A title deed, once the golden key to unlocking substantial bank loans, is fast losing its lustre. Lenders across Kenya, grappling with portfolios bloated by repossessed homes and land they cannot sell, are fundamentally rewriting their risk assessment playbooks.

This pivot marks a critical turning point for aspiring homeowners and entrepreneurs who have long relied on land ownership to access capital. The core of the issue is a distressed property market where supply from auctions is overwhelming sluggish demand, forcing banks to reconsider the true liquidity of land as collateral.

A Market Awash with Unsold Assets

Financial institutions are currently saddled with an expanding inventory of seized properties that are proving difficult to offload. A soft economy, coupled with high interest rates, has seen a surge in loan defaults, particularly in the real estate sector. According to the Central Bank of Kenya (CBK), non-performing loans (NPLs) in the real estate sector jumped by KES 15.4 billion to KES 117.1 billion in the first quarter of 2024 alone.

This has led to a spike in property auctions, yet potential buyers are scarce. Legal safeguards in the Land Act of 2012 prevent banks from selling seized assets at below 75 percent of the market value, a threshold that is often too high for the few interested buyers in a depressed market. This has created a bottleneck, leaving banks with unsellable assets and prompting a shift towards private treaties, where lenders and distressed borrowers collaboratively seek a buyer.

From Title to Tills: The New Lending Focus

In response to this market reality, lenders are increasingly being forced to look past static assets and focus on a borrower's verifiable cash flow. This means a greater emphasis on:

• Business Revenue: For entrepreneurs, banks are scrutinising balance sheets and cash flow statements more intensely.
• Salary Slips: For individuals, the stability and size of their monthly income are becoming the primary determinants of creditworthiness.
• Credit History: A proven track record of repaying previous loans is now more valuable than ever.

This shift disproportionately affects informal sector workers and small-scale farmers, whose incomes are often irregular and harder to document, even if they own valuable ancestral land.

The Kenyan Household Impact

For the average Kenyan, this development presents both a hurdle and a clarification. The dream of leveraging the family plot for a business loan or to finance a child's education now faces a significant obstacle. It underscores a new reality: without a steady, provable income, property ownership alone is no longer a guarantor of financial mobility. The Kenya Bankers Association's Housing Price Index noted a 14.28% year-on-year drop in house prices in the third quarter of 2024, reflecting a market correction that further complicates property valuation.

While the government has recently approved a waiver of interest and penalties on outstanding land settlement loans to help low-income settlers acquire title deeds, the utility of these documents in securing credit is now in question. Analysts suggest that until the property market stabilises and the glut of repossessed assets clears, cash flow will remain king in the eyes of Kenyan lenders.