REAL ESTATE MARKETS

Unable to Pay Sh38bn Loans, Kenyans Risk Losing Their Dream Homes

Samuel GitongaNov 20, 20191 Mins read2k

A bungalow developed by a real estate company in Kenya. Mortgage defaults hit Ksh38.1 billion

Mortgage defaults increased by Ksh10.8 billion to Ksh38.1 billion in December 2018 from Sh27.3 billion in December 2017 as the real estate sector fell prey to the larger economy’s struggles.

According to the Central Bank of Kenya Banking Supervision Report for the year ended 31 December 2018, the average mortgage loan size decreased from Ksh8.52 million in 2017 to Ksh8.48 million in 2018 as banks tightened credit standards to the mortgage market.

There were 26,504 mortgage loans in the market in December 2018 up from 26,187 in December 2017 an
increase of 317 loan accounts or 1.2 percent.

The report further reveals the value of mortgage loan assets outstanding increased from Ksh223.2 billion in December 2017 to Ksh224.9 billion in December 2018, representing a growth of Ksh. 1.7 billion or 0.76 percent.

CBK’s report also reveals the mortgage defaults to gross mortgage loans was 16.9% in December 2018 as compared to 12.2 percent in December 2017.

The default ratios were above the industry gross Non-Performing Loans to gross loans ratio of 12.3 percent in December 2017 and 12.7 percent in December 2018.

Six Banks Stranglehold on Mortgage Market

About 76.1 percent of lending to the mortgage market was by 6 lenders that is, one medium-sized bank (15.0 percent) and five banks from the large peer group (61.1 percent) as compared to 75.5 percent lending by one medium-sized bank (20.9 percent) and five banks from the large peer group (55.6 percent) in 2017.

The number of institutions offering mortgages to customers were 33 in 2018 as compared to 31 in 2017.

The interest rate charged on mortgages on average was 12.4 percent and it ranged between 10.0 percent to 13.2 percent as compared to an average of 18.7 percent with a range of 10.5 percent – 18.0 percent in
2017.

“This could be attributed to the banks reduced appetite for mortgages,” reads the report.

The average loan maturity (due date) was 10.6 years with minimum of 4 years and a maximum of 22 years in 2018 as compared to average loan maturity of 11.9 years with a minimum of 5 years and a maximum of
25 years in 2017.

“This could be attributed to banks review of mortgage terms to offer mortgage loans in shorter periods to mitigate on increasing credit risk in the real estate sector,” adds the report.