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11 October 20218 minute read

Sustainable Real Estate Financing Options in Kenya


The real estate sector in Kenya is a fast-growing sector, with reported exponential growth in recent years.1 The commercial and residential real estate sectors continue to grow as people strive to own office space and homes. This upward trend is expected to continue, especially due to factors such as rapidly growing population, rural-urban migration, and government initiatives like the affordable housing being part of the Kenyan government’s Big 4 Agenda. The Kenya Mortgage Refinance Company, established by the government of Kenya, aims to increase availability of funds through credit as a wholesale lender by offering two categories of loans: affordable housing loans and market rate housing loans,2 which are also likely to affect the development of the real estate sector.

One of the challenges facing the real estate sector is the scarcity of land,3 which has led to increased development of multi-unit buildings, hence more utilization of the vertical space. The high cost of acquiring land and the cost of construction are also considered major challenges facing real estate development in Kenya.4 This article covers these major challenges and outlines the need for sustainability in the financing of real estate developments.

Due to limited sources of funding, the real estate financing conditions in Kenya have been relatively rigid for a long time.5 Necessity being the mother of innovation, the real estate finance sector in Kenya has not been devoid of innovation. In the recent past, new real estate financing products have been created, including real estate investment trusts (REITs), and mezzanine financing. Real estate industry players have also developed innovations geared towards mitigating climate change and promoting sustainable real estate developments. While green financing is relatively new in Kenya, it is gradually gaining traction among the players in the real estate finance sector.

Traditional real estate financing options

Debt financing – also commonly referred to as mortgage financing – and equity financing are some of the most common methods of financing real estate in Kenya.

Debt financing entails an individual, a company or a developer acquiring a loan from a financier to either purchase or build a house and then repaying the loan with interest over a pre-agreed duration.

Equity financing is also common in Kenya. It involves arrangements such as joint ventures and pre-sale financing.6 The former involves two or more parties pooling resources to undertake a project, while the later involves sale of properties before they are built. Using savings is also a common financing option.7

Real estate finance and climate change

According to the 2020 Global Status Report for Buildings and Construction by the Global Alliance for Buildings and Construction (GlobalABC), emissions from the operations of buildings hit the highest level in 2019, accounting for 38% of total global energy related emissions.8

As a signatory to the Paris Agreement, Kenya has developed Nationally Determined Contributions (NDCs) that set out the country's mitigation and adaptation actions that seek to lower greenhouse gas emissions by 30% by 2030. Kenya also enacted the Climate Change Act, 2016, whose overall objective is to provide a regulatory framework for an enhanced response to climate change, and to provide mechanisms and measures to achieve low carbon climate development.

In addition to being a good and ethical business practice, incorporating sustainability into business operations helps in mitigating climate change. World over, the real estate sector has gradually adopted practices aimed at reducing greenhouse gas emissions, and one such practice has been through sustainable methods of financing real estate developments. Kenya has shown appreciation of green financing options, evidenced by the supportive policy and legal framework that presents an opportunity for the creation of green financing innovations and instruments.

An example is the ongoing development of the Green Fiscal Incentives Policy Framework for Kenya (GFIK), aimed at “providing guidelines on enhancing private financing of climate actions, spurring green innovation and technology development, improving green fiscal consolidation, and helping identify smarter ways for government taxation and spending.” The rationale for GFIK is that with appropriate economic instruments that establish economic incentives, green fiscal policies can help shift consumption patterns and drive private investments with voluntary compliance in projects that adopt cleaner production mechanisms and that reduce greenhouse gas emissions.9

Additionally, the Ministry of Environment and Natural Resources formulated the Green Economy Strategy Implementation Plan (GESIP) 2016 to 2030. The GESIP is geared towards achieving a higher economic growth rate in Kenya, rooted in the principles of sustainable development,10 by guiding the national and county governments, the private sector and civil society to adopt development avenues with higher green growth. Sustainable financing is among the enabling conditions for a quick transition into a green economy as identified under the GESIP policy framework. The government of Kenya undertakes to explore diversification of policy and financial instruments that support the green economy such as green bonds and eco-taxes.11

The GESIP targets five main thematic areas, one being sustainable natural resource management through interventions in land management. The other relevant target area is infrastructure, where the framework proposes to promote sustainable infrastructure with the objective of promoting sustainable design, construction and maintenance of buildings. The goal is to ensure 75% of new and renovated large-scale buildings in Kenya are green by 2030. The aim is also to develop and implement certification standards for green buildings and to strengthen the skills of all the construction industry players on green technologies in the construction sector. The strategy plan also aims at developing innovative financial instruments, including debt financing such as bonds, to finance sustainable infrastructure.

The Green Bonds Programme Kenya, an initiative of the Kenya Bankers Association (KBA), Nairobi Securities Exchange (NSE), Climate Bonds Initiative, Financial Sector Deepening (FSD) Africa and FMO – Dutch Development Bank, aims at promoting financial sector innovation by developing a domestic green bonds market. Among others, the objectives of the programme include developing a pipeline of green investments and engaging with local and international investors and supporting green bond issuance from leading banks and corporates.

Another development in sustainable financing is the Kenya Sovereign Green Bond Framework. The framework is intended to increase mobilization of green sustainable financing in alignment with the Green Bond Principles (GBP), the Climate Bonds Standards, the EU Green Bond Standards and the International Capital Market Association Standards. The proceeds of the Sovereign Green Bond are intended to finance projects that contribute either to the elimination or reduction of emission of harmful gases, improved resilience to climate change, promote cross-cutting projects that contribute both to reduction of emissions and improve resilience to climate change, and or development projects that are not recurrent.

Regulations on REITs in Kenya also present a good opportunity for development of green buildings, hence increasing financing in the form of REITs green bonds. An example is Acorn Holding’s listed green bond approved by the Capital Markets Authority in 2019 and the Acorn Student Accommodation Development REIT (ASA D-REIT) and Income REIT (ASA I-REIT) approved in 2020. Acorn Holdings, which issued the country's and East Africa's first green bond and is listed in the NSE and the London Stock Exchange, has had a monumental impact on the building industry as it aims to provide university students with environmentally friendly accommodation.12

These developments towards sustainable real estate financing in Kenya are an indication that the players in the sector are heading in the right direction in the wake of global concerns surrounding climate change and need to take action to address the concerns. There is a need for all relevant stakeholders to take action to ease access to capital and finance to provide sustainable real estate investments in Kenya. The financial institutions sit at the top of the food chain and have a critical role to play in the realization of the policy goals by developing innovative financial products that support the green economy and mitigate climate change.

1 Current Real Estate Trends in Kenya & How They Affect Investors’, accessed 7 September 2021.
3 Daniel K Mungai, ‘Role of financing options on the growth of real estate in Kenya: a survey of real estate developers in Nairobi metropolis’ 97.
4 ibid 9.
5 Mungai (n 3).
6Alternative Financing for Real Estate Development’, accessed 29 August 2021.
7 Onyango George, ‘Effect of real estate financing on performance of commercial properties in Kenya’ 50.
8 ‘Building Sector Emissions Hit Record High, but Low-Carbon Pandemic Recovery Can Help Transform Sector – UN Report’ (UN Environment, 16 December 2020), accessed 1 September 2021.
9 National Treasury and Planning, ‘Green Fiscal Incentives Policy Framework for Kenya.’
10 Green Economy Strategy Implementation Plan 2016 to 2030.
11 ibid.
12Acorn Holdings, Student Accommodation Developer in Kenya, Listed on Nairobi Securities Exchange – PIDG’, accessed 7 September 2021.