The real estate sector suffered the most having registered the highest surge in non-performing loans at 14 per cent in the first quarter of 2021 compared to the last quarter of 2020.

It followed an extended low demand for projects which left developers with little to pay their loans.

“The size of bad loans in the sector are worth Sh9.2 billions as liquidity hit the sector due to low buyers,” said the Central Bank of Kenya (CBK) in its latest quarterly economic review.

Sales of new homes in the United States also dropped for a third straight month in June, government data said Monday.

“Demand is mean-reverting to its pre-Covid pace, after the dash to the suburbs triggered by the start of the pandemic,” Ian Shepherdson of Pantheon Macroeconomics said to AFP.

Loan management

Kenya’s real estate sector registered the highest increase in NPLs which hit Sh9.2 billion during that time as disruptions by COVID-19 pandemic continued to manifest, however, building and construction and manufacturing managed their loans quite well.

Covid-19 shocks reduced the number of buyers in the sector, sharply cutting demand pushing developers to default on bank loans, the latest central bank quarterly economic review shows.

The other two sectors which registered major NPL increases are agriculture and tourism sectors, which increased by 10.7 per cent and 7.3 percent respectively. The least affected sectors were financial services and trade.

“The coverage ratio, measured as a percentage of specific provisions to bad loans increased to 53.1 percent in the first quarter of 2021 from 51.9 percent in fourth quarter of 2020 due to an increase in specific provisions,” the regulator said.

Liquidity concerns

The bad loans in the real estate saw several developers such as Cytonn who invested client money in real estate struggle with liquidity issues due to lack of buyers. 

Cytonn had to compel investors to roll over their investments with some resorting to lawsuits that threatens the life of the company.

Others such as Suraya whose promise of off plan investments failed to materialise pushing prospective homeowners into misery and despair.

Commercial real estate is also struggling from reduced demand as more companies opt for reduced office space infavour of work from home.

The banking sector’s asset quality, as measured by the proportion of net non-performing loans to gross loans, remained at 5.7 per cent in the first quarter of 2021 as was in the fourth quarter of 2020.