This archive report was first published on 4 December 2019.
December 4, 2019 - The high-end property market in Kenya is facing a crisis, with lenders taking back homes listed as loan collateral in a bid to recover bad loans.
According to a report by Knight Frank, the rising number of distressed properties in Nairobi has significantly affected prime residential values, with lenders intensifying efforts to recover non-performing loans through the sale of collateral.
As a result, the market is experiencing a glut, leading to heavy discounting of property prices and a slump in valuations in the real estate sector.
Deals are happening, but at discounted rates, and it will take time for the economy to rebound, considering it's also not immune to external shocks, said Anthony Havelock, Head of Agency at Knight Frank.
The lender's pricing slump bears the connotations of the US subprime mortgage fallout of 2008, where increased repossessions led to the eventual collapse of market prices.
However, the local repossessions differ from a mortgage crisis, as the majority of repossessions emerge from the listing of homes as collateral for secured loans rather than direct mortgage defaults.
According to data from the Central Bank of Kenya's 2018 Banking Supervision Report, Kenyans still hold a relatively low number of mortgage loan accounts, with the average loan size having fallen to Ksh.8.52 million from 2017 due to tightening credit standards.
However, mortgage-based non-performing loans increased to Ksh.38.1 billion from Ksh.27.3 billion, with the segment's ratio of bad loans sitting above the banking industry average of 12.7 percent at 16.9 percent over the period.
The slump in the high-end property segment was eased between July and September this year, with a softened decline of 1.1 percent globally, and a recent repeal of the interest rate cap is expected to prompt the recovery of the market in the medium term by restoring liquidity in the market.
