Poor sales push real estate firms off the cliff

The mortgage decline in Kenya comes even as the government accelerates its affordable housing programme. [Courtesy]

No sooner had the grave of Chris Kirubi dried up than Centum Investment, a company the late tycoon founded, recorded its first loss in four decades.

This news must have left the flamboyant billionaire shaking in his grave. But even Kirubi would not be amused was he alive, that one of the most decorated feathers in his investment cap- Two Rivers Mall- contributed to the Sh1.4 billion loss in the year ending March.

It is not only Centum that had a rough patch owing to difficulties in the property market. Almost all the listed companies dealing in real estate have been hit hard by the Covid-19 pandemic.

Britam’s decision to lock most of its investments in property came to haunt it after the financial services company posted a record Sh9.1 billion loss before tax in the year ended December 2020. This compared to a profit before tax of Sh4.6 billion in 2019.

The drop was largely attributed to provisions of about Sh5.3 billion for investment losses related to its wealth management fund, with analysts noting that its subsidiary, Britam Asset Managers, might have sunk much of the investors’ cash into long-term assets such as property.

Mortgage lender Housing Finance (HF) Group’s net loss widened to Sh1.7 billion in the year ending 2020.

This was an increase of 1,450 per cent compared to a loss after tax of Sh110 million that the mortgage lender posted in 2019, owing to a tough operating environment for the listed lender that saw its revenues decline even as its expenses ballooned.

Things were not any better for the mortgage lender in the first quarter of this year after its loss widened more than 300-fold from Sh633,000 to Sh191.8 million.

The only I-Reit (Real Estate Investment Trust) listed at the Nairobi Securities Exchange (NSE), ICEA’s ILAM Fahari I-REIT also recorded a dismal performance during the period under review.

ILAM Fahari I-Reit reported a 51 per cent drop in profit for the six months to June 30, owing to the loss of revenue from the anchor tenant, Tuskys Supermarkets, at Greenspan Mall.

Earnings for the period closed at Sh42.2 million, down from Sh86 million in the same period in 2019, as companies in the property market continued to struggle.

For Centum, unlike in the previous period when it disposed of assets worth Sh2.2 billion, the investment firm never disposed of any asset in the period under review.

James Mworia, CEO Centum Investments. [Elvis Ogina, Standard]

There was a decrease in the value of mortgages in the market by Sh5 billion “mainly due to repayments and decreased mortgage facilities advanced by banks due to effects of Covid-19,” according to the Central Bank of Kenya’s 2020 report.

Unlike the general trend where the private sector credit rose despite the adverse effects of the pandemic, mortgage loans outstanding dropped to Sh232.7 billion in December 2020 as compared to Sh237.7 billion in December 2019.

Things got worse for real estate in the first quarter of this year, with the industry recording the highest growth in bad loans.

Non-performing loans, or loans that have not been serviced for more than three months, for the property market increased by 14.9 per cent (Sh9.2 billion).

Dr Samuel Tiriongo, the Director of Kenya Bankers Association Centre for Research on Financial Markets and Policy, said that whereas real estate is a long term engagement that was not going to be hit by the negative effects of Covid-19, the continued uncertainty has seen the sector also feel the brunt of the outbreak.

“Everyone from March 2020 when we got the first case of Covid-19 in Kenya, was looking at possibly the end of the year, we will get a resolution to this thing,” said Tiriongo.

“Even at that time, we did not know that it could actually evolve into new variants, and the uncertainty around the vaccine.”

Investors, such as pension funds, have been reducing their investments in real estate and instead moved them to safer assets such as Treasury bills and bonds. 

It is not just in the listed companies that things have gone north, companies such as Cytonn Investments have found themselves on the firing end after failing to honour some of the agreements they had with their investments in their wealth management funds.

At the heart of the illiquidity, Cytonn explained is the difficulty in converting some of their housing units into cash as purchasing power has been heavily affected by the adverse effects of the pandemic.

HF has in the past year been disposing of scores of residential and commercial properties worth billions of shillings.

While most may have been sold, the prime commercial spaces and hotels it has put on auction are proving a hard sell.

Cytonn Investments CEO Edwin Dande. [Kennedy Gachuhi, Standard]

Some that have stayed long in the auction market include Thika Business Centre that is valued at Sh540 million, Kiambu Town Centre at Sh196 million and the Roof Garden Hotel in Machakos.

The business centres in both Thika and Kiambu are landmarks in the respective towns.

The Thika Business Centre is an 11-storey commercial building that has been put up for auction over a Sh520 million loan owed to HF.

The building is registered in the name of Kigio Group Company Ltd, which has diverse interests in property across the Central Kenya region.

The mortgage decline in Kenya comes even as the government accelerates its affordable housing programme.

In the next financial year that starts in July, affordable housing, one of the Big Four pillars, has been allocated Sh14.8 billion for both the drivers and enablers of the programme.

The government has already handed over 228 housing units at Park Road and Ngara in Nairobi.

President Uhuru Kenyatta’s plan is to build half a million affordable houses by the time he leaves office next year, enabling a lot of low and middle-class Kenyans to own decent homes.

Studies estimate the country’s annual housing shortage at over 200,000, but developers have only managed to supply 50,000.

The Kenya Mortgage Refinance Corporation (KMRC), a quasi-State corporation that is supposed to give banks cheap loans for onward lending to homeowners, released Sh2.7 billion to four financial institutions.

The plan is for KMRC to release large-scale, cheap financing to primary mortgage lenders including commercial banks, microfinance banks and savings co-operatives that will then lend to potential homeowners at long tenures and low-interest rates.

With a longer repayment period and low-interest rates of less than 10 per cent, KMRC Chief Executive Johnston Oltetia expects mortgage repayment to be lower.

“The rent you are paying now can actually be your repayment for the house,” he told The Standard in an earlier interview.