Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Home, car auctions jump as defaults hit Sh173bn
Lenders largely resort to auctions as a last option after alternative measures such as restructuring of the repayments fail, according to bank managers.
Defaults on loans tapped to buy homes, land and vehicles shot up by nearly a fifth to Sh173.3 billion last year on elevated interest rates, triggering a wave of auctions in a softening economy where business and households grappled with reduced earnings.
Analysis of the latest Central Bank of Kenya (CBK) data shows the stock of gross non-performing loans (NPLs) for the real estate and transportation sectors grew 18.7 percent from Sh146 billion in the prior year.
The CBK has cited a “challenging operating environment” as a major driver of growth in sectors such as real estate and transport and communication, where the rate of default rose at a pace more than double the total industry’s NPLs.
High interest rates and a reduced government expenditure on projects slowed circulation of money in the economy, hurting demand for goods and services and triggering a freeze on pay raises, business losses and closures that ultimately made it difficult for households and businesses to repay loans on time.
The CBK data shows the stock of NPLs for the real estate sector rose 16.62 percent to Sh118.6 billion at the end of last December from Sh101.7 billion a year earlier.
This is an indicator that borrowers struggled to service mortgages they took to buy houses and development loans to build and renovate homes, as well as purchase land.
This resulted in the sector defaulting on 23.12 percent of its outstanding loan book of Sh513 billion as at December 2024 compared with 19.98 percent of Sh509 billion the year before.
Bad loans in the transport and communications sector, on the other hand, increased 23.48 percent to Sh54.7 billion, largely reflecting defaults taken to buy commercial and personal vehicles.
Increased defaults on secured loans, including those advanced to real estate and transportation sectors, usually triggers repossession of the vehicles and houses for auction.
Joseph Gikonyo, chief executive at Garam Auctioneers, said last year the sector struggled to find buyers for vehicles, land and homes at reserve prices because of a glut.
“Every day, we a repossessing cars and attaching to properties left right and centre,” Mr Gikonyo told the Business Daily last October.
“While there has been an increase in the number of properties being put up for auction, there has been a corresponding low uptake of these assets. The uptake is a historical low.”
Some of the major developers who are battling auctioneers include Erdemann Property Ltd and Suraya’s 62 apartments in Lonehill Estate in Nairobi’s Madaraka estate, two five-bedroom apartments at Mandara Villa 12 Rosslyn Heights and an undeveloped parcel of land in Imara Daima.
Lenders largely resort to auctions as a last option after alternative measures such as restructuring of the repayments fail, according to bank managers.
“It [auction] is a difficult balance between making sure depositors don’t lose their money and ensure people don’t lose their homes,” HF Group chief executive Robert Kibaara told the Business Daily last November.
“It is one of the hardest decisions. Legally, we are required to send three or four legal notices, and this actually takes about six months. But we also recognise that we lent depositors’ funds, and we also have a duty to protect those funds.”
Real estate developers, who largely target middle-class and upmarket estates, have in recent years struggled to raise rental rates in a tough economic setting where real earnings for workers have been negative for five years.
Prices for rental property in Nairobi, for instance, contracted by 0.02 percent in 2024, according to HassConsult, highlighting the inability of landlords to raise rents.
The year-on-year growth in defaults in real estate and transportation sectors, where loans are largely secured by title deeds and logbooks, was among the highest based on sectoral distribution, only dwarfed by government-driven building and construction and weather-dictated agriculture.
Overall, defaults in the banking industry grew 8.27 percent to Sh672.7 billion last year, reflecting the impact of elevated interest rates amid depressed demand for goods and services.
