Rich, middle class Kenyans feel heat of loan defaults
Thousands of Kenyan middle class business owners and professionals are staring at a bleak future in the wake of an economic downturn as auctioneers now target their pricey private property for sale over defaults on loans and mortgages.
A World Bank report recently warned that many of Kenya’s middle class are not only a heartbeat away from sliding into poverty but are also losing their homes, plots, vehicles and other forms of collateral that they bought after years of working and saving.
Middle class Kenyans, who have enjoyed the fruits of the economic boom of between 2005 and 2019, are quietly mourning as they take a financial beating from a high cost of living. Inflation has been on a consistent upward trend over the last two years, while the worst drought in recent times has also affected incomes from farming activities.
A looming contraction of the economy — known as a recession — has made the economic hardships the middle class have been going through even worse. And in January, banks have signaled they will be raising the cost of loans further in line with Central Bank’s adjustment of its loan rate during the last two Monetary Policy Committee sittings.
Some of those targeted by auctioneers have their money stuck at the county and national governments in form of pending bills, estimated at about Sh500 billion. The last one month has seen many Kenyans, particularly those in the middle-class, lose multi-million shilling homes, rental and other property to auctioneers even as some counties, like Kiambu, announced that they had cleared their pending bills and as national government pledges to follow suit.
Many middle-class families renting in posh neighbourhoods of Nairobi have since 2020 had to downgrade to smaller, cheaper rental houses or their unfinished homes in the outskirts of the city, according to the findings of the Housing Price Index compiled by the Kenya Bankers Association.
So severe is the bank-loan defaulting crisis that it has drawn the attention of the Central Bank of Kenya (CBK), whose governor, Patrick Njoroge, recently indicated that 12.9 per cent of all loans by commercial banks were in default by April. Personal loans and those disbursed to players in the housing sector had recorded the highest default rate.
Recent months
Experts in estate management say the number of properties going up for auction has shot up in the recent months as more individuals and companies default on loans and mortgages. Some daily newspapers have been recording upwards of six pages on property listed for auction, including homes and private cars.
Despite the turbulence that has hit the property market this year, it grew by 20 per cent in 2021, according to a 2022 report by Saif Real Estate. The firm attributed the robust growth to infrastructure improvements like the Nairobi Expressway, utility connections and airport upgrades as well as a relatively stable GDP growth of 5.4 per cent over the last five years.
Among the property listed for auctions are bungalows and manors whose valuations runs into tens of millions of shillings a piece – highlighting the hostile economic downturn that has particularly hurt the rich, high net worth individuals and middle class professionals and business owners.
Legacy Auctioneering Services, Purple Royal Auctioneers, Watts Auctions, Keysian Auctioneers and Garam Investments (Auctioneers) among others have over the last month been securing between four to six pages every day in local dailies to publicise the auction of residential homes and business premises as well as an assortment of property, with the number of such sales rising in the last two months.
The auctioneers have been calling for bids on four-bedroomed maisonettes and other residential homes in Lang’ata, Karen, South B, Runda, Kilimani, Nyayo Estate, Muthaiga, Garden Estate, Westlands, Spring Valley, Kileleshwa, Lavington, South C, Kiambu, Juja, Kitengela and Ruiru among other neighbourhoods for the rich and middle class.
Several buses
Mid last month, auctioneers pounced on several buses belonging to Kenya Mpya and City Shuttle, the privately-owned public service vehicle franchises whose minivans ply different routes in Nairobi. Some of the buses that would go for Sh6 million at current market value, have been sold at between Sh1 million and Sh2 million. Despite the below market prices, several such mini vans have been left to gather rust at an auctioneer’s yard on Murang’a Road.
Some of the high-profile personalities who have in the recent past seen their property advertised for auction include Pancras Oyatsi, whose Sh135 million home in upmarket Karen has been put on the sale block. Others are heirs of the late Mombasa billionaire Tahir Sheikh Said (TSS), Othaya Group founder brothers Harish and Kirit Kanabar; the wealthy Suraya Group couple, Sue and Pete and politician-cum-businessman Zedekiah Bundotich (Buzeki), who unsuccessfully contested the Uasin Gishu gubernatorial race. In Buzeki’s case, he has been staving off auctioneers who are seeking to attach 119 of his trucks and a 13-acre parcel of prime land at the Coast.
Former Marakwet West MP David Sudi is also fighting to save his property on Joseph Kang’ethe Road in Nairobi over a Sh25 million debt while retired African Inland Church Bishop Silas Yego rushed to court to save his 50 high-end apartments in Kileleshwa from being sold over Sh145 million owed to Transnational Bank.
William Osewe of Ranalo Foods, popularly known as K’Osewe, has also been to court, seeking to stop GT Bank from auctioning his assets over a Sh330 million loan. In Machakos, a hotel belonging to former minister Gideon Ndambuki is up for sale by auctioneers out to recover a loan of Sh80 million owed to Housing Finance.
Whenever there is a sale by auction, interested buyers are usually required to pay a fraction of the value of the house or property that the initial owners paid to secure the entity as banks are keen to recover outstanding dues and pay for the cost of auction.
Bid amount
Once a bid is successful, a buyer is expected to deposit of 25 per cent of the bid amount in form of a banker’s cheque at the fall of the hammer.
“The balance will be payable within 90 days,” one of the newspaper adverts reads.
December has seen more auctioneers put up high-priced properties for sale – meaning, owners of such assets have fallen back on their loan repayments, leading to the painful forfeiture of their title deeds and other ownership documents.
Commercial banks and even digital lenders customarily hold on to such possessions as collateral, and dispose them of through public auctions when the borrowers fail to honour their loan obligations.
Economic experts believe the situation could get dire if both the national and county governments – which are also experiencing a cash crunch — continue to delay payments owed to contractors and suppliers.
“Most of these people were doing business with the government, and are now grappling with delayed payments. So the probability of this trend carrying on is quite high,” Peter Macharia, an economics expert, said in a telephone interview with People Daily.
Macharia who also runs a digital lending firm — Jijenge Credit Ltd — was of the view that heavyweight investors in the construction sector will continue to surrender their buildings and land unless the State comes to their rescue.
“What needs to happen as a matter of urgency is to inject money into the economy, like what is being tried with the Hustler Fund, whose impact – if well-managed, should kick start the economic revival of businesses,” he said.
The Covid-19 pandemic — which hit global economies in 2020 and 2021 — and the Russia-Ukraine war have impacted negatively on Kenya’s middle-class, leading to the high number of loan defaulters as many in this demographic lost their jobs or closed down their enterprises. As a rule, borrowers take loans using their homes or businesses as security and some were not able to service the debts when they lost their jobs during the pandemic.
“Others are victims of the ongoing retrenchments and restructuring in many firms,” said Macharia.
With Kenya’s and the global financial markets still on a recovery path, it is expected that interest rate on new mortgages could also continue to rise, further piling pressure on existing and performing loans. This will impact on households’ repayments ability.
Indeed, Kenya’s annual inflation rate has accelerated over the past months, hitting 9.5 per cent last month up from 9.6 per cent in October and 9.2 per cent in September. Last month’s rise was the steepest since May 2017, breaching the upper limit of the Central Bank’s target range of 2.5-7.5 per cent for the fifth month in a row.
Inflation is the increase in goods prices, whereas a recession is a steep decline in business activities. Since inflation is seen as an unavoidable reality associated with every economy, nations go out of their way to avoid a recession.
