Property auction over loans double after Covid-19

A building on Eighth Street Industrial Area that was advertised in the Daily Monitor for sale. PHOTO / STEPHEN OTAGE

What you need to know:

  • Meltdown. Businesses collapse and individuals lose homes to creditors as ravages of Covid-19 and associated lockdowns stir rising loan defaults, leading to properties advertised for auction in the first half of this year doubling numbers of similar pre-pandemic period. 

On May 18, 2022, an auctioneer took a newspaper advert to announce planned sale of prominent businessman Patrick Bitature’s properties over $30m (Shs100b) loan from a South African lender.

News of the intended foreclosure shook the local market and sparked animated public conversation before the battle headed to different courts; for litigation and arbitration.

The entrepreneur’s assets that Vantage Mezzanine Fund II Partnership targeted for sale included Elizabeth Apartments in Kololo, Protea Hotel (Skyz’s Hotel) in Naguru, Moyo Close Apartments and Kololo Gardens --- all in Kampala.

In separate public statements and arguments in court, the businessman attributed his woes to delayed production of Uganda’s oil in whose chain businesses he planned to invest, and disruptions triggered by the Covid-19 pandemic.

Covid-19 resulted in world-wide lockdowns, muting global economic growth, stalling investments, haemorrhaging capital and crashing businesses – big and small.

For the government, the pandemic impact has included reduced revenue collection, and data sets we have analysed show Covid-19 upended income flows of individuals and small-to-medium businesses as much, if not more, than it did to big businesses.

More than a month after Bitature’s properties were advertised for sale, the headquarters of Pepper Publications, publisher of Red Pepper tabloid, located in Mukono District, were on September 30 put up for sale over an unpaid loan of an unspecified amount.

Declining copy sales have for years spelled danger for legacy media whose business model took a knock from social media disruptions and, according to industry experts, Covid-19 illuminated pre-existing print troubles and, in some cases, quickened the death of some newspapers or their transformation to exclusive digital operations.

After observing a pattern of what looked like increasing number of properties being put up for sale to recover loans, our reporters coded and analysed foreclosure notices in the Daily Monitor for January-June 2022 and compared it with data for similar pre-Covid data (January – June 2019).

The findings are stark: twice or more properties have been advertised for sale in the first-half of this year than in 2019, showing Covid-induced distresses are manifesting in higher loan defaults, a danger sign for the financial sector. 

Put another way, more people who borrowed money, whether from savings and credit cooperatives (Saccos), private lenders or banks, are failing to pay, meaning credit will become less and more expensive as loan recovery costs soar. And more defaulters are losing property now than before.

For instance, auctioneers between January and June 2022 advertised 2,076 properties in Daily Monitor for sale, nearly twice the 1,102 properties they advertised during first half of 2019.

The 2022 statistics translates to 346 properties being placed for sale a month, or 12 of them a day, this year. The imminent forfeitures, based on our analysis, show individual borrowers losing big and small assets, among them family homes, usually an acquisition using life-time savings.

Topping the list of collaterals are vacant land, land with building (residential, commercial and unspecified) as well as land with developments such as farms and workshops. Other items are motor vehicles and motorcycles, suggesting more boda bodas are losing bikes to lenders and, with it, employment.

Details of some of the assets flagged for sale in the classified sections were not provided and our reporters used accompanying photographs, of finished and incomplete buildings, to cluster them under land with developments.

Of the 1,000-plus properties advertised in 2019, 352 were undeveloped land, land with developments (235) and land with buildings (213). Some 206 were vehicles while motorcycles numbered 45.

Our analysis shows that the highest number of collaterals to be auctioned were advertised in April, at 430, although March and June tend to post comparably higher figures too. The lowest figures for the periods reviewed was in January 2019, with only 135 assets set for auction.

We could not readily establish the reasons for the spikes and drops, although March coincides with usually the first meeting of a lender’s board during which management presents progress report of its works, which in this case could include recoveries made.

Mr Festus Kateregga of Quick Way Auctioneers and Court Bailiffs, which advertised many of the properties in this newspaper, said financial institutions move to auction mortgages following futile attempts to recover money.

“I am a debt collector. If you mortgage property and default, it is put up for sale and that is where we come in to sell the property. When the bank has a defaulter, they send a file to us to advertise that property so we can recover the money,” he said, adding, “We only come in when the bank has exhausted all the trial processes to recover the money. Mine is to advertise and once I advertise, I advise the borrower to pay within the given days.”

An Auctioneer that preferred anonymity said “we are simply given instruction from financial institutions, and those are the instructions we carry out, ours is just to find a buyer”.

Advertising the properties in the media before sale is a procedural requirement and also aims to attract the highest bidder, the individual said.

For borrowers, it is a nightmare.

Ms Joyce Namuddu was among the lucky few after a relative stepped in to save her rental units that had been advertised for sale over a loan she picked in 2019 and failed to pay. 

The story, however, is different for Mr Ismail Ssempijja, a resident of Masaka, whose residential house and rental units are on verge of being sold. He sees no way out of the predicament.

A former textile dealer, Mr Ssempijja told this newspaper in an interview for this article that “my family house and some of my rental houses were advertised…I have not been able to save them, I am stranded”.

“I do not know what is going to happen, it is God to decide because the situation is too tough on my side,” he said.

Mr Ssempijja acquired the loan at the beginning of 2020, hoping to boost his business. He was to pay back within two years. Then Covid happened. Months after taking the loan, the country went into lockdown to stem the spread of Coronavirus. Businesses were smothered, livelihoods extinguished.

“My businesses collapsed. There is no money. I am engaging the bank, but all they want is the money. I would have paid if Covid had not disrupted us, this was not the first time I acquired a loan. I have always paid back promptly,” he said.

A lawyer who asked not to named due to a conflict of interest, said the outbreak of Coronavirus and the chaos it caused in shutting down the world was not foreseeable and borrowers could have invoked the legal principle of force majeure as defence to prevent creditors from moving on their mortgaged assets.

But Mr Ssempijja said his bank rejected his application to restructure the loan despite guidelines issued by the Bank of Uganda to commercial banks, credit institutions and microfinance deposit-taking institutions to comply.

In addition, the government through the Finance ministry announced a raft of measures to mitigate the effects of Covid on the economy, including stimulus package for distressed businesses.

Following a survey it did at the peak of the lockdown and containment measures, the Economic Policy Research Centre (EPRC) projected that the first six months of lockdown were likely to push 3.8 million workers into temporary joblessness and 600,000 out of employment  permanently.

Because the lockdowns of March 2020 and of June 2021 lasted longer than predicted, their effects on individuals, families, private sector and even the government turned out more adverse than projected. 

Worse, the government’s initial Shs1 trillion stimulus package was nowhere to be seen, as the would-be largest distributor, the Uganda Development Bank (UDB), told this newspaper that it had received no transfers by April last year for the purpose.

The procedure for access remained opaque, raising concern among parliamentarians and crowding out potential beneficiaries such as Masaka’s Ssempijja.

Unlike him, Ms Sarah Aculang said she is hopeful to salvage her rental units from being auctioned.

“The bank advertised the property, but there were no buyers. So, we agreed with the bank on the amount I should pay every month … Buyers were offering way below the reserve price and this is when the bank reconsidered and we renegotiated,” she said.

Ms Aculang came close to losing the property over a loan acquired in 2019. She used the money to complete a building, and injected some funds into her import business.

But then the pandemic hit, crippling her businesses. More misfortune befell her when her daughter got involved in a motor accident. They would spend months in hospital, channeling whatever resources available to her care.

But while she has an understanding with the bank, she is concerned about the “hostile” nature of the auctioneer who has not relented on trying to sell her property. She further accused the auctioneers of marking on the wall of her house that the property is up for sale, yet it was not part of the collateral.

According to the classifieds section of this newspaper, two properties were advertised. Ms Aculang said the creditor initially took photographs of her residential home as evidence of her place of abode and did not understand how things changed.

We could not independently corroborate this account, and where her bank informed the auctioneer about the loan restructuring deal.

Owners of advertised properties denied mortgaging them. Among them was Mr Biraahwa Mukitale, a former Buliisa Member of Parliament (MP). His land on Bombo Road was advertised in 2019. When our journalists contacted him for this story, Mr Mukitale cryptically said it could have been “trickery” by “someone trying to get a pound of flesh”.

But while some debtors willingly shared their predicaments, majority we contacted were either outright hostile or simply turned down our requests for interview.

“Why are you asking me why I defaulted on a loan? Is it any of your business?” one angry defaulter said on the phone before dropping the call.

Another responded, “Go and look for news elsewhere and leave me alone. I lost my home [after defaulting on a loan] and you are now asking me what went wrong. Really? So that you do what?”

Others declined to share their experiences that they characterised as “too painful” as it had caused them “enough emotional distress”.

One psychologist suggested that the loan defaults and property losses have left borrowers angry and mentally disturbed, meaning many may require counselling to cope.

What lies ahead?

According to ex-MP Mukitale, a school proprietor and real estate dealer, debtors are struggling and rising auctions could destibilise the financial and property market.

“Banks are going to have problems because if you put all these properties on sale, then you will have a whole collapse because properties have been selling expensively, but new buyers may not be willing to pay so highly,” he said.

He said Bank of Uganda’s decision to increase the central Bank Rate (CBR), although pragmatic for reversing rising inflation, will devastate borrowers who will have to get credit more expensive and payback more in higher interest rates imposed by commercial banks raising.

Mr Moses Waiswa, the managing director of Fairway Auctioneers, warned potential borrowers to scrutinise mortgage arrangements carefully if they do not want to fall into a trap and lose high-value assets.

“Banks do not own money. Once you sign a mortgage agreement, know you have been trapped. Just read the adverts in your newspaper (Daily Monitor) and see the rate at which banks are disposing of property,” he said.

Our analysis of the reviewed data shows that once creditors decide, they go after any possessions of the defaulter, including cutlery, stationery, generators, laptops, photocopiers, sewing machine, and furniture.

Other things advertised for sale include salon equipment, gym gear, container kiosk, headphones, television sets, mattress-making plant, hazmat suits, welding goggles, masks, and kitchen glasses.

Fairway Auctioneers’ Waiswa said he is stuck with properties given to him by banks to be auctioned, and the assets belong mostly to individuals and businesses that borrowed before the Covid  lockdown.

“Usually banks are not cooperative on the time limit, they do not give you time to settle your debt. They have put houses on the market but, unfortunately, there are no people buying the property because there is no money,” he said.

Additional reporting by Stephen Otage.

In part II and III of this story to be published tomorrow, banks break silence over rising non-performing loans and professionals weigh in with options on how affected defaulters can cope.