Lenders face difficult times

Architectural design of of the stylish two and three-bedroomed apartments that are being developed under a joint venture between HF Group's development and investment subsidiary, HFDI and Richland Development Limited.They will be located at Kamiti Road, approximately 800 meters past Kahawa West junction.

Last month, mortgage lender Housing Finance Group issued a profit warning saying that its net profit for 2017 could be 25 per cent lower than those of 2016.

Last year in November, it was reported that the firm’s profit fell 81 per cent in the nine months to September, weighed down by bad loans.

At the time, the lender said the slowdown in the property market as a result of the prolonged electioneering period had led to the jump in defaults on loans.

HF strives to be “the foremost lender in the property market, leading provider of integrated solutions for the acquisition, development and improvement of property in Kenya”.

At the end of last year, Frank Ireri, MD of HF Group, enumerated the great strides the group made in 2017.

“In 2017, we completed 480 units of the 1,272 apartments planned for Komarock Heights. We also managed to construct 60 per cent of Richland Pointe on Kamiti Road, Nairobi. In addition, we broke ground for 560 out of 1,500 units of Clay City next to Thika Superhighway,” he said.

But he added a rider: “Success in this sector depends on how well buyers get access to financing.”

When we sought his comments recently for this article, his answer was straight and to the point: “Nothing has changed from the last time we spoke.”

But it is not only HF finding itself in this position.

According to Central Bank of Kenya’s Bank Supervision Annual Report for 2016, outstanding mortgage loans increased by 8.1 per cent from Sh203 billion in December 2015 to Sh219 billion in December 2016.

However, this was not necessarily due to more Kenyans taking mortgage loans but as a result of increase in loan sizes from Sh8.3 million in 2015 to Sh9.1 million in 2016.

Actually, mortgage loans decreased by 373 loans in the same period. The report attributes this decline to “tighter credit standards by commercial banks”. But of more concern to the lenders is the growing inability of many repay these loans as seen in the rise of non-performing mortgages.

As of December 2016, non-performing mortgages increased to Sh22 billion from Sh11.7 billion in 2015. This was a 10 per cent ratio of non-performing loans (NPLs) to mortgage loans, above the industry NPLs to gross loans ratio of seven per cent.

The reintroduction of interest rates cap has been partly blamed for this.

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