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Kenya’s middle-class homeowners face a bleak Christmas as property auction bug bites

Inflation is the increase in goods prices, whereas recession is a steep decline in business activities. Where inflation is seen as an unavoidable reality associated with every economy, nations go out of their way to avoid a recession.

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Wealthy Kenyans are staring at a bleak festive season as weakening shilling and inflation-linked adjustment on excise duty push hundreds of pricey properties to the auctioneers’ unforgiving sharp blade.

Never has the Christmas festivities mattered more to the Kenyan elite, who had hoped 2022 would see a steady return to some kind of normality in their hard-obtained assets after several months of economic hardship.

Instead, this year has been a rollercoaster for a sector that grew by 20 percent in 2021, according to a 2022 report by Saif Real estate, which attributed the growth to infrastructure improvements like the Nairobi Expressway, utility connections, and airport upgrades as well as a relatively stable GDP growth of 5.4 percent over the last five years.

But a keen look at the back pages of our local dailies, one can’t help but notice in awe of the growing number of properties being listed for auction, often massive bungalows and manors whose valuations are worth in tens of millions of shillings – highlighting the hostile economic defies that haven’t spared the rich.

Legacy Auctioneering Services, Purple Royal Auctioneers, Watts Auctions, Keysian Auctioneers and Garam Investments (Auctioneers) among others, often secure a total of 4 to 6 pages nearly every day in the local dailies to publicize such sales, with the number of such sales rising in the last two months.

The month of December has seen more and more auctioneers put up high-priced properties up for sale – meaning, owners of such assets have ducked on their loan promises leading to painful forfeiture by the banks.

Commercial banks and even some digital lenders customarily hold on to such possessions as collateral, and are always at arm to dispose of them through public auctions when customers fail to honor their loan obligations. Banks do this to recoup their investments.

What’s worse, economic experts now believe the situation could get dire if both the national government and Counties – which are also cash trapped, continue to hold contractors and suppliers’ fees in pending bills.

“What is happening is that most of these people were doing business with the government, and are now grappling with delayed payments. So the probability of this trend carrying on is quite high,” offered Peter Macharia, an economic expert, in a telephone interview.

In his analysis, Macharia who also runs a digital lending firm Jijenge Credit Ltd, is convinced that heavyweight investors in the sector will continue to surrender their buildings including large parcels of lands if the State doesn’t come to their rescue.

“What needs to happen as a matter of urgency is to inject money into the economy, like what is being tried with the Hustler Fund, whose impact – if well-managed, shock kick start the economic revival by businesses. But if not well managed, thee spillover effect will affect other industries like the energy sector which is seeing an imbalanced rate hikes,” he noted.

With Kenya’s financial market as well as global markets still unsettled, it is expected that interest rate on new mortgages could also continue to rise – perhaps higher than what the market experienced last year.

This will impact on household repayments ability, coupled with high fuel prices and unclear economic outlook.

Indeed, Kenya’s annual inflation rate has accelerated over the past months hitting 9.5 percent last month and 9.6 percent in October from 9.2 percent in September and above market forecasts of 9.5 percent. It was the steepest inflation rate in May 2017, breaching the upper limit of the central bank’s target range of 2.5 percent-7.5 percent for the fifth month.

While there’s no clear view of how these changes might be or how exactly businesses will react in the long term as inflation concerns continue to threaten, it is widely expected –judging by economic trends that Kenyan investors in the sector will begin to have less confidence doing business with Counties.

A number of County Governments, notoriously Nairobi and Mombasa Counties for instance are believed to owe its suppliers billions of shillings in pending bills – a concern that continues to threaten business survival.

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