Investing in Kenya’s Mortgage Market: Tips for Consistent Income

As Kenya’s investment landscape evolves, more individuals are turning to mortgage-based investments to increase their incomes. 

With rising interest rates, investors are seeking alternatives to traditional options like money market funds, finding that mortgage investments offer steady returns while also supporting the country’s housing goals. Mortgage investing involves providing capital for home loans and earning interest from borrowers’ repayments. Investors can participate directly or through financial products offered by banks, Savings and Credit Cooperative Organizations (SACCOs), or institutions such as the Kenya Mortgage Refinance Company (KMRC). 

This approach offers the dual advantage of helping Kenyans achieve homeownership while generating reliable income for investors. One popular way to invest is through mortgage-backed securities and bonds. Issued by KMRC or commercial banks, these instruments pool funds to finance housing loans. Investors receive regular interest payments secured by the properties themselves. 

This method has gained traction alongside government initiatives aimed at expanding affordable housing, including projects like the Mukuru Housing Estate, which launched over 5,000 units last year. SACCO mortgage schemes are also attracting investors, especially those who prefer community-based models. SACCOs use member contributions to fund home loans and share returns as dividends. 

Their low entry requirements, sometimes as little as Ksh50,000, make them accessible to many Kenyans and effective at mobilizing domestic capital.

The market is further diversifying through private lending partnerships. Here, investors collaborate with microfinance institutions, housing cooperatives, or banks to co-finance mortgages. While these arrangements can offer higher returns and flexible terms, they also carry greater risk due to borrower default potential. 

Seller financing, where property owners allow buyers to pay in installments, is another growing trend that enables owners to generate income while maintaining control over repayment. For those seeking a more hands-off investment, Mortgage Real Estate Investment Trusts (REITs) provide a regulated option to invest in mortgage portfolios. REITs collect funds from multiple investors, issue loans, and distribute returns based on interest earned. 

Although minimum investments are typically higher, between Ksh100,000 and Ksh500,000, REITs offer diversification and professional management.

Understanding different mortgage types is crucial for investors. Fixed-rate mortgages provide stable returns and protect against interest rate changes. Adjustable-rate mortgages (ARMs) start with lower rates but can fluctuate based on benchmarks like the Central Bank of Kenya rate. Financial advisors recommend aligning mortgage choices with one’s risk tolerance and income goals.

Despite the opportunities, mortgage investing carries risks. Loan defaults remain a concern, especially during economic downturns. Investments tend to be long-term, tying up capital for extended periods. Additionally, fluctuating interest rates can affect returns, particularly for ARMs. Nevertheless, the sector’s growth is supported by Kenya’s significant housing deficit and ongoing government efforts to promote affordable housing. This creates steady demand for home loans and a relatively secure income source for investors backed by real assets.

Experts advise working with regulated institutions such as KMRC, licensed REITs, and reputable SACCOs to minimize risks. Investors should conduct thorough due diligence, carefully review terms, assess borrower profiles, and diversify their investments to protect against market changes.