Linzi Finco Trust has been given a greenlight by the Capital Markets Authority (CMA) to float a Sh3 billion bond to build institutional housing units, a move that is set to open up sharia-compliant financing in the country.
Kenya’s Capital Markets Authority (CMA) this week allowed the issuance of the first-ever Islamic bond in the country, tapping into the unexplored potential of sharia-compliant financing and setting the tone for diversification of capital markets in East Africa.
With this Islamic bond, also popular as sukuk, there is a new ray of hope for Shari’ah focused investors. Dubbed “Linzi Sukuk”, the bond will offer an internal return of 11.13% and will be used to develop 3,069 housing units.
“We are thrilled to embark on this pioneering journey with the issuance of the first Sukuk bond,” CMA CEO Wyckliffe Shamiah, said.
“This financial initiative represents not only a new investment opportunity but also a significant step towards addressing the housing deficit in Kenya and supporting the Government’s transformative agenda,” he added.
The approval now offers investors investment options with experts anticipating that Kenya’s real estate performance will remain on an upward trajectory, supported by positive demographic trends facilitating increased housing demand, continued focus by the government and private sector to provide affordable housing, infrastructure developments opening up areas for investments, and rapid expansion of retail investors seeking market dominance.
But with this expected growth, there is oversupply of physical space in select sectors, including commercial office and retail sectors leading to slower uptake of new spaces, rising construction costs on the back of inflationary pressure, and limited investor knowledge and interest particularly in REITs, which is expected to hinder the sector’s optimal performance.
CMA says that the issuance of the bond underscores Kenya’s commitment to address the pressing need for affordable housing through affordable financing.
This comes even as the current regime targets to build at least 250,000 houses annually, for the next five years, a project that could see more than six million Kenyans living in informal settlements get decent and affordable houses. With a supply of only 50,000 new houses per year, there is an 80% annual housing deficit.
However, many see a silver lining – the government has a plan to deliver 200,000 housing units annually through collaboration between the national government, counties, and the private sector. There have been at leas three projects launched in the past three months, with 7,800 units in the offing.
In Kirinyaga County, the first 100 units currently under construction include 20 studio apartments, 40 one-bedroom units, and 40 two-bedroom houses. The entire project is planned to produce 1,000 units, and will be ready for occupation by June 2024.
Most significant the over six acres that the government handed for the project and assured the county residents that they will be the major beneficiaries of the project. Besides providing 90% of construction labour with the opportunity to provide construction materials, residents will also have a chance to own the low-cost houses once they are completed.
There are also plans to undertake similar projects in Sagana, Kianyaga, Wang’uru, and Redsoil in Mwea East. The government has launched the construction of some 1000 houses in Ol Kalou town, Nyandarua County, under the affordable housing project.
