Property billionaires feel the pinch as real estate slumps

A sharp slowdown in Kenya’s real estate growth has adversely impacted key players in the sector, many of whom are now fighting to remain in business.

From the country’s top mortgage financier to giant property developers and high-net worth individual builders, a huge number of investors are struggling to meet their financial duties amid dwindling demand for property.

Indeed, the Kenyan real estate sector, which has for many years remained one of the safest routes to riches and glory, is increasingly becoming a miserable story of tears and shattered dreams.

According to the Kenya Bankers Association Housing Market Index for the second quarter of 2019, house prices recorded further declines between April and June mainly due to a weakening purchasing power among prospective buyers.

“The KBA Housing Price Index indicated a 1.72 per cent decline in the change of house prices during the second quarter compared to 2.78 per cent decline in the previous quarter,” said KBA head of research Jared Osoro.

The poor performance in two consecutive quarters, according to Mr Osoro, points to a worrying trend that is likely to affect both the demand and the supply sides of the Kenyan real estate market.

The downturn has already claimed its fair share of casualties. Leading mortgage financier HF Group has, for example, listed for auction Sh2.5 billion worth of houses as its fights to clean its loan book.

Majority of the houses on sale are located in Nairobi and its environs and are listed with reserve prices of between Sh3.4 million and Sh300 million.

Private treaty

Several distressed property owners had earlier requested the lender to sell mortgaged houses on their behalf in a private treaty. This arrangement allows a lender to sell a property at market price, offset the loan balance and dispense the difference to the owner.

HF Group’s auction came shortly after I&M Bank advertised for auction more than 200 houses in Sunset Boulevard Estate in Athi River following a loan dispute with the developer.

The houses were to be auctioned by end of last month, but the two parties later cancelled the sale to continue with debt repayment discussions.

READ: Developer scores major win in auction battle with bank

A few weeks earlier, a group of investors called out renowned property developer Suraya for failing to build houses that it had sold to them on an off-the-plan agreement. The buyers even recorded statements with the Directorate of Criminal Investigations to instigate for a probe into the matter.

Days later, a local bank announced the auction of one of Suraya’s flagships projects – Lynx Royal Apartments – in Nairobi, further revealing the difficulties that the realtor was going through. Suraya has, however, reassured its customers that it has obtained money to complete its projects.

One project

On its part, Cytonn Investments, which has in recent years unveiled a number of prime projects countrywide, recently said that it would henceforth undertake one project at a time to avoid trouble.

“We are now concentrating on The Alma before embarking on our next project The Ridge next year and after that we will take on the next project, Applewood Karen,” Cytonn CEO Edwin Dande said.

Individual developers, who are not obligated to issue public statements on their financials, are also facing similar predicaments. Many of them have, indeed, lost their property to auctioneers after failing to repay their debts.

READ: Banks descend on builders as loan defaults hit real estate

According to the Central Bank of Kenya, real estate ranked among the sectors with highest non-performing loans as at Dec 31, 2018.

This has now seen commercial banks tightening their credit standards to property developers in order to reduce the level of bad loans in the sector.  

Join 15,000+ pros getting our weekly digest of news and insights.