COVID-19: Auctioneers stuck with properties they cant sell

The number of listed auctions has continued to grow unchecked as the COVID-19 pandemic pierces through the economy for the fifth straight month.

Newspaper back pages remain dominated by rows of distressed properties facing the auctioneers hammer.

The auctions are despite cushioning with lenders for instance disclosing restructured payments of Ksh.844.4 billion by June 30, including Ksh.240 billion as personal/household loans.

A keen eye however wouldn’t help but notice the repetition of listed auctions in weeks after the initial placement of properties for sale.

The repetition has been an indicator that auctioneers are too facing hardships in the disposal of distressed properties.

The challenge is largely attributable to recent provisions which were first intended at preventing lenders and property owners from disposing assets at junk prices.

The 2012, Land Act is one such legislation which warranted defaulter’s properties to be sold at the highest possible value to match selling prices to market prices.

Auctions for instance must not dispose properties below 75 percent of the prevailing market prices.

Loan agreements now come with conditions on the disposal of collateral including a reserve price that representing a percentage of the property’s market price.

The demand for properties has however slowed down along with the depressed macroeconomic environment causing a dip in asking prices.

According to the 2020 Nairobi Metropolitan Residential Report by Cytonn Real Estate, the price of residential properties have dipped by 0.1 percent from an appreciation of 0.3 percent as of June 2019.

Further, home ownership has been frozen in spite of price discounts offered by dealers to cushion buyers.

As such, previous market valuations have become distorted to leave many properties overvalued.

Moreover, the majority of transactions are now being undertaken below advertised rate leaving auction sales in limbo.

“The economy has slowed and very few institutions and individuals have additional incomes to acquire assets.

Investors/households are now more risk averse than ever before. Auctions clearly are now not the most favourable way to recoup a loan lent,” said economist Morris Aaron.

Arbitration

With the auction route now starved off deals, landlords and property managers are turning to negotiations to lengthen the recovery of loan and fees from clients.

“We have not been hard on individuals who have faced difficulties in settling arrears due to the COVID-19 pandemic. One does not always have to go down the auction route, some landlords understand this while some hear none of it,” said Crystal Valuers Property Manager Benson Ngundo.

Make or break property sales are however still happening after sharp discounting.

According to Morris Aaron, there exist a pool of buyers for distress properties off the advertised market valuations.

“There exists bargain hunters who are looking at very good deals, 30 to 50 per cent off the market prices. This trend is slowly trickling through as a trend,” he added.