offering to create new funding sources by going into full scale banking. To solve the funding issue, it has so far issued two corporate bonds, which have helped ease the funding gap. With the realization that the government holds the keys to changes for the industry, the organization engages in lobbying directly and through bodies like Kenya Private Developers Association and Kenya Private Sector Alliance to push for policy and legislative changes that will be favourable for the industry. It is also working on its IT systems to integrate the new structure to ensure efficiency and rejuvenating the internal culture to reflect the new status of the company. Housing Finance set up the Housing Finance Foundation, to help the industry in training and nurturing talent for the building and construction industry, which is not well trained. The organization is therefore positioning itself as more than just a mortgage company, but as an integrated solutions enabler for the property industry. The research concludes that Housing Finance has effectively responded to environmental pressures, through strategic planning and management. However, the researcher concludes that there is need to carefully approach the focus on the real estate value chain. There is a risk of the company trying to do too much which is potentially detrimental to the business in provision of expertise and competitiveness. The researcher therefore concludes that company should think about outsourcing needs such as construction and technology rather than creating its own capabilities. Creating more strategic alliances and joint ventures on projects will allow it to focus on its area of expertise and build capacity for better competitiveness.