TENANT PURCHASE SCHEME The new frontier in home ownership

Home ownership is one of the major goals for many people. However, this goal remains a mirage for most wannabe homeowners because of the financial implications. And since we are Africans and our cultures dictate that one should provide a roof for his/her family, one feels that they are never complete until this is achieved. There are many ways of owning a home but today we will look at one of the least mentioned but feasible means – tenant purchase scheme (TNS).

A few years ago, we witnessed the drama between the National Housing Corporation (NHC) and its tenants who had defaulted in clearing rent arrears and so their houses were being repossessed. It was then that the tenant purchase scheme came to light and people came to know about it. Such incidences, actually, put a damper on an otherwise good and viable means of home ownership.

Tenant purchase scheme makes the dream of owning a home a reality especially for the low and middle-income earners. In this model, tenants eventually own the houses they rent. The tenant deposits between 10 to 20 per cent of the sale price and pays the balance in the range of between 18 and 20 years. The rent offsets the cost of owning the house. In such an agreement, developers calculate the value of the house, the installments and the time within which the tenant can fully purchase the home.

The sale prices are usually market value assessed by qualified valuers of public bodies. Tenants, however, have the option of incorporating their own valuer just to be sure they are making the right decision and are getting value for their money. This works in favour of the tenant who has been spared the rigorous process of paying for mortgage. The strength of the scheme is that the monthly repayments are often lower than prevailing rental charges.

The scheme works in two ways. One, tenants who have been renting public houses for a minimum of one year are the first to be given the opportunity to buy the housing units. They pay the deposit upfront and the balance through tenant purchase scheme. Second is where a parastatal such as NHC or a private company develops housing units and then sells to buyers through the scheme. The buyers pay the deposit then pay the balance as rent over a period of years.

Currently, the NHC, the National Social Security Fund (NSSF) and a few private developers are offering this model. A 300 houses tenant purchase scheme is presently underway in Nakuru County. Fusion Capital, the company undertaking the project, plans to build 1,000 housing units throughout the country in the next three years, of which 30 per cent will be sold through the TNS model.

As Kenya becomes more urbanised, and as the population continues to bourgeon, tenant purchase scheme is regarded as the new frontier of the housing market. The scheme, which has already taken root in a number of countries worldwide, will enable Kenyans to own homes for a small deposit, low-cost rent, and without paying interest. TNS is thus a practical alternative for renters who cannot afford to pay a large deposit to secure a mortgage, but who still want to own a home.

What you need to consider

Before you purchase a home using this scheme, take note of the following: market value of the house; market rental of the house; deposit amount that you have versus minimum required; and balance of purchase price plus its repayment terms (interest and years).

Like any other investment, TNS poses some potential risks to the tenant such as lack of security. TNS carries the same threats for the tenant as a traditional mortgage, but without the benefit of potential recovery. If the tenant should default on his rent payments, for example, he loses the property the same way he would otherwise lose his home to foreclosure. Unlike foreclosure, the tenant has no legal options to recuperate their investment since they cannot sell the property, because they do not yet own it. The landlord can take full ownership of the property, regardless of how close to the end of the lease term the tenant may be, and the tenant essentially forfeits any excess money they paid toward their eventual down payment on the home.

Caution is, without doubt, the watchword for moving into this model: if you get the right property in the right place at the right price, chances are you have a good sound investment over a long period.

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