Defaults on mortgages by public servants grew to Sh379.77million in the financial year ended June 2021, as the Covid-19 distress spread to government employees who are seen as the safest borrowers.
Auditor-General Nancy Gathungu’s report on the State Officers House Mortgage Scheme Fund (SOHMSF) shows that another Sh15.6 non-serviced loan to 15 State officials under the scheme had accumulated is at risk of default.
“No evidence of measures being taken by the management to recover the loans was provided for audit review and no provision for doubtful debts has been made against the receivables,” says the report.
The default by State officers under SOHMSF is a reflection of the struggles that mortgage holders as government workers who took the home loans on the strength of their payslips find it difficult to repay.
The slowdown in real estate is also hurting property developers who are finding it difficult to sell units that were built on loans.
The auditor also found little evidence that the government could recover the loans.
“Under the circumstances, the recoverability of loans amounting to Sh379.77 million and arrears therefore of Sh15.6 million included in the long term receivables balance of Sh2.96 billion as at June 30, 2021, could not be confirmed.”
The reports show that during the period under review, 137 loans were fully disbursed to applicants worth about Sh3.6 billion.
Thirteen applications valued at Sh383 million were approved pending disbursement while six applications were pending approvals.
During the period, 165 applications were completed, returned with support documents and recommended to banks for processing of the loans worth about Sh4.38billion.
“Challenges include arrears by officers whose terms have expired and utilisation of gratuity for loan repayment.”
Real estate has been one of the country’s fastest-growing sectors in the last 15 years, with returns from property outpacing equities and government securities.
The sector has, however, suffered slow growth in sales and rental prices recently due to a huge stock of unsold units, which has seen developers who tapped loans to build and sell houses default. Low occupancy rates have meant that developers who were dependent on rent collections to repay loans are also struggling.
Businesses that tapped loans based on their projected cash flows are also struggling to meet the loan obligations.
Central Bank of Kenya data to April 2021 shows that net domestic credit to the real estate sector grew by 5.8 percent to Sh409 billion, the slowest in nine months.
