* To put up 162 houses, sell below market value
* Has capital from retained earnings, rights issue
NAIROBI May 9 Kenya's sole specialist mortgage lender Housing Finance will develop a housing project in the next two years to create additional income from properties aimed at low and middle income earners, it said on Wednesday.
The east African nation of 40 million people has a massive housing deficit with annual demand at 250,000 units against supply of around 60,000 units.
Housing Finance's Managing Director, Frank Ireri, said the construction of 162 units in the eastern part of the capital would cost 800 million shillings ($9.6 million), partly funded from the bank's internal resources.
"Housing Finance intends to raise its involvement on the supply side of residential middle and lower income housing, which will in turn create significant mortgage lending opportunities for the company," he said.
It plans to sell the houses at 15 percent below market value to attract low and middle income earners faced with high credit costs after commercial banks' interest rates leapt to 25 percent from 15 percent in October last year.
The jump in lending rates caused demand for mortgages to fall i n the first quarter, curbing Housing Finance's earnings growth.
A property boom in east Africa's largest economy in the last decade, thanks to the burgeoning middle class, led to bloated house prices, leading buyers to struggle to meet high funding costs.
Housing Finance stopped developing houses 13 years ago due to lack of adequate capital.
Ireri said retained earnings over the years and its rights issue in 2008 which raised 2.3 billion shillings had helped to build its capital reserves.
($1 = 83.3500 Kenyan shillings) (Reporting by Beatrice Gachenge; Editing by Duncan Miriri and Mark Potter)