Mortgage defaults on civil servants reached 379.77 million shillings in the financial year ending June 2021 as the Covid-19 distress spread to government employees who are seen as the safest borrowers.
Auditor General Nancy Gathungu’s report on the State Officers Mortgage Scheme Fund (SOHMSF) shows that another loan of 15.6 shillings defaulted on 15 state officials under the scheme. is accumulated and risk of default.
“No evidence of action taken by management to collect the loans was provided for audit review and no provision for bad debts was made against the receivables,” the report said.
The failure to pay civil servants under SOHMSF is a reflection of the struggles that mortgage holders like civil servants who have taken out home loans on the basis of their payslips are struggling to repay.
The real estate slowdown is also penalizing real estate developers who are finding it difficult to sell units built on credit.
The auditor also found little evidence that the government could recover the loans.
“Under these circumstances, loan recoverability amounting to 379.77 million shillings and arrears of 15.6 million shillings included in the long-term receivables balance of 2.96 billion shillings as of June 30, 2021, could not be confirmed.”
Reports show that during the reporting period, 137 loans were fully disbursed to applicants worth about 3.6 billion shillings.
Thirteen applications worth 383 million shillings were approved pending disbursement while six applications were pending approval.
During the period, 165 applications were completed, returned with supporting documents and recommended to banks for processing of loans worth approximately 4.38 billion shillings.
“Challenges include arrears from officers whose terms have expired and the use of gratuity for loan repayment.”
Real estate has been one of the fastest growing sectors in the country over the past 15 years, with returns on real estate outpacing stocks and government securities.
The sector has, however, recently suffered from slow growth in sale and rental prices due to a huge inventory of unsold units, which has seen developers who have taken loans to build and sell homes in default. . Low occupancy rates mean developers who depended on rent collection to repay loans are also struggling.
Companies that have taken out loans based on their projected cash flows are also struggling to meet loan obligations.
Central Bank of Kenya data through April 2021 shows net domestic credit to the housing sector increased 5.8% to Shs 409 billion, the slowest in nine months.