FORECLOSURE

House auctions increase as asking prices drop

Owing to the subdued economic environment in 2019, a number of homeowners have been forced to auction off their properties

In Summary

•A pile up of distressed properties continues to have an impact on the real estate market, with dealers having to reduce their asking prices

•Those who sell distressed homes do so, not because they have a choice, but rather because they have to offset what they owe a mortgagee or a lender

AFFORDABLE: A house in Karen. The cost of homes in upmarket areas has dropped.
AFFORDABLE: A house in Karen. The cost of homes in upmarket areas has dropped.

An increase in the number of  mortgage defaults has forced property developers back to the growing board.

A survey by the Kenya Bankers Association shows a pile-up of distressed properties continues to have an impact on the real estate market, with dealers having to reduce their asking prices.

The distressed properties although certified for occupation,  have remained unsold for more than nine months.

 

Owing to the subdued economic environment in 2019, a number of homeowners have been forced to auction off their properties.

Those who sell distressed homes do so, not because they have a choice, but to offset what they owe a mortgagee or a lender.

It is common for a distressed property to be sold below market value.

This, coupled with the growing level of non-performing loans in the real estate and construction sector has resulted in an overall decrease in the house asking prices.

KBA’s Housing Price Index released yesterday shows house prices dropped by 61 basis points during the fourth quarter of 2019. According to the report, this further contributed to the price slump by constricting private sector growth.

“This negative feedback loop has clouded the house market outlook and led to price rediscovery in favour of a downward correction,’’ KBA director of research and policy Jared Osoro said.

Last year’s economic slowdown also tightened disposable income growth among potential homebuyers, in turn, stunting home purchases.

 

He noted that moving forward, there would be a sustained market correction albeit with very marginal house price increases.

The report shows people prefer low-density buildings over higher ones as high densities are seen as being not only overcrowded but also lack in privacy and tranquility.

This means high-rise buildings are going at lower property prices compared to those in low-rise buildings, with all other things being equal.

“At the top end of the market, there has been a run for apartments with the activity in the upmarket and middle-income markets muted as price correction trend continues,” the report stated.

The survey found that while apartments continued to dominate housing demand, the market share dipped by 11 per cent to 74 per cent compared to 85 per cent the previous quarter.

The share of maisonettes uptake increased to 17 per cent compared to 10 per cent during quarter three while the share of bungalows remained subdued at nine per cent.