Loan Defaults Plague Kenya’s Construction Industry

A huge number of property developers are unable to service their mounting debts, official data shows, underlining their struggle to find buyers for their houses amid dwindling returns.

According to the Central Bank of Kenya’s Quarterly Economic Review released last month, the real estate sector recorded the highest growth in non-performing loans in three months ended June, which has seen a spike in asset seizures by aggressive lenders.

Non-performing loans (NPLs) in the sector rose by Sh6.1 billion (15.8%) to Sh44.4 billion in April-June, with developers seeing higher default growth than manufacturers (11.7%) and traders (7.3%), according to the CBK.

This means that 11.3 percent of the Sh392.7 billion gross loans extended to investors in land and houses by banks over the years were not being serviced at the end of June.

“The real estate sector registered the highest increase in NPLs by Sh6.1 billion (15.8 per cent) due to slow uptake of housing units,” noted the Quarterly Economic Review.

A loan is considered non-performing if it remains unserviced for more than three months.

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As a result of financial difficulties, many investors have lost their properties to creditors – leading to a glut of repossessed homes that are being sold off cheaply countrywide.

Auctioneers say they held more actions in 2018 compared to 2017, following a growing pool of borrowers whose assets have been seized by banks.

“Things got worse and the auctions were more compared to (2017)” Stephen Kang’ethe, an auctioneer with Dalali Traders said in an interview.

“The irony is that there are no buyers even for property being put up for auction. Things are bad. There is no money.”

Industry sources say that property developers are increasingly finding it hard to obtain credit from commercial banks – a situation that is likely to further slow down the sector.

The distress in the property market is best reflected in the performance of mortgage lender HF Group which posted a Sh332 million net loss in nine months, due to loan defaults.

Real estate has been one of the country’s fastest-growing sectors in the last 15 years, with returns from property outpacing equities and securities. The sector has, however, suffered slow growth in sales and rental prices recently due to a huge stock of unsold units.

Quarterly surveys by consultancy HassConsult and the Kenya Bankers Association (KBA) show that house-selling prices reduced by about 4.10 per cent in the last quarter of 2017, compared to a jump of 10.21 per cent in 2016 amid a housing glut.

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