Listed mortgage lender Housing Finance (HF) has put on sale customer houses worth an estimated Sh2 billion, pointing to widespread distress in the real estate sector.
The lender has signed up auctioneers to sell off the houses and commercial buildings, in a move aimed at trimming its non-performing loans portfolio.
Majority of the 54 properties that are on sale in Nairobi and its environs are standalone houses and apartments whose reserve prices range from Sh3.4 million to Sh300 million.
The sales are a reflection of the struggles that mortgage holders are going through as thousands have lost jobs across different sectors of the economy.
HF is selling 11 of the properties on behalf of customers in what is known as private treaty, which allows for disposal at market prices and the owner keeps the difference after offsetting the loan balance.
“We have clients who ask us to help sell their properties, and some properties we auction as part of normal (debt) collection process,” said HF chief executive officer Robert Kibaara in an interview.
“We, and most banks, maintain a list of properties on sale that we keep updating…not all the properties on sale are NPLs, some are sold through private treaty based on client wishes.”
The priciest property listed for auction by the bank is a five-storey, Sh300 million commercial building in Nairobi West built on 0.18 acres, which currently houses a hotel.
Another hotel property in Ngara is being sold at Sh260 million by private treaty, while a house in Kileleshwa is up for auction for Sh155 million.
Other pricy sales include two Sh65 million houses in Karen and Embulbul in Kajiado County, and a block of 30 apartments houses in Ngong for Sh195 million, some of which have already been sold.
The lender is also auctioning 11 apartments in a housing block in Kilimani for Sh198 million in total.
HF’s acceleration of its debt recovery efforts is part of a plan to clean up its loan book, whose quality deteriorated last year as the property sector underperformed.
The lender’s stock of bad loans stood at Sh12.97 billion at the end of March, compared with Sh8.47 billion a year earlier.
Its loan book in the meantime contracted from Sh48.4 billion to Sh41.9 billion in the period.
The lower interest income hurt the bottom line, with HF reporting a net loss of Sh598.2 million last year compared to a profit of Sh126.2 million in 2017. The lender is yet to release its half-year, 2019 results.
In an earlier interview, Mr Kibaara said that the lender is shifting focus to the affordable housing segment in a bid to double the number of mortgages on its books to 12,000 in the next two years.
“Our plan is to now focus on affordable housing — in Nairobi these would be loans of between Sh4 million and Sh4.5 million — because that is where the demand is to be found,” he said in the interview in May.
The shift to the segment is also intended to lessen the probability of defaults due to the lower monthly instalments that such loans would demand of borrowers.
Latest Central Bank of Kenya data shows that the average mortgage loan size stood at Sh10.9 million in 2017 compared to Sh9.1 million in 2016, which is well above the reach of the average Kenyan given that the average interest charged on the loans stood at 13.57 percent during the year.
There were 26,187 mortgage loans in the market in December 2017, which was an increase of 8.8 percent or 2,128 loan accounts compared to 2016.
A depressed housing market due to oversupply and credit access constraints have not helped.
The latest housing price index by the Kenya Bankers Association (KBA) shows that house prices have been contracting in the first half of the year—by 2.78 percent in the first quarter and 1.72 percent in quarter two.
“Weak household income continues to keep demand for housing tight. Even with slight uptick in private sector credit growth during the first half of the year, home buyers remain constrained,” said KBA in the report.
“The limited availability of funding to the housing market has been on the back of increased levels of non-performing loans generally, and especially in the construction sector.”
Non-performing loans attributable to the real estate sector have risen three-fold in the past five years, from Sh12.66 billion in 2014 to Sh43.5 billion as at September last year.