For many years, tenant purchase schemes have been associated with government agencies such as HF Group, the National Social Security Fund (NSSF) and the National Housing Corporation (NHC).
The scheme is an alternative payment method for property acquisition whereby the home buyer makes a down payment and is able to access the facility before fully paying for it within an extended period of time.
Most developers in the market tend to shy away from the model as it ties down their cash flow. However, with the many housing developments coming up, and many new and unoccupied residential houses within Nairobi and its environs, the tenant-purchase scheme may just be the right model to adopt. That the appetite for tenant-purchase schemes in Kenya’s real estate market is huge is not in doubt.
What Tenant Purchase Plan Projects Have Been Successful?
In November 2016, Safaricom Investment Co-operative (SIC), the investment arm of Safaricom Limited, took a risk and adopted a tenant purchase scheme for its Blue Bells Apartments project in Syokimau. They wanted to widen the scope of homeownership by making the payment process flexible, easier and to accommodate more prospective home buyers.
The market response was impressive. Within just three months, they hit over 25 per cent of their 2016 sales target.
By January 31, 2017, all the 160 units in Bluebells Apartments phase one were taken up. They realised that there was a big market gap that had not been tapped into. The tenant purchase scheme came in handy to address the home-ownership needs of this market; the un-salaried business people.
Tenant Purchase Scheme vs Mortgage
To some people, tenant purchase schemes may sound like taking a mortgage. But the two are different. For one, the requirements under a tenant purchase scheme are not as stringent and detailed as those of a mortgage.
The approval process for tenant purchase schemes is simpler and faster, sometimes taking only two weeks. Approval for a mortgage application, on the other hand, could take as long as 90 days due to the registration of charge.
Furthermore, the cost of borrowing under the Tenant Purchase Scheme is lower than a mortgage and is on a reducing balance basis. And should you default, the foreclosure deadlines are flexible, with several warning letters coming before a public advert with a notice period?
This is unlike a mortgage where demand letters are issued and followed swiftly by litigation
One can also easily sell off one’s house under Tenant Purchase Scheme because getting the developer’s consent and change of records is faster. With a mortgage, the process takes longer due to various consents and ‘discharge of charge’ against titles.
Finally, in a Tenant Purchase Scheme arrangement, the buyer enjoys a grace period – this is the period between payment of the deposit and when the house is ready for occupation. There is yet another grace period between receiving the letter of occupation and starting to pay the monthly instalments. Normally, one is given about a month before interest starts accumulating.