Kenyan banks are preparing to intensify property auctions in the coming months, responding to a worrying spike in loan defaults within the nation's critical construction and real estate sectors. A recent Credit Officer Survey from the Central Bank of Kenya (CBK) confirms that most banks plan to heighten their recovery efforts as borrower distress deepens.

This move signals growing instability in a sector that is a cornerstone of Kenya's economy, directly impacting job creation, housing development, and investment returns. The core of the problem lies in a sharp increase in non-performing loans (NPLs)—debts that have not been serviced for 90 days or more—which have reached their highest levels in nearly two decades.

The Staggering Numbers

The latest data paints a stark picture of the financial strain on developers and contractors. The construction sector is grappling with one of the highest default rates in the entire credit market.

• Gross non-performing loans in the building and construction sector rose to KES 44.7 billion in mid-2024.
• By the end of 2024, bad loans in the sector had climbed to KES 52.1 billion, representing a default rate of 37.21% of the total loans advanced to contractors.
• Across the entire banking industry, the NPL ratio hit 17.6% in the first half of 2025, a significant jump from previous years and the highest level in over two decades.

Why Construction is Under Pressure

Analysts point to a perfect storm of economic headwinds battering the construction industry. High interest rates have made borrowing significantly more expensive for developers, squeezing profit margins and making it harder to service existing loans. This is compounded by a slowdown in government spending on major infrastructure projects and persistent delays in payments for completed work, creating severe cash flow problems for contractors.

Furthermore, the rising cost of building materials and a general slowdown in demand for new housing units have left many developers struggling to complete projects or find buyers, leading to stalled sites and mounting debts. The Kenya Association of Manufacturers has also noted that dwindling consumer purchasing power has reduced demand for finished goods, impacting the entire economic value chain.

The Ripple Effect on Kenyans

The crisis in the construction sector is not confined to boardrooms and building sites; it has direct consequences for ordinary Kenyans. For families who have invested their savings in off-plan housing projects, the rising defaults could mean their dream homes are never completed, putting their life savings at risk. A wave of auctions could also lead to a drop in property values, affecting existing homeowners.

Moreover, the construction sector is a massive source of employment, from engineers and architects to masons and manual labourers. Stalled projects and financially distressed developers inevitably lead to job losses, cutting off livelihoods for thousands. The Kenya Bankers Association (KBA) has acknowledged that the high NPLs are forcing banks to be more cautious, potentially restricting the flow of new credit needed to fuel economic growth.

As banks prepare their auction hammers, the coming months will be a critical test of resilience for Kenya's property market and the wider economy. While lenders focus on cleaning up their loan books, the government and industry stakeholders face the urgent task of addressing the root causes of the defaults to prevent a deeper economic downturn.