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Apartment glut hits mortgagers in Kenya, bad home loans surge

NAIROBI (Xinhua) -- Some three years ago, Joseph Mutua’s employer, a Kenyan government agency, offered its employees a chance to buy homes.

The deal was so good that Mutua could not leave it despite owning another home on the outskirts of the capital Nairobi, where he lives.

“I shopped around for a house in suburbs that neighbor Nairobi. Got one, a three-bedroom bungalow at 65,000 U.S. dollars, which I bought,” he recounted on Wednesday.

Since he had another home, he chose to rent the house located in Kitengela, south of Nairobi.

His plan was that he would use the rent to top up on his monthly installments so that he repays the loan faster than the scheduled 13 years.

Mutua, however, is now grappling with the reality that he may not complete repaying the loan faster as he had hoped as tenants become hard to come by.

“In the about three years I have owned the house, it has been occupied for only 11 months. This year someone stayed in for only two months and is now vacant,” he said.

The senior accounting manager blames his predicament to increased construction of apartments in the suburb.

“At least three blocks of five-story apartments have been constructed in the neighborhood. And they are charging 220 dollars for a three-bedroom flat a month. Myself I charge 250 dollars, which I still consider low considering the size of my house,” he noted.

His plight is shared by tens of other Kenyans who bought houses especially in suburbs bordering Nairobi on mortgage to rent.

Increased construction of apartments in the suburbs has not only seen rent stagnate but has also led to a glut, with many houses remaining unoccupied.

“I bought an apartment in Ruai. I have not raised rent for the last four years to avoid the house staying vacant,” said banker Samson Atesa.

He has five years to complete his mortgage payment, but with low rent, he cannot fast-track payment.

“They say we have a housing shortage but why are these houses remaining unoccupied?” posed Atesa, who charges 150 dollars for the flat, lesser than his anticipated 200 dollars.

The turn of events in Kenya’s housing sector is one of the reasons bad home loans are on the rise.

With the erratic rental market, mortgage holders are finding it harder to effectively repay their loans due to low income or no income at all in case houses remain vacant.

The worst bit are home-loan holders who lose jobs and want to rely on rent from his property to pay for the house.

Latest Central Bank of Kenya data indicated Wednesday that there were 26,187 mortgage loans in the market as at December 2017 up from 24,059 in December 2016, an increase of 2,128 loan accounts or 8.8 percent

However, the outstanding value of non-performing mortgages increased from 220 million U.S. dollars in December 2016 to 273 million dollars in December 2017.

“The average loan maturity was 12 years with minimum of five and a maximum of 25 years in 2017,” said the bank, adding the total mortgage loan portfolio rose from 2.1 billion dollars in 2016 to 2.23 billion dollars in 2017, an indication that more people took home loans.

Henry Wandera, an economics lecturer in Nairobi, noted the glut in the market does not only hit mortgage holders but also those who took ordinary loans from banks and Saccos to build houses.

“It is the nature of business that when supply increases prices go down. It’s unfortunate its affecting home owners negatively because unoccupied houses or low rent may mean one losing their homes to the lender,” he said, noting those who buy to live in are faring better. But he was hopeful the market would correct itself.

According to the Kenya Bankers Association hosing index, property prices across Kenya are equally slowing down following glut as market corrects itself.

           

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