The State-owned Kenya Development Corporation (KDC) is stuck with Sh490 million worth of hard-to-sell houses in Mombasa County even after slashing prices, an audit has revealed.
The latest Auditor General's report on KDC found that the houses, constructed since 2015, are proving hard to sell nine years later despite the institution having reduced asking prices in the 2020/21 fiscal year to attract buyers.
The houses at Zamia Heights Apartments and Oceania Apartments, both in Mombasa, were built by the corporation’s predecessors before they merged their operations to form KDC in 2020.
The institution was formed from the merger of the former Industrial and Commercial Development Corporation, Tourism Finance Corporation and IDB Capital Limited.
“Review of the Corporation’s inventory of investments in properties indicates that during the year 2020-2021, the Board of Directors revised downwards the sale prices for one of its housing projects with a view to increasing demand for the units," Auditor General Nancy Gathungu notes.
“However, as at 30 June, 2023, the number of unsold apartments was 11 (out of 28) and 24 (out of 36) for the Zamia Heights Apartments and Oceania Apartments respectively. This is despite the completion of the apartments in July 2015 (Zamia) and 2018 (Oceania).”
The audit notes that the corporation has been paying Sh4 million a year as service charge for the unsold houses, down from an annual spending of Sh10 million on the charges when the number of unsold houses was higher.
KDC pays the management companies Sh10,000 per month for each unsold unit, and the number of unsold units has fallen from 83 to 33.
“The average spent per annum on maintenance has therefore come down to about Sh4 million from Sh10 million and the amount is expected to reduce each time a unit is sold,” the Auditor General states.
Most of the unsold houses are at Oceania Apartments (Sh366.85 million), with unsold houses at Zamia Apartments estimated to cost Sh123.65 million.
“In the circumstances, the inventory held by the corporation is possibly impaired based on the slow uptake of the apartments during the year under review,” Ms Gathungu notes.
The corporation joins a list of several other players in the real estate industry that continue to grapple with houses that cannot move amid growing cases of home buyers being unable to service loans.
Latest Central Bank of Kenya (CBK) data shows that loan defaults in the property sector rose by eight percent to Sh40 billion last year.
High interest rates have been cited as the biggest contributor to the inability of homebuyers to service mortgages, with those with variable mortgage rates being the hardest hit.
While KDC struggles with the Sh490 million unsold houses, the National Housing Corporation (NHC), the government’s key driver of President William Ruto’s affordable housing programme, is also stuck with hundreds of houses worth Sh1.3 billion that were built years ago but have failed to attract buyers.
“As previously reported, despite some of the projects having been completed several years ago, the houses have remained unsold and hence they continue to be reported as inventories,” Ms Gathungu noted in a report on NHC.
The report, which with updates to the end of June last year, noted that the NHC management had resorted to engaging counties, Saccos and Kenyans in diaspora to sell the houses, largely to no avail.
On its website, the NHC lists at least 10 projects where it has residential houses it is selling, including in Kisumu Kanyakwar Phase III where it has 100 houses, Stoni in Athi River where it has 160 unsold affordable houses and 110 unsold affordable houses in Homa Bay.
