The real estate sector posted the highest growth in loan defaults in three months ended June, fresh statistics show.
This underlines the developers’ struggles to find buyers for houses amid declining returns.
Non-performing loans (NPLs) in the sector rose by Sh6.1 billion, or 15.8 percent in April-June to Sh44.4 billion compared to the previous quarter as property developers outpaced manufacturers (11.7 percent) and traders (7.3 percent) in growth of default on loans.
That means 11.3 percent of the Sh392.7 billion gross loans extended to investors in land and houses by commercial banks over the years were not being serviced as at the end of June, according to Central Bank of Kenya’s (CBK’s) quarterly report released last week.
“The real estate sector registered the highest increase in NPLs by Sh6.1 billion (15.8 percent) due to slow uptake of housing units,” the CBK said in the latest Quarterly Economic Review.
Housing has been one of Kenya’s fastest growing sectors in the last decade, with returns from real estate outpacing equities and government securities.
The property market has, however, suffered dipping growth in sales and rental prices in recent years, an analysis of quarterly surveys by consultancy HassConsult and the Kenya Bankers Association (KBA) shows.
The nosedive in growth of returns for property developers was manifested last quarter of 2017 when house selling prices reduced by about 4.10 percent compared to a 10.21 per cent jump in the same period of 2016 due to large stock of unsold units.
That is according to financial sector stability report published by the CBK early September in collaboration with the Retirement Benefits Authority (RBA), Insurance Regulatory Authority (IRA), Saccos Regulatory Authority (Sasra) and Capital Markets Authority (CMA).
Average rental prices, whose growth has been declining since 2013, suffered faster deceleration from December 2016 and remained in negative territory since May 2017, the report indicated.
“A combination falling growth rates in rental income and selling prices signals low demand for properties, perhaps explained by reduced purchasing power for properties,” the regulators said in the report.
The struggles in the property market is reflected in the performance by mortgage financier HF Group which sunk into a Sh332 million net loss in nine months ended September, largely weighed down by loan defaults which forced it to cut lending.
The industry’s downward trend appeared to persist despite improved investment climate following a March 9 “Hand Shake” between President Uhuru Kenyatta and opposition chief Raila Odinga after a prolonged bruising presidential contest in 2017.
KBA said a fortnight ago in its quarterly Housing Price Index (HPI) for period ending September that house prices rose by 1.35 percent, a slower pace compared to the 1.76 per cent rise in the second quarter of the year.
“The situation reflects subdued demand on the back of continued investments in the housing market, which remained skewed in favour of the middle- and high-income bracket,” Jared Osoro, the director of research and policy at KBA, said.