More than 10 percent of the country’s mortgages are distressed. Data from the Central Bank of Kenya indicates that almost a tenth of 26,500 mortgages as of December 2018 were distressed. However, auction developments throughout 2019 suggest that the number is likely to have worsened.
Kenya’s economy experienced headwinds in 2019 and the real estate sector was right in the middle of the rage. Yet speaking near the close of the year CBK Governor Patrick Njoroge did not express much optimism on the prospects in 2020.
Instead, he hinted that more property foreclosures may be expected in the short run.
His revelation did not take long to materialize. Even before the conclusion of the first 30 days of the year, newspaper classifieds are inundated with properties for action. And the economic sting is not limited to individual mortgage owners, financial institutions have also faced the spiky brush.
Housing Finance announced that it would quit property development earlier in the month. This comes after the mortgage financier announced a Ksh. 2 billion auction of its customers’ houses, occasioning a massive dent in its balance sheet.
Turmoil in the home mortgages market has been developing for some time now. Non-performing loans were already piling up as far back as 2017 according to Central Bank reports.
Various analyses show that part of the cause of the current effect lies in the fact that the economic machine has had many worn out parts in recent times. At an individual level, two factors have been at play.
First, the purchasing power of many Kenyans has not increased commensurate with inflation leaving many ordinary Kenyans to walk a tight balance between settling routine bills and paying mortgages.
Second, the economy has faced a lot of changes due to innovations and disruptive technologies in many sectors which have necessitated job losses. With this, some workers who had relied on the stability of payslips have had to make adjustments that may not have aligned well with financial realities.
Whereas mortgage arrangements are mostly structured in a linear way, job volatility has thwarted the efforts of many mortgage owners to make linear payments and banks have reacted in a contractual manner.
Despite the demand for housing finance, it does not seem likely that the number of mortgages in the country will increase in the near term as banks have become careful and borrowers have become fearful.