construction loans and mortgages kenya

Construction Loans in Kenya: The Ultimate Guide for Borrowers

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Although construction loans in Kenya can be costly with comparatively high-interest rates, the fact is- we’ve seen developers who’ve calculatedly leveraged them for successful real estate projects

On the flip side, however, reports from various banks show that a fair number of the funded projects usually bite the dust. And as a result, financial institutions in Kenya apply very strict qualification requirements for construction loans. 

Make no mistake though. Construction loans in Kenya are not mortgage loans. While some banks give their debtors the option of converting their construction loans into long-term mortgages, these are two distinctively different credit products. 

And in case you’re wondering, the answer is yes- construction loans are far more complicated than mortgages. Qualifying for one is not that simple. 

But, get this. That’s not even the hardest part. Managing your loan funds well enough to complete your building project is the biggest challenge here. Then, of course, there’s the loan repayment process to worry about. 

All in all, how everything pans out depends substantially on how you choose to approach the whole thing from the start. 

Now, to help you plan accordingly, here’s a detailed guide that walks you through all the basics of borrowing construction loans in Kenya. 

What Is a Construction Loan In Kenya?

what is a construction loan kenya

A construction loan is a special credit product that you secure from a bank to finance your building project. And to qualify for one, you’ll be required to take full responsibility for your project, as well as appoint licensed construction professionals (who’ll subsequently be vetted by your bank). 

Now, unlike mortgages, construction loans in Kenya are disbursed in several stages as the construction progresses. 

You essentially present proof of the work progress at each stage (usually in the form of construction certificates) for the bank to process the subsequent disbursement. Then once your construction project is complete, the bank processes the final remittance after reviewing your building’s occupation certificate. 

And while occupancy certificates are usually issued by the local governments, interim certificates, certificates of practical completion, and certificates of making good defects are typically prepared by your project manager. You’ll need them at different stages to access additional funding from your bank. 

It’s worth noting, however, that your bank won’t be generous enough to give you a long repayment amnesty period. In most cases, Kenyan banks require developers to begin depositing interest-only repayments during the construction period. And when the project is completed, your installments will then include the principal amount plus interest. 

Hence, you might want to shorten your construction project period as much as possible. Otherwise, a substantial increase in time translates to more interest repayments and higher construction loan costs. 

Construction Loans Vs Mortgages in Kenya

As you’ve probably guessed already, mortgages happen to be far more popular in Kenya than construction loans. 

Wondering why? 

Well, here’s the thing about construction loans in Kenya. While traditional mortgages use an existing building as collateral, construction loans don’t have much to fall back on if you default on your payments during construction. Most banks would probably seize your land and auction everything, including what’s left of your construction project.

Therefore, banks perceive construction loans to be considerably riskier than mortgage loans. And to offset the risk, they typically apply higher interest rates, release the funds in stages instead of one complete lumpsum, as well as qualify applicants based on stringent requirements. 

That said, here are the precise requirements most of the banks expect you to meet if you want to qualify for a construction loan in Kenya:

Requirements of a Construction Loan In Kenya

  • A Downpayment of At Least 20-25%: To cover the huge risk, construction loan lenders typically require applicants to commit by attaching a minimum of about 20-25% of the total construction amount. 
  • Proof of Income: Your bank will require you to prove that you’re indeed capable of comfortably repaying the loan over the long haul. 
  • A Team of Licensed Professionals: The last thing your bank wants is taking unnecessary risks with its money. So, of course, you must be backed by a team of well-qualified and licensed professionals with sound profiles. This is something that lenders will always confirm as they process applications for construction loans in Kenya. They usually seek registration documents from the project architects, structural engineers, quantity surveyors, and contractors (along with the corresponding contract agreements). Then for larger projects, they might additionally request your construction project manager’s credentials.
  • A “Blue Book”: This refers to the documentation that details the scope of your construction project- from the architectural and structural drawings, to the building cost and profit statements, plus a comprehensive project timeline. Each of these documents should be drafted and adequately certified by the relevant licensed professionals. 
architectural plans kenya
  • Milestone Certificates: Since construction loans in Kenya are usually disbursed in multiple installments, your bank will require you to submit a proper certificate for each significant project milestone you achieve. Your project manager should help you with the relevant interim certificates, the certificates of practical completion, and the final certificates of making good defects. Then after each submission, the bank will proceed to conduct site inspections before releasing funds for the subsequent milestone. 

How To Apply For a Construction Loan In Kenya

The process of applying for a construction loan in Kenya will cost you not only time but also a considerable amount of money. 

You see, the bank won’t be paying your project manager, architect, civil engineer, quantity surveyor, or other project consultants. You’re required to appoint them in advance, and then have them use their project documentation to apply for the construction loan. 

Ok, I know. That sounds quite risky. Because what happens if the application is declined?

Well, technically, you’ll still have your building plans with you. And those alone are great assets. At least you can pick up from there in the future once you secure sufficient funds for the construction project. 

Anyway, that aside, a thoughtful way of minimizing the risks here is approaching the bank beforehand. Get in touch with a loan officer and discuss your financial situation plus the proposed project (you could use our construction costs guide to estimate your project’s costs).

They’ll then assess your creditworthiness based on your specific needs, after which they’ll advise on the loan amount you can comfortably afford. 

A word of caution though. Don’t go for the highest possible amount. Rather, focus on the lowest amount you need to complete the construction project. You can ask for a detailed schedule of the repayment rates and durations to compare the variables across different loan amounts. 

Then once the bank gives you the green light, you can begin appointing your construction professionals. 

Now, this is where things get a bit confusing for most people. And here’s the problem…

By now I bet you know that you’ll need an architect, project manager, civil engineer, quantity surveyor, and a building contractor. What might not be clear, however, is the appointment plan and sequence. 

So, who exactly should you hire first and which parties should come next? 

Well, in most cases, the architects come first and then the rest follow after the building’s concept and design have been adequately thought out and drafted. 

However, people who prefer a more holistic approach usually appoint lawyers and project managers before proceeding with the standard sequence. 

The reason is, your lawyer will act as the legal administrator of every single agreement you sign with each party. Then the construction project manager, on the other hand, will advise you on all the project parameters, as well as guide you accordingly through every single phase of your building project. 

At this stage, the construction manager will give you the gist of the possible costs involved, all the professionals you might need, the construction time estimates, the legal requirements, plus of course, the potential construction challenges you should expect along the way. And if you’re dealing with a large project, they’ll even conduct a comprehensive feasibility study, complete with the accompanying long-term projections. 

With that sorted out, you can go ahead and appoint a licensed architect, who’ll design your building based on your specific preferences. The architectural design should subsequently be forwarded to your appointed civil engineer, who’ll then come up with the corresponding structural design. 

Other design professionals you could engage at this stage include; interior designers, landscape architects, mechanical engineers (for the plumbing layout design), electrical engineers (for the electrical layout design), etc. Your construction project manager can guide you accordingly. 

And once the design process is done, submit the architectural and structural drawings to the county authorities for approval. 

But, it doesn’t end there. After the county government approves your construction project, you’ll be required to get in touch with other relevant bodies like NEMA and NCA for the final approvals. 

In the meantime, you should engage a registered Quantity Surveyor in Kenya for an in-depth cost analysis of the entire project. The bank will need a detailed bill of quantities as prepared by a fully licensed professional. Meanwhile, you could use it as a guideline for comparing submissions from various contractors. 

And when it comes to that, your construction project manager will help you analyze the contractors’ bids down to the last detail, before ultimately appointing the most qualified one. 

In the end, the project manager will draw up an explicitly-detailed contract agreement, along with a comprehensive project implementation schedule. These should accompany the rest of the documents as you make your final bank submissions. 

construction project management schedule kenya
A sample construction project management schedule.

Now, all in all, you’ll be required to attach the following to your construction loan application:

  • Your identification documents.
  • Your payment slips.
  • Your bank statements.
  • Your KRA PIN certificates.
  • The title deed of the property.
  • Evidence of up-to-date land, rent, and rates payment.
  • Building contract agreement.
  • National Environmental Management Authority (NEMA) approval document.
  • Approved architectural and structural drawings of the proposed project.
  • Bills of Quantities as prepared by a registered Quantity Surveyor.
  • The profiles of all the professionals involved (the Project Manager, Architect, Engineers, Quantity Surveyor, Contractors, etc)
  • The professional indemnity insurance policies of your construction professionals.
  • A Project Implementation Schedule detailing all the construction activities plus their respective starting and completion times.


Once you’ve sorted out all these issues, the final decision rests with the bank. So, it’s always advisable to work with a bank that enjoys a close relationship with your work organization, and has a long history of issuing favorable construction loans in Kenya

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1 year ago

I am doing import export wholesale and retail of petroleum product in kenya. I want to build 5 standard petrol stations in kenya. pls advice me requirement so to get funded

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