COVID-19: What the Pandemic Means for Property Owners, Tenants and Mortgage Lenders

By Patricia Andago

The real estate sector has been affected by massive illiquidity affecting performance in the sector. The main blow to the sector has been the diminishing disposable income being experienced by Kenyans as a result of the economic fallout from the COVID-19 pandemic.

Several tenants have been unable to pay their rent dues on time, passing the cash flow issue on to property owners. Vacancies from prime residential homes have been on the rise as expatriates return to their home countries and some locals opt to move to cheaper accommodation. Furthermore, some Kenyans are relocating to unfinished houses that they had been building to avoid paying rent. Rural migration has been the most common survival tactic, especially amongst Kenya’s most vulnerable groups, who have been the most affected by suppressed business income and job losses. Urban property owners’ income is gradually sinking and many may have to consider reducing their rental rates, as some already have.

Real estate company Vaal has estimated the reduction of rental rates to reach 20-30%. This will make it incredibly difficult for property owners to repay their mortgage loans.

Household ability to pay rent amongst tenants who usually pay rent on time.  Source: KNBS

In addition to reduced rental income, properties for sale have also become incredibly difficult to sell. Investors are bearish and have put their buying plans on hold. Consequently, numerous ongoing construction projects have been halted.

Commercial properties have not been spared either. The general Kenyan workforce has reduced, with at least 1 million Kenyans having lost their jobs or been out on indefinite unpaid leave, ~41.5% of Kenyans working from home, and ~61.9% having missed work for reasons related to COVID-19. Consequently, the demand for office space has drastically reduced. According to Vaal Real Estate, ~75% of urban commercial spaces in Kenya are now vacant.

Source: KNBS
Source: Google mobility data as of August 2020


Retail spaces have also been experiencing a decline in footfall, though it has improved as Kenyans become more mobile with the extension of the curfew and the lifting of restrictions in and out of Nairobi and Mombasa.

Source: Google mobility data as of August 2020

Impact on the financial industry

The Central Bank of Kenya’s directive to banks to restructure loans has resulted in developers working with banks to restructure ~1,515 real estate accounts, valued at over Kshs 31 billion, so far. The National Cooperative Housing Union has also rescheduled loans worth Kshs 500 million. Repayment schedules and default rates significantly affect the profitability and liquidity of the entire ecosystem that depends on real estate income. This includes banks, mortgage finance companies, SACCOs, property developers, property managers and service providers.

The Central Bank has lowered the CBR* from 8.25% (pre-COVID) to 7.25% (March) to 7% (April) and the CRR** from 5.25% (pre-COVID) to 4.25% (March), giving lenders additional liquidity to directly support borrowers. The government has also allowed the use of pension savings towards purchasing a residential home in addition to securing a mortgage loan. With these policies in place, some developers and individual homeowners have managed to revive their construction projects, giving mortgage financiers a ray of hope despite the low transaction volumes.

To support mortgage markets further, the Kenyan government can enhance its accommodative monetary policy stance. For example, they could purchase assets from lenders, just as the United Kingdom has purchased £200 billion in government and corporate bonds. Moreover, they could allow financiers to operate below minimum capital ratios for a certain period of time, just as India, South Korea and the US have done.  Such measures are likely to boost mortgage lending in Kenya. However, as these policies are put in place, regulations are also required to encourage financial institutions to continue active lending, as many are just sitting on large piles of cash (a topic which we will cover in a separate article).

Some real estate players will emerge stronger

Warehousing facilities

Supply chain disruptions have forced companies to keep extra storage space so as to avoid supply challenges. E-commerce companies are also gaining popularity in Kenya, creating a growing need for storage by players in this sector. Financial institutions can provide products for this growing market.

Real estate investors

Following a reduction in the CBK lending rate, banks have lowered their interests on loans, for which investors could capitalize on for a maximum return on investment.

Source: Central Bank of Kenya


The prevailing macro and micro conditions may lead to a price correction of retail and commercial properties in Kenya, giving tenants more affordable rental prices. Some tenants are on the lookout for better deals than they would get pre-COVID.

Financial services in rural areas

According to the Kenya Economic Report 2020, counties with the most access to financial services are counties with big urban areas. 17% of Kenyans are still excluded from access to formal financial services. Expansion of financial services to rural areas may be profitable for the financial institutions as more and more Kenyans seek these services as they retreat from urban dwellings to their rural homes.


Measures taken by the government and financial institutions to protect the real estate sector from the effects of Covid-19 will not just keep money flowing in the economy but will ensure that Kenyans have homes.


*CBR: Central Bank rate:the lowest rate of interest that the Central Bank charges on loans to banks

**CRR: Cash reserve ratio: Minimum amount of deposit that the commercial banks have to hold as reserves with the Central Bank


Patricia Andago is the product development lead at Odipodev, a data science and analytics firm operating out of Nairobi Kenya.

This work is supported by the Heinrich-Böll Foundation.

Add comment

Your email address will not be published. Required fields are marked *