Ksh38 Billion Mortgage Defaults Spell Doom For Real Estate Industry
The real estate is experiencing a slump growth, following Central Bank of Kenya (CBK) reports that default on mortgages jumped 41 percent to Ksh38 billion.
According to the CBK report, mortgages, associated with the real estate, experienced the biggest hike in non-performing loans (NPLs). Unpaid mortgages increased by Ksh11.2 billion or 41.1 percent, manufacturing by 19 percent, traders by four per cent and personal loans by six percent.
According to the report, 16.9 percent of the Ksh224.8 billion gross loans extended as mortgages were not being serviced at the end of December 2018, up from 12.2 percent in 2017.
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“The ratios were above the industry gross NPLs to gross loans ratio of 12.7 percent in December 2018. Deterioration in asset quality was mainly attributed to among other factors; subdued business activities, delayed payments from public and private entities and low uptake of housing and commercial units,” noted CBK.
In 2018 and 2019, following the NPLs, the real estate industry was dotted with auctions, as the most people who had taken loans on the strength of their payslips to buy property failed to service them.
There have been a lot of job cuts in Kenya, attributed to a dying economy which has seen several companies shut.
15 of the 62 companies listed on the Nairobi Securities Exchange (NSE) reported profit slumps, while companies such as Britam, Bamburi Cement, East African Portland Cement Company (EAPCC) among others had massive layoffs.
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According to the Economic Survey 2019, at least 78,400 new formal jobs were created in the economy in 2018 compared to 114,400 in 2017.
The banks have also been reluctant to offer loans to individuals and SMEs who are first time borrowers, following the interest rate cap which was repealed last week.
As a result, there was minimal growth in mortgage growth of 0.7 percent last year to Ksh223.2 billion compared with a growth of 23.9 percent in 2015.
“This could be attributed to banks’ review of mortgage terms to offer mortgage loans on increasing credit risk in the real estate sector,” said CBK.
It is reported that more auctions linked to mortgage defaults were conducted in 2018 compared to 2017.
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