Why more properties are getting auctioned

On May 18, 2022 various newspapers carried advertisement of local tycoon Patrick Bitature’s properties for auction. The properties that were advertised include; Elizabeth apartments in Kololo, Protea Hotel (Skyz’s Hotel) in Naguru, Moyo Close apartments and Kololo Gardens in Kampala. The intended sale of the above mentioned properties was in a bid to recover $32,064,075 (about Shs117b) that Vantage said was an overdue debt following a loan deal gone bad.

Bitature is not the first businessman to face these challenges. A number of property empires have risen and fallen so, we are no longer shocked when it happens. A cursory look through any newspaper any day shows a number of properties big and small up for auction. 

In the wake of rising  rent in recent years, individual investment in shelter has even become more prevalent in urban areas.

However, as the country moves fast to middle-income status, with a growing but vulnerable middle-income population, Jesse Mburu, who has been an auctioneer for the past 30 years, has also witnessed a spike in the auctioning of people’s homes.

 “There is nobody who would like to buy something, spend money they have earned through sweat, only to abandon it. I have never come across a case like that,” says Mburu of Gallant Auctioneers.

Hard economic times

While in their quest to have shelter many have worked hard to invest in residential real estate, many have been hit by hard economic times, crippling their ability to service the loans they used to buy the properties, while others are victims of fraudulent real estate firms that are conning them out of their money. In recent months, auctioneers’ hammers have increasingly fallen on residential properties, mainly caused by a difficult economic situation that has reduced people’s ability to meet their financial obligations.

A Nation analysis shows that between early May and late July, auctioneers have advertised more than 1,000 residential properties, with more than 85 per cent of them still under construction.  In May, the auctioneers booked at least 30 pages on four days alone, to advertise more than 400 residential properties, which increased to over 500 residential properties in June, then about 400 in July.

Some of the properties being auctioned, the Nation observes, are still being developed. Most of the developed properties range from flats, three- to eight-bedroom maisonettes and bungalows, to blocks hosting rental units.

 “The plot is being developed with a double-storey house which upon completion will accommodate on the ground floor; living room, dining room, kitchen, pantry, cloakroom, two bedrooms ensuite. The upper floor will comprise landing, family room, study room, two bedrooms and master bedroom ensuite. The property is ideal for a family house,” one such auctioneer’s advert referring to a property in July read.

Properties being auctioned

The Nation analysis also shows that more than 80 per cent of the properties being auctioned are within the Nairobi Metropolitan area, consisting of Nairobi, Kiambu, Machakos and Kajiado counties, with most cases witnessed in Nairobi.

 “The way auctioning of homes has increased reflects how more people in the country have been investing in those properties. Many people hold the belief that shelter is the most important thing. Even the young people leaving university are being advised by those more experienced than them on the need to focus on buying a house,” Mburu says.

 “But when 100 people purchase 100 residential flats or houses, it does not necessarily mean all of them will own them in the end. There are those who will fall along the way, maybe after paying 30, 50 or 70 percent of the value. This is the main reason auctioning of residential properties is higher than other properties.”

Tight corner

The auctioneer also notes that while many have found themselves in a tight corner after losing their jobs and businesses in the Covid-19 pandemic and eventually being unable to pay loans, others have fallen victim to rogue real estate firms that are blatantly breaking laws and contracts, with the primary objective of conning unsuspecting investors. Majority of people finance ownership of properties either through loans from financial institutions, or by entering into accommodative purchase agreements with sellers, to pay in instalments.

“There are cases where a person has been paying instalments for a house with a real estate firm for up to 15 years, but they are still being auctioned. Such people die shortly after such actions. It is a case of malice, where real estate companies fail to consider their clients’ situation or take advantage of their dire situation, sometimes introducing new requirements such as additional interest or money that cannot be explained. Many have lost their homes this way,” Mburu says.

Falling-out among partners

He also observes that other factors such as a falling-out among partners and couples who had bought a property together through a loan and subsequent failure to service the loan, death and mismanagement of property by those left in charge have also played a part in the auctioning of properties. The Nation analysis revealed that in Nairobi, auctioning of properties has been reported across the county, but mainly in areas hosting the well-to-do such as Lavington, Kileleshwa, Karen and Muthaiga North.

The counties most affected by the auctioning wave are the same ones the Kenya National Bureau of Statistics (KNBS) in May reported had witnessed the highest cases of citizens from other counties migrating there in search of better fortunes. KNBS, in the analytical report on migration, reported that a total of 4.3 million Kenyans migrated from other counties into Nairobi, Kiambu, Kajiado and Machakos, mainly for economic and family reasons such as building a home.

Last resort

Lenders always take auctioning of properties as the last resort to reclaiming their money. It is always a sign of things having moved from bad to worse for the person financed. Mburu advises that to avoid their homes being auctioned, people who are not sure of the sustainability of their incomes should consider buying plots first, then developing them later. “Do not be happy that you are living in a house that you have committed to pay for 20 years, if you are not sure of the sustainability of your income. If you can buy a plot, then develop it slowly at your own pace, please do that,” he says.