Real estate, which has been one of the country’s fastest growing sectors in the last 15 years and even used as an economic measure, boasting returns far higher than equities and government securities is now a pale shadow of itself.
The sector has suffered slow growth in sales and rental prices in recent years due to a huge stock of unsold units. A development which has left investors counting losses with banks on their necks threatening to auction their properties.
Latest Central Bank of Kenya (CBK) data shows that mortgages recorded the highest growth in non-performing loans (NPLs) last year from Sh27.2 billion in 2017, reflecting the struggle by investors to find buyers for their houses amid dwindling returns.
"The ratios were above the industry gross NPLs to gross loans ratio of 12.7 percent in December 2018," said CBK, Business Daily reported.
"Deterioration in asset quality was mainly attributed to among other factors; subdued business activities, delayed payments from public and private entities and low uptake of housing and commercial units."
Default on mortgages jumped 41% to Sh38 billion ($380 million), pointing to widespread distress in the real estate sector. Unpaid mortgages shot up by Sh11.2 billion or 41.1%, a rise that outpaced other segments like manufacturing (19%), traders (4%) and personal loans (6%) in growth of default on loans.
The mounting defaults in the property market comes in the back of a string of job losses across nearly all sectors as corporates intensify austerity measures to protect profits. All are a reflection of a faltering economy under distress.
The end result is workers who took mortgages on the strength of their payslips have defaulted on their payments.
About 16.9% of the Sh224.8 billion ($2.248 billion) gross loans extended as mortgages were not being serviced at the end of December 2018, up from 12.2% in 2017.
Property developers on the other hand are hurting and finding it difficult to sell units that were built on loans.
Banks have also stepped up debt recovery efforts to clean up their loan books, leading to a spike in property seizures by aggressive lenders.