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All Housing Bubbles Eventually Burst

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I do love the way that Business Daily Africa isn’t at panic stations just yet at the state of the Kenyan housing market. While They’re willing to admit that their forays into mortgage lending could leave some banks looking vulnerable, they don’t quite issue a red-flag warning to investors or shareholders. It’s almost as though they saw a potential problem, but shrugged their shoulders and said “Meh” rather than offering any advice.

I think back to the times last year when various newspapers, the Nation especially, were saying that Kenya would be insulated from the effects of the global slowdown, and I have to laugh because if I didn’t I would cry. I don’t know which magic unicorn those journalists were talking to, but they apparently overlooked the fact that Kenyan banks had been aping the same behaviour as their counterparts in the west.

The US housing market shot up to the giddy heights it did because credit was extended to those who would normally have been disqualified from getting a mortgage. Even NINJAs (No Income, No Job or Assets) could get their names on a title deed, albeit temporarily. Only once householders began having difficulties making their repayments or, as is more common now, began to lose their jobs, they began to default in their droves. Some simply posted the keys back to the mortgage company and moved out. Others found themselves in foreclosure despite doing their best to keep up with payments. Regardless, what followed were a large number of “crisis sales,” which lowered property prices for everyone.

Could Kenya see the same problem? There has been a property boom in recent years, with resident and non-resident Kenyans scrabbling to get on to the property ladder, either as owner-occupiers or as landlords. Now, not all of them are going to default on their loans, at least not deliberately. Nevertheless, with the cost of living consistently rising, and the fragility of the job markets, even those who would be considered good prospects might find their finances constrained and have difficulty making payments.

Hopefully, the banks mentioned in the BDA article are taking steps to sort out their exposure to large numbers of defaults. Hopefully, there won’t be a large number of defaults. The difficulty with bubbles, however, is that the majority won’t accept that things have gone too far until it is too late to take any effective action. What annoys me, however, is that instead of offering readers advice on what to do if they find themselves having difficulties with their own mortgages, the BDA article closed with a summary of a bunch of bankers giving each other prizes instead. Two separate issues, conflated into one editorial mess.

[Image by Istargazer]

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