Aug 17, 2025

Insolvency refers to a financial situation where an individual, business or entity, such as a fund, is unable to meet their financial obligations or settle their debts as they become due. In most cases, the state of insolvency occurs due to an increase in business expenses, poor cash management, law suits, poor budgeting, fraud, business expansion, or a reduction in sales.  In Kenya, insolvency proceedings are primarily governed by the Insolvency Act of 2015. The act provides for how insolvent companies can be assisted to service creditors’ obligations and protect the interests of all stakeholders. The options available for such an insolvent company include Administration, Receivership, voluntary arrangements, and liquidation.

Earlier this year, we released a report focused on the Insolvency Act of 2015, financial health of a company and warning signs, business restructuring options under the insolvency act, various case studies including Mastermind Tobacco, Mobius Kenya and Kaluworks, Challenges affecting insolvency practice. We also offered various recommendations and conclusions. For more information, please visit our Restructuring and Insolvency in Kenya and Cytonn weekly #3/2025

Previously, we covered the following topics on insolvency:

1. Administration as a Business restructuring option in Cytonn Weekly #37/2022 – We analyzed some of the recent companies that have been in administration and noted down the key take outs,
2. Debt restructuring in Cytonn Weekly #25/2022 – We analyzed the available debt restructuring options that can be used by companies facing financial distress so as stay afloat and grow in the long run, and
3. Business restructuring options in our Topical – We reviewed the business restructuring options under the Insolvency Act of 2015

Following an increase in the number of insolvency cases being witnessed in the Real Estate sector in Kenya, this week we focus on Real Estate Insolvency in Kenya report to provide a comprehensive overview of insolvency as it relates to the industry and its major causes

 The note will include:

1. Introduction
2. Types of insolvency in Real Estate
3. Causes of Insolvency in Real Estate
4. Case Studies (Kenyan and international), and,
5. Conclusion and recommendations

 

1. Introduction

Insolvency in the Kenyan real estate arises when a developer, property company, or project vehicle can no longer meet its financial obligations as they fall due, triggering procedures such as administration, receivership, or liquidation under the Insolvency Act, 2015. The sector’s capital-intensive nature means that even minor disruptions in cash flow can escalate quickly. Common triggers include excessive debt reliance, cost overruns from inflation or mismanagement, and delayed or failed off-plan sales that deprive projects of critical liquidity. Market oversupply can slow absorption rates, while legal disputes over land or planning approvals can stall construction and revenue. Broader economic pressures such as high interest rates, currency volatility, and tightened mortgage lending further strain developers. These dynamics have made insolvency more visible in recent years, with several notable cases in 2025 reflecting a combination of financing challenges, operational weaknesses, and adverse market conditions.

The real estate sector is a key pillar of Kenya’s economy. It accounted for 15.5% of GDP (including construction) in Q1’2025 and is expected to continue growing supported by  the high urbanization and population growth rates of 3.7% p.a and 2.0% p.a, respectively, against the global averages of 1.7% p.a and 1.0% p.a, respectively, as at 2024. Nairobi’s population is projected to reach over 7.0 mn by 2030, sustaining high housing demand. Yet Kenya faces a severe housing deficit (estimated at 2.0 mn units, growing by 250,000 annually).

2. Types of Insolvency in Real Estate

1. Individual Insolvency

Individual insolvency (bankruptcy) in Kenya applies when a natural person (or sole proprietor) cannot pay personal debts. Under the Insolvency Act Part III, either the individual or a creditor may petition for bankruptcy. In a real estate context, individual insolvency might involve selling a bankrupt person’s home or land. However, Kenya’s law provides that if a bankrupt individual remains in possession of land (e.g. family home) for three years without trustee action, that land vests in the individual upon discharge. In practice, an individual risk losing investment property or development land to satisfy creditors. After three years, an individual is normally discharged from bankruptcy and freed from most debts.

2. Corporate Insolvency

Corporate insolvency deals with companies and legal entities owning property (developers, real estate firms, hotels, etc.). The Insolvency Act provides several procedures:

1. Liquidation: Often initiated by a creditor petition (commercial insolvency case) or by the company (voluntary liquidation). The court may order winding up where a company “cannot pay its debts” or “its liabilities exceed assets”. A liquidator is appointed to collect assets (including real estate), sell them, and distribute proceeds to creditors in priority order.
2. Administration: A court or creditors can place a company under administration (Part VIII) to attempt rescue or orderly restructuring. An administrator runs the business as a going concern and proposes a plan to repay creditors or sell the business in whole (a “pre-pack” sale).
3. Company Voluntary Arrangement (CVA): A negotiated agreement between a company and its creditors on debt repayment terms. For real estate developers, a CVA might allow completion of a project by extending payment to creditors or transferring equity.
4. Receivership: If a specific secured creditor (e.g. a bank) enforces a fixed charge, it may appoint a receiver (a type of insolvency practitioner) to sell the charged property.
5. Special Administration: For financial institutions or specified sectors, there are separate regimes (outside this note’s scope).

3. Causes of Insolvency in Real Estate

Real estate insolvency typically results from a combination of economic, managerial, and market factors:

1. Economic factors

Kenya’s macroeconomy heavily influences real estate viability. High interest rates raise mortgage and construction loan costs and inflation drives up building material prices. Additionally, external shocks like the COVID-19 downturn, elections slowdown, or a banking crisis, can dry up demand for Real Estate properties, leading to rent defaults and unsold stock. Lenders continue to tighten their lending requirements and demand more collateral from developers as a result of elevated credit risk in the Real Estate sector as evidenced by the 16.6% increase in gross Non-Performing Loans (NPLs) to Kshs 118.6 bn in Q4’2024, from Kshs 101.7 bn recorded during Q4’2023.  Although inflation has slightly eased to 4.1% as of July 2025, construction costs remain high, averaging Kshs 73,400 per SQM in 2025, up from Kshs 71,200 in 2024 representing a 3.1% increase. Prices of key inputs such as cement, steel, glass, and fittings, remain elevated due to import costs and VAT policies, which continue to impede development activity and temper land absorption rates. Failure to pay-back the lender’s money, their financing is rendered defaulted and the banks goes to the bank to exercise their secured rights. Mitini Scapes Development limited, went under administration after defaulting Kshs 79.0Mn debt to I&M bank and other obligations to Cooperative bank and NCBA

High mortgage interest rates currently at 14.3% and high transaction costs, have made it difficult for low- and middle-income earners to afford mortgages. Nonetheless, we foresee that heightened cooperation among industry stakeholders and the Kenya Mortgage Refinance Company (KMRC) will help alleviate this challenge. Particularly noteworthy are the government's initiatives aimed at enhancing accessibility to affordable home loans for Kenyans, offering reduced interest rates starting from 9.5%. These measures are poised to enhance the effectiveness of mortgage lending by enhancing accessibility to home loans, thereby stimulating higher adoption rates across the nation.

2. Poor management practices:

Mismanagement is a frequent cause. Developers or landlords may overextend themselves by initiating projects without adequate capital or pre-sales, relying excessively on debt. Without escrow safeguards, some projects absorb buyers’ deposits into general funds, leaving nothing to complete construction. Governance failures such as lack of experience, corruption, or fraud, also contribute. Many Kenyan corporate insolvency cases have cited “mismanagement” and reckless expansion as root causes. In real estate specifically, delays in project timelines, cost overruns from poor budgeting, and even “white elephant” projects lacking market demand can bankrupt developers. In sum, weak governance and inadequate financial controls often precipitate insolvency when cash flows falter. For instance, Kings Pride properties limited faced liquidation after the buyers filled a petition after paying deposits for their properties and they never received any Sales agreements or the apartments they had paid for. Same case happened to Banda homes where investors paid for their apartments and the developer did not deliver them as promised

3. Market trends and shifts:

Shifting demand patterns can render real estate assets unprofitable. For example, the rise of remote work globally has weakened demand for traditional office space. Nairobi saw prime office rents fall by 0.3% to Kshs 119 in 2024 from Kshs 119.4 in 2023 per square foot and vacancies rise by 0.4% points to 19.3% in 2024 from 19.7% in 2023. Similarly, e-commerce growth favors warehouses over retail malls. Kenya has also seen a surge in speculative developments; an oversupply of commercial office spaces in Nairobi Metropolitan Area of about 15,000 SQM in H1’2025, means many sits empty or rent at a loss. Other trends include population movement such as urban migration increasing housing demand, rural decline hitting local developments and regulatory changes such as new tax laws or building regulations, that can suddenly affect project viability.

Also, Certain segments, especially high-end apartments, experienced oversupply. Developers racing to build in affluent neighborhoods ended up with slow absorption, weak yields, and difficulty offloading units. This deepening supply-demand mismatch has made it increasingly hard for project revenues to keep up with financing obligations leading to insolvency petitions

4. Case Studies

1. Notable Insolvency Cases in Kenyan Real Estate

Few public cases focus solely on real estate companies, but relevant examples illustrate typical dynamics:

• Kings Pride Properties Limited: Kings Pride Properties Limited has been the subject of a long-running liquidation petition which resurfaced in 2025 when the High Court delivered a substantive judgment on the company’s insolvency petition. The petition, originally filed in 2019, alleges that Kings Pride failed to repay client deposits and is unable to meet its debts; the Court’s 2025 judgment outlines the factual matrix (developer contracts, purchaser deposits and the company’s responses) and the legal test under section 425 of the Insolvency Act.
• Runda Royal Limited: Runda Royal Limited appears in 2025 insolvency notices as a real-estate company placed under receivership, with an appointed Receiver and Manager taking control in mid-2025. Official gazette and insolvency-tracking summaries note the appointment of KVSK Sastry as Receiver effective 4 June 2025; public notices called for directors to submit statements of affairs and for creditors to communicate claims to the Receiver. The receivership classification (rather than immediate liquidation) implies a secured creditor, typically a bank, exercised rights under security documents over charged property, prompting the appointment to preserve and realize charged assets for secured creditors.
• Banda Homes Limited: Banda Homes, a developer that had been the subject of investor/buyer complaints for some years, was placed under official liquidation in 2025 after creditors and aggrieved purchasers pressed the High Court for a winding up order. Court judgments and Environment & Land Court filings from 2025 detail specific disputes (purchaser claims to properties, estate possession disputes and competing creditor applications) which the liquidator will have to investigate. The practical effect of the liquidation order is that an official liquidator replaces company directors for asset realization and creditor distribution under the Insolvency Act.
• Mitini Scapes Development Limited (Home Afrika subsidiary): Mitini Scapes Development Limited — an entity linked to Home Afrika’s development portfolio — was the subject of insolvency proceedings in 2025. The High Court recorded a commercial insolvency cause (I&M Bank v Mitini Scapes Development Ltd, Insolvency Cause E107 of 2024) with a ruling delivered 30 April 2025. The matter and subsequent press reporting indicate receivership/administration actions and appointment of receivers in relation to bank security. Media coverage and the Kenya Law judgment show the bank creditor pursued remedies under security documents and the Court considered the insolvency thresholds and procedural frameworks under the Insolvency Act.
• The Lynx at Ngong Road Limited: The Lynx at Ngong Road Limited — a residential project marketed as “The Lynx” on Ngong Road — was placed under administration in 2025 after a bank (National Bank of Kenya / KCB in various notices) exercised enforcement remedies; an administrator, Kamal Anantroy Bhatt, was publicly appointed with effect from 7 May 2025. The Kenya Gazette and insolvency trackers list the administration appointment and set deadlines for creditors to submit claims, signaling formal control by an insolvency officer.

Below are all the real estate related insolvencies in Kenya

Cytonn Report: insolvent Real Estate Firms
No.	Company	Year declared Insolvent	Debt Owed (in Bn)	Amount Paid	Industry	Insolvency practitioner
1	English Point Marina	2022	5.2	-**	Real Estate	Kamal Anatroy Bhatt
2	Cytonn High Yield Solutions/Cytonn Real Estate Project Notes	2023	14.2	-**	Real Estate	The Official Receiver
3	The Lynx at Ngong Road Limited	2025	-**	-**	Real Estate	Kamal Anatroy Bhatt
4	Mitini Scapes Development Limited	2025	0.325	-**	Real Estate	Swaroop Rao Ponangipalli and P.V Rao
5	Banda Homes Limited	2025	0.024	-**	Real Estate	Official Receiver
6	Runda Royal Limited	2025	-**	-**	Real Estate	KVSK Sastry
7	Kings pride properties Limited (subsidiary of telegan)	2025	0.021	-**	Real Estate	Official Receiver
8	Telegan Investments Limited	2025	0.415	-**	Real Estate
9	Chiedo Developers Limited	2024	-**	-**	Real Estate	Christopher Kirathe of Ernst and Young LLP

Source:Cytonn research

2. Comparative International Examples

• Evergrande (China, 2021–2023): The Evergrande Group, once the world’s largest property developer, went into dramatic default with over USD 335.0 bn in liabilities (about 1.8% of China’s GDP). Heavy leverage and a regulatory “three red lines” crackdown on borrowing triggered widespread debt failure. Evergrande’s offshore liquidation and onshore restructuring illustrated the systemic risk of property bubbles: it caused global market jitters and affected related industries. The lesson is that even giants can collapse under debt, with ripple effects for creditors and markets. For Kenya, Evergrande is a cautionary tale: overexpansion and debt buildup without sustainable cash flow can doom a developer.
• U.S. Real Estate Crisis (2008): The global subprime mortgage meltdown led to bankruptcy for many U.S. and international real estate firms e.g. Lehman Brothers, Bear Stearns, which held significant property investments and homebuilders e.g. Hovnanian, LGI Homes. Developers and lenders collapsed under falling prices. The key lesson was the importance of liquidity and the dangers of securitizing mortgages without regard to borrowers’ ability to pay. Although different in context, Kenya’s market faces similar vulnerabilities if credit quality deteriorates.
• South African Real Estate: South Africa has seen its share of property company insolvencies e.g. Resilient REIT’s debt issues in 2021. It has recently introduced a dedicated Insolvency Court to streamline corporate bankruptcies. This innovation aims to resolve cases faster (improving recovery rates) and could be a model: Kenya’s backlog and delays are often cited as challenges, so specialized tribunals or alternative dispute resolution could help.

5. Challenges and Solutions

1. Barriers to Successful Insolvency Resolution

1. Stigma and awareness: Insolvency in Kenya still carries stigma, especially bankruptcy. Many individuals and small businesses avoid formal rescue, preferring informal arrangements. This hinders orderly resolution.
2. Judicial and administrative delays: Despite the new Act, courts remain congested. Liquidation and bankruptcy can take years, during which asset values fall. High legal fees and the cost of IPs make insolvency expensive for all parties, often eating up creditors’ returns.
3. Priority and secured credit issues: The Act’s priority scheme (favoring trustee costs, wages, taxes) can leave unsecured creditors (often small suppliers) with nothing. Banks with fixed charges (land mortgages) still must navigate Land Act requirements unless insolvency steps are used, complicating enforcement. Secured lenders have sometimes been frustrated by administrators selling assets they thought secure.
4. Regulatory gaps for developers: There is no mandatory regulatory oversight of property developers beyond general business laws. As a result, hundreds of off-plan projects in Kenya have stalled with no recourse for buyers.
5. Limited insolvency culture: Kenya’s financing environment does not actively promote workouts or pre-insolvency restructuring. Many lenders (and directors) jump straight to enforcement or liquidation, reducing chances of rescue. Cross-border insolvency (for foreign-owned real estate ventures) can be especially complex, with no robust recognition of foreign proceedings.

2. Proposed Policy Recommendations and conclusion

1. Strengthen rescue culture: Amendments to the Insolvency Act (recently tabled) aim to streamline processes (e.g. pre-insolvency moratoriums, more powers for liquidators). Encouraging corporate voluntary arrangements and administration over liquidation can save viable projects. Training judges and expanding specialized insolvency courts or commercial divisions can speed cases.
2. Developer regulations: The draft Real Estate Regulation Bill, 2023 proposes binding rules on developers, including escrow accounts and buyer protection. Enacting this (with strong enforcement) would protect consumers and improve project completion rates, reducing insolvency-driven disputes. Other suggestions include mandatory project bonds or insurance, and licensing requirements for large projects.
3. Credit and data improvements: Better credit reporting would help lenders assess risk in real estate lending. Establishing a national property valuation database could curb price manipulations. For insolvencies, a centralized insolvency register (for petitions and outcomes) would increase transparency. Kenya already has collateral registries (Movable Property Security Rights (MPSR)), which could be enhanced.
4. Education and early warning: Financial literacy for entrepreneurs and mandated early-warning audits for large companies could detect distress earlier. Stronger enforcement of related-party transaction rules would curb asset stripping before bankruptcy.
5. Social safety nets: For individuals, expanding debt counseling and consolidation programs might help avoid bankruptcy. Pilot programs, like debt rehabilitation support, could keep good faith debtors afloat.

Insolvency in Kenya’s real estate sector is governed by a modern legal regime (Insolvency Act 2015) that emphasizes rehabilitation but still faces practical hurdles. Looking ahead, Kenya’s insolvency landscape is likely to see more restructuring and rescue attempts. As economic pressures (e.g. high NPLs, rising costs) continue, more real estate companies may seek administration or CVAs instead of liquidation. In the long term, a robust insolvency framework can lend confidence to Kenya’s real estate market by ensuring that failures are managed transparently and losses are limited.

Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor