Rising rent incomes and increasing property values have boosted loan repayments in the sector, which shed off Sh1 billion of bad debts in nine months to September.
The sector reported a 14 per cent drop in non-performing loans (NPLs) in the third-quarter from Sh7 billion to Sh6 billion, ahead of trade, financial services and the transport and communication sectors.
Central Bank (CBK) data also indicates that growth of loans to the real estate sector has outpaced those to businesses and households in the year to June, emerging as a new driver to banking sector’s profitability.
“Loans are becoming cheaper with some banks willing to go as low as about 11 per cent. These cheaper loans encourage most lenders to repay,” said Daniel Ojijo, Mentor Holdings executive chairman, adding that rising rent incomes and property values have also been an incentive.
The CBK report indicates that net lending to real estate grew from Sh43.3 billion to Sh81.7 billion in the year to June, compared to household lending that rose from Sh84.3 billion to Sh118 billion, making home owners and property developers the biggest borrowers over that period.
The bulk of the lending to property happened in the three months to June, hitting Sh29 billion — higher than the Sh3 billion that mortgage lenders did in the previous quarter.
This decline in default, besides encouraging lending to the housing sector and boosting home supply, is also likely to send banking executives back to the drawing board on how to capture this segment as Kenya’s banking sector has over the past three years relied on consumer lending to drive profitability.
Mortgage lenders say that the sectors’ vibrancy is likely to be sustained, as a growing number of investors continue rolling out mega housing projects targeting Kenya’s emerging middle class.
“The introduction of the credit reference bureaus have also contributed to this decline and we also scaled up our risk assessment efficiencies,” said Caroline Kariuki, S&L’s managing director. Commercial banks announced interest rate cuts in quarter two, setting the stage for increased uptake of loans by corporations and individuals.
Home loan lenders such as CFC Stanbic Bank, S&L and Barclays Bank of Kenya slashed their mortgage rates by between 1.5 and 4.5 per cent.
Loans and advances to the private sector grew from Sh684 billion in June, 2009 to Sh783 billion in June, this year.
Hass Consult, a property development firm, estimates that home prices have risen by 120 per cent in the past three years, especially in up-market zones.
Annual demand for houses in Kenya is estimated at 150,000 units whereas the market can only supply 30,000 units.
Decline in defaults in the real estate sector is a shot in the arm for the lenders after they aggressively went out for a fund-raising spree. HF on Wednesday launched trading of its Sh7 billion bond on the Nairobi Stock Exchange (NSE), raised in its first tranche of an issue against a target of Sh5 billion.