According to industry investors, the 2022 financial year was the worst for the real estate sector in recent years, including official government figures published annually by the Treasury.
However, the trend has since weathered down, with key economic indicators pointing upwards in sales and renting across residential, office, and industrial sub-sectors.
Agents and property dealers say that the slump was occasioned by the effects of Covid-19, which disrupted many economies, low liquidity in the market, and a wait-and-see attitude among buyers, renters, and developers alike as the country entered an election mood.
“The slump was devastating for anyone in the real estate sector. Many reported little or no activity in sales with agents relying on leasing transactions to remain afloat as sales were almost nil,” said Bill Ndung’u of VSB Properties based in Nairobi.
“Business has since picked up, and we are witnessing increased activity as the economy resumes normalcy. We are not there yet, but it is much improved.”
The sentiments are shared by a cross-section of property agents.
According to official figures, the real estate sector recorded a 4.5 percent growth in 2022. This was, however 2.2 percent lower than the 6.7 percent growth reported in 2021.
Overly, the construction sector—which includes infrastructure developments such as roads—also witnessed a drop. The sector grew by 4.1 percent in the financial year 2022, 2.6 percent lower than the 6.7 percent growth recorded in 2021.
But perhaps what will be of key interest for players in the industry is the significant rise in the number of non-performing mortgage loans.
According to the reports, the total value of non-performing mortgage loans increased by a whopping 33.6 percent to Sh37.8 billion in 2022 from Sh28.3 billion in 2021.
In the same period, the average mortgage loan size—the mean amount individuals were applying to the banks to buy properties—decreased by 2.2 percent to around Sh9 million, down from an average of Sh9.2 million in 2021.
“The increase in non-performing mortgage loans is a big worry because it points out that individuals are unable to service their mortgages. The automatic next consequence of this is repossessions and auctions,” said Ken Andayi, a realtor based in Mombasa.
Recently, the media has been awash with a flood of properties up for auction, sparking a debate on the need to find a better way of addressing the default rates, such as arbitration instead of straight-up auctions.
Over the same period, the value of outstanding mortgage loans rose by Sh16.7 billion to a total of Sh261.8 billion compared to Sh245.1 billion, a 6.8 percent increase.
Interest rates on mortgages over the same period remained largely stagnant at 12.3 percent, a one percent increase over the previous year, with rates charged by banks ranging from 8.2 percent to 17 percent in 2022.
Analysts say that banks will review mortgage rates upwards in correspondence with the recent upward review of the benchmark interest rate by the Central Bank of Kenya to curb inflation.
The reports also indicate that banks still require individuals applying for mortgages to raise at least 10 percent of the property they buy as a down payment to cater for legal, securitisation, and registration costs.
It is not all gloom, though; even in the difficult year, the number of mortgage accounts increased by 4 percent to stand at 27,786.
Mortgage accounts represent individual mortgage applications, and an individual or an organisation can have several mortgage accounts.
Going forward, property dealers say that the recent push for affordable housing will address supply-side constraints in the residential sector and hopefully spur economic activity.
Other sub-sectors bound to record growth in the real estate sector include the high-end office space and a significant recovery witnessed in the accommodation and food sector, which grew by 26 percent despite the economic challenges.
Significant activity in short-term rental space and Kenya being an attractive tourist destination has been cited as the key driver in the accommodation sector.
In the retail sector, the recent opening of East Africa’s largest shopping mall, Business Bay Square (BBS) in Eastleigh brought excitement.
The mall has retail facilities, banks, micro-finance institutions, food courts and restaurants, medical facilities, and commercial and recreational grounds.
Local and international brands are already lining up for space in the retail centre.
“While it was bad last year, this year, we are already seeing signs of robust economic activity in the real estate sector,” said Andy.
“There’s a lot of promise this year.”