Garam Investments Auctioneers, one of the largest auctioning firms in the country, has put on sale properties including houses, offices and land valued at over Sh7.97 billion, giving a glimpse into the economic hardships facing individuals and businesses.
The Sh7.97 billion guide price means the properties on sale have a market price worth more than Sh10 billion given that auctions are by law allowed to pick a reserve price that is 25 percent below the market value.
The combined value of auctions in the country could also be much more than that given that other auctioneers including Phillips International Auctioneers, Keysian Auctioneers, Watts Auctions, Taifa Auctioneers and Antique auctions are all aggressive in the market wooing buyers with different properties.
Monday alone saw 30 different auctioneers advertise in two newspapers the sale of different properties, including residual houses, industrial land, agricultural land and shops with the auction planned for September and October.
Their list does not include vehicles, which have also seen increased direct auctions, especially by banks who have been spooked by a rise in non-performing loans and are moving aggressively to repossess and sell.
Garam Investments proprietor and manager Joseph Gikonyo told the Business Daily in a phone interview that auctioneers are not selling as fast as they are repossessing, leaving them with a glut of repossessed properties as buyers seek outside discounts.
“The market is worsening every day as far as I am concerned. It is not improving. If anything, it was possible to sell a property at say Sh10 million four years ago compared to today in most areas,” said Mr Gikonyo.
“It is all about the health of the economy. People are sticking to the bare necessities. Purchase of properties in middle-income and lower middle-income areas are the hardest hit in regards to the sale of properties.”
Top banks including KCB, Co-operative Bank and NCBA have also been directly advertising auctions of vehicles owned by defaulting customers.
NCBA for instance on Tuesday put on auction 38 vehicles with a combined reserve price of Sh126.68 million.
Many banks do not disclose the exact number of properties they have seized from defaulters. But the sharp increase in the number of newspaper pages running auction notices reflects the jump in asset seizures.
Mounting defaults in the property market are a reflection of the struggles that borrowers are undergoing in an economy that has witnessed a string of job losses and stagnant salaries amid elevated cost of living and new or enhanced State deductions.
The cost of servicing loans has also been going up, with banks having raised their base lending rates for the seventh straight month to close June at 13.31 percent, even as borrowers grappled with new deductions such as 1.5 percent housing levy and increased pension contributions.
The Land Act 2012 bars banks from auctioning seized assets at below 75 percent of the prevailing market value. Section 97 of this Act requires them to exercise duty of care on the reposed properties and empowers defaulters to sue if their assets are sold off cheaply.
“If the price at which the charged land is sold is 25 per centum or below the market value at which comparable interests in land of the same character and quality are being sold in the open market----the person whose charged land is being sold for that price may apply to a court for an order that the sale be declared void,” states the Act.
But Mr Gikonyo says part of the challenge in selling properties has been the figures that valuers have been giving banks, stalling deals as potential buyers seek further discounts.
He feels some valuers’ methodologies are not giving prices that are reflective enough of the current health of the economy. Banks usually have to wait for a year for any fresh valuation.
“Given the scarcity of money in the market, the market will only respond favourably to a property that is priced well. The auction value has to be attractive enough to get buyers in this current market because it is really bad,” said Mr Gikonyo.
Among the properties that Garam seeks to auction include a 10-acre developed land with a 40-shop commercial block, a three-storeyed office block and 53 double-volume industrial go-downs in Athi River. The reserve price is Sh1.13 billion.
Garam’s list includes over 90 residential houses costing millions of shillings, pointing to depressed homeowners.
Mr Gikonyo says that, unlike commercial properties which are income-generating, auctioneers are struggling to dispose of residential homes as many owners employ hostile means to block potential buyers from viewing such properties.
“With residential properties, you have to deal with issues of sentimentalism by the borrower. In most instances, they fight tooth and nail to discourage prospective purchasers. Only when the property is in a very prime location is when people are daring enough to overlook the hostility,” he says.
Banks have been hit by a rise in the stock of non-performing loans (NPLs), with the figure rising for five consecutive months to close May at Sh592.6 billion before easing slightly to close June at Sh576.1 billion.
The June NPLs figure put the banks’ asset quality, measured by the proportion of loan book that was in default, at 14.5 percent—an improvement from a 16-year high of 14.9 percent in May, according to Central Bank of Kenya (CBK) data.
CBK credit survey on 39 banks showed while 42 percent of the respondents indicated that NPLs are likely to rise in the third quarter, another 24 percent see the levels remaining constant.