Butterfly Properties Ltd

BPL affordable housing
26 May

The rental housing model within the affordable housing sector

BPL has seen that the lack of durable housing can lead to several negative outcomes ranging from homelessness & poverty, disease, insecurity, and social unrest. With over 80% of majority African countries’ population being low-income earners, the average home price is 18x the typical annual salary; in the US it is 2.8x. Renters in these areas have even fewer rights than other slum residents and are one of the most vulnerable populations in urban Kenya.

Therefore, there is a profound impact inherent in providing resilient rental options to the poor. Yet there are few private sector developers addressing this need, even though it can be quite attractive from a business perspective due to the predictable and constant revenue it creates.

Thus, BPL hopes to be part of the solution to provide affordable housing within East Africa at competitive pricing, high quality and green construction. Having been in this industry and location for a number of years, BPL has the distinctive ability to control every aspect of the development process; making sure projects are completed on time, on budget and with the highest standards of excellence and quality.

BPL believes that the rental model for affordable housing is a critical component of any housing policy for a country, yet one that has remained virtually untouched by policy makers in context of a country’s national housing strategy. Every emerging county has a large percentage of the population that:

  1. Cannot afford to buy a home;
  2. Not qualify for a mortgage;
  3. Simply does not want to own a home at a certain stage in their lives.

When properly developed, rental markets can play a formidable role in promoting affordable decent housing. There are more and more people in emerging economies, and they are living in poor, informal housing conditions. The critical challenge of developing rental markets is getting more important as the world becomes increasingly urbanized and demographic pressures keep increasing the demand for affordable and decent housing.

Rental markets also play a key role in enhancing the market value of housing assets and in generating revenues from an unlocked housing wealth. Everywhere, there is great need for safe, decent, and affordable housing at the lowest income levels.

The development of a healthy formal rental housing sector is important for several reasons such as:

  1. The rental sector affords resilient shelter for households that do not have enough income to afford a home – Small monthly rents hence suit their profile and levels of affordability.
  2. A large percentage of the income earned is informal, there are limits to the share of the population that can qualify for mortgage loans.
  3. For markets like Kenya, reliable affordable rental options can have a faster impact than for sale options due to the difficulty in obtaining down-payments and mortgages. In addition, if mortgages are obtained, the servicing payments (principal & interest) make them virtually unaffordable given the high interest rate environment. If one considers 30-40% of income being used for housing as an acceptable level then with the current interest rates in Kenya, this level will be breached very quickly. See Example for Rental Vs Purchase Equation:

    Assumption (KES) | Purchase

    Salary50,000.00 p/m
    Home Price (1-Bedroom Unit)2,600,000.00
    Down Payment520,000.00
    Financing Amount2,080,000.00
    Interest Rate14.00%
    Average Loan Term120 months
    Interest Payment24,266.67 p/m
    Principal Payment17,333.00 p/m
    Total Monthly Payment (TMP)41,000.00 p/m
    TMP/Salary Percentage 83.20%

    *Includes closing costs & stamp duty. Using lowest market prices seen in Kenya currently


    Salary50,000.00 p/m
    Expected Rent (1-Bedroom Unit)15,000.00 p/m
    Expected Salary/Rent 30.00%

    As can be seen by the simple equation above, the rental option is much more affordable than the purchase option for most low-income earners.

  4. It allows for workers’ mobility especially in uncertain employment environments.
  5. Urbanization has increased migratory patterns from rural areas and small towns to cities and even within cities in search for work, education etc. The pressure of accommodating these migrants have increased and many such migrants prefer rental housing arrangements over ownership-based housing. This is especially true for Nairobi, where the majority of lower income earners are not from Nairobi itself.
  6. Housing prices increase and people are forced to move farther and farther away from the city center.
  7. Within many of the affordable housing for sale schemes, a majority of stock eventually goes into the hands of middle/higher income groups as market value of units increases – either by these groups buying them first hand (sometimes through suspect ways) or poor households selling them to make quick gains. Either way this has the opposite consequence of the intended.
BPL CriteriaResponseNotes
Housing is in-scopeYes
  • Rental units targeting the low-income earners in Kenya with salaries of US$500 per month well below the upper 20% of high-income earners.s
Range of in-scope homes matched to local incomesYes
  • With rental targets of approx. $150-200/ month, equating to 30-35% of income/month.
Environmental + social standardsYes
  • Efficient building design with incorporation of sustainable practices.
  • Near strong transport links to decrease carbon footprint.
  • Strong governance policies in places including anti-corruption and safety regulations.
Complies with appropriate design standardsYes
  • Strict compliance to building codes including health and safety regulations during construction.
  • Fire and safety regulations.
  • Proper wastewater management.
  • Internal toilets, lighting, parking etc. provided for.
  • Good security to safeguard women and children.
Includes basic services, transport links, access to jobs and social amenitiesYes
  • Excellent location with major highways/roads and rail for efficient commute to major employment centers.