Slow down in Kenyan property Market? Not for long!

The Kenyan real estate sector revolves around several types of properties. These include commercial, residential, industrial, office, agricultural and other special types of properties found majorly in the urban areas. Real estate in Kenya has experienced a boom that arose and grew rapidly from around the year 2000. Since then, it has been one of the best investment vehicles every Kenyan could think of. For instance, Kenya’s real estate experienced a growth of 5.6%, 6.2% and 6.1% during the financial years 2014, 2015 and 2016 respectively.

However, the narrative is slowly changing since 2017 up to date with political instability, fraud, buyer exploitation, inflation and credit access among others being the major causes of this recess. This has left many Kenyans in awe after losing their savings and sellers with an oversupply of properties with no one to sell to. 

In the early 2000s’, the property market in Kenya started to increase rapidly which saw the prices of properties in most urban areas double or triple within a span of fewer than five years. This boom was a result of several factors. The population in the country was and has been growing rapidly over the years. This created demand for land since it was getting scarce as people continued to multiply. Kenya currently constructs around 50,000 houses annually against a demand of more than 200,000 units. This has shifted the demand from ready houses to far cheaper land in which buyers can construct their own designs at their own pace. The growth of middle-class persons has been upwards since the late 90s. This meant that quite a number of Kenyans had a surplus and therefore could afford to purchase properties in urban areas.

Most Kenyans started moving from rural to urban areas in search of education and employment opportunities. This urbanization intensified towards the new millennium because, at this point, the majority of them were literate as compared to previous years. This, combined with improved infrastructure, improved road networks, more basic utility connections, and enhanced communication created more demand for properties especially in these urban areas. Political stability and access to mortgages are other factors that motivated the demand for properties in Kenya during this period. These factors developed unique trends with investors seeking to mint maximum profits while buyers sought improved lifestyles and quality products. This has been the trend in the last two decades until two years ago when the demand started slowing down owing to a number of factors.

In the year 2017, Kenya held general elections that were disputed by the opposition which was followed by the nullification of the presidential election by the Supreme Court ten days later. This caused panic to potential property investors considering the losses many Kenyans suffered during 2007 post-election violence. The economy also stagnated during this period because of the associated uncertainties. This has been vehemently felt in Kenya’s real estate sector. The Central Bank of Kenya introduced an interest rate capping that came into effect in 2016 to improve credit uptake. However, this backfired since the banks made it even harder for individuals to access loans.

Despite the swift growth of real estate, getting a genuine property with a clean title has to date been a major challenge facing most buyers in Kenya. There are so many tales of Kenyans who heavily invested in real estate only to watch as their properties are brought down by bulldozers in broad daylight. This has left buyers with no option but to look for alternative investments such as stocks. The country has been going through hard economic times with little money in circulation because of the many infrastructural developments ongoing under the current regime. This leaves the low-income earners with no surplus to invest or save.

In the last few months of 2019, it’s evident that real estate growth and demand is resuming at a slow pace especially since the government recalled the old 1000 notes from circulation. Political stability is back to normal especially since the handshake between the two presidential aspirants of 2017 which helped cool down the political temperatures which were harming the real estate sector even before the election was held. The population is still growing rapidly and people are still moving to urban areas in search of better opportunities. The housing gap is widening as a result of urbanization and the uptake of credit is slowly getting back on track. The Kenyan government is investing heavily in infrastructure, institutions to fight fraud and lawlessness in the sector, and also putting measures to ensure political stability henceforth. It is therefore certain that Kenya’s real estate sector will soon pick up and maybe surpass previous numbers.

WHY ONE SHOULD INVEST AT KANGUNDO RD

The Eastern frontier is the next area to invest in i.e along Eastern bypass and Kangundo road. As you travel from the Nairobi Central Business District towards Tala through Kangundo Road, you will notice massive construction works. The road that starts from Outering Road has been seeing a lot of developments in real estate.

Infrastructure development such as good roads, Power and security cameras is one major attraction of investors in this area. The Machakos County Government has constructed roads, including from Daystar University to Kangundo rd, Mlolongo interchange to Kangundo rd and Kenya Meat Commission to Joska. The construction of Outering road connecting Tajmall near Mombasa road and Thika road at Allsops, and the Eastern bypass linking Ruiru from Mombasa road through Kangundo road. This has eased traffic along Kangundo road significantly.

Lower cost and availability of huge chunks of land is another major attraction. Land in this area is relatively cheap compared to other counties like Kiambu, Kajiado and even the other side of Mombasa road. A number of middle-class city dwellers have put up their own houses on Kangundo Road, while private developers are also busy putting up residential houses for rental and sales. 
Land along this areas has appreciated in price significantly in past few years. Today, the same size of land that’s was selling for between Shs 50,000 and Sh100, 000 five years ago is selling at between Kshs 700,000 and Kshs 1.5Million. Water is also available on site mostly borehole making this the next frontier for both settlement and speculation.

Applying for a mortgage: 10 questions to ask

Getting ready to buy a home? Make sure you ask these 10 key questions when you submit your mortgage application
1. What is the interest rate on this mortgage?Ask for the lender's loan estimate, which breaks down the interest rate and fees. It will include the annual percentage rate, or APR, which accounts for the interest rate, points, fees and other charges you will pay for a mortgage.
2. How many discount and origination points will I pay?Lenders may charge discount points, origination points or both. One point is equal to 1% of the loan amount. For example, if you get a Kshs1,000,000 mortgage and pay 1 discount point, you'll pay a fee of Kshs 10,000. That's 1% of Kshs1,000,000 (Divide the loan amount by 100 to calculate 1%.)

• Discount points reduce the interest rate. They are prepaid interest and are tax-deductible.
• Origination points are fees charged by the lender to cover the costs of originating the loan.

3. What are the closing costs?Borrowers pay fees at closing for services provided by the lender and other parties, such as title companies. Lenders are required to provide a written estimate of these costs within 3 days of receiving a loan application.
4. When can I lock the interest rate, and what will it cost me to do so?Interest rates might fluctuate between the time you apply for a mortgage and closing. To prevent getting a higher rate, you can lock the rate, and even the points, for a specified period. Fees may apply, but not always. 

5. Is there a prepayment penalty on this loan?Some lenders charge a penalty if you prepay on the mortgage. Some apply only when you refinance or reduce the principal balance by more than a certain percentage. Find out the penalty specifics and see if your lender will lower the rate if you choose a loan with a penalty.
6. What is the minimum down payment required for this loan?A bigger down payment might mean a lower interest rate and better loan terms. With a down payment of less than 20%, you will probably have to get mortgage insurance, increasing your monthly payment.
7. What are the qualifying guidelines for this loan?Ask about requirements relating to your income, employment, assets, liabilities and credit history. Qualifications for first-time homebuyer programs, Veterans Affairs loans and other government-sponsored mortgages are typically less stringent.
8. What documents will I have to provide?Lenders require proof of income and assets, including bank statements, tax returns, W-2 statements and recent pay stubs. More may be needed to show your down payment and ability to pay closing costs.
9. How long will it take to process my loan application?Depending on how busy the lender is, it can take as little as 2 weeks or as long as 60 days. Be patient and forward any requested documents quickly to speed up the process.
10. What might delay approval of my loan?A job change, an increase or decrease in salary, a new debt, a change in your credit history or change in marital status could delay your loan approval. The best way to avoid that is to put your financial life in a holding pattern until you reach the closing table.

WHY YOU SHOULD INVEST IN PROPERTY IN KENYA

Kenya has been in the Global limelight as a favorable investment destination, especially after the GES summit that happened in Nairobi in July 2015. International media has picked this up as expected. A great take I liked was by Forbes , a nice article entitled 'Why invest in Africa’s Fastest growing economy'.

It is an open secret that the business environment in Kenya has been great, with many multinational companies setting up office in the recent history ; big names like Google, IBM, Microsoft, ORACLE, SAP, Coca Cola, GE just to mention a few.

I know you have seen the “for sale” sign on those apartments on your way to work, a number billboards about property open days as you sat in the notorious Nairobi traffic jam, or you just saw a whole newspaper page advert on a new real estate development in Nairobi. All these signs suggest something, the real estate sector is flourishing. It has experienced it’s share of good performance over the years, contributing to 7.85% and 8.12% of the GDP for the last two years respectively according to the Central Bank of Kenya economic review.

This growth in real estate in Kenya is mainly driven by a huge housing deficit being experienced in housing in Kenya. Currently, the Kenya urban population is growing at an average rate of 4.2% annually resulting in a demand of about 150,000 new housing units every year. The market is only supplying about 20,000 units per year, leaving a yawning deficit. In Nairobi alone, the housing deficit stands at 80,000 units annually according to the Planning and Housing Executive Committee .

These factors present a superb opportunity for those wishing to invest in property in Kenya. With rental returns having grown by 9.7% over the past year and property prices having increased 3.46 times over the last 15 years, the prospect of making a neat return on investment real estate in Kenya is almost given.

HOME BUYERS CAN NOW HEDGE AGAINST INFLATION

Property developers have unveiled a new way of buying houses, which seeks to protect buyers from unexpected price flactuations while improving on value of their investment.

The investors have particularly been advised to buy houses through off-plan purchase system, which helps cushion them from price escalations fuelled by inflation and exchange rate volatility, among other economic factors.

Under the off-plan buying system, homebuyers pay a certain percentage of the home price to a developer to reserve the property under construction.

This approach protects them from rising cost of building materials, which has forced developers to constantly adjust their prices making it expensive for potential homebuyers.

While Central Bank has adjusted upwards its benchmark lending rates to commercial banks to control inflation and protect a weak shilling, part of the consequences have been an upward revision in mortgage rates. The changes in these rates has forced leading banks to also review up their mortgage rates.

Buying Land In Kenya-8 Easy Steps

In every transaction there's both the buyer and seller expectations. Land purchase doesn't have to be complicated and needs to be demystified. This article generally looks at the land buying process in Kenya, the expectations, the norms and the pitfalls thereof.

Land buying follows the basic principles of law of contract. For instance, like any other sale of good transaction, the seller is not obliged to inform the buyer of any defects on the land e.g the land being prone to flooding. This is known as BUYER BE AWARE principle (caveat emptor). However he is supposed to disclose any defects on the title e.g the title of the land being used as a security against a bank loan.


Generally land in Kenya is identified by Plot Number or Land Rate number (LR). After appropriate land is identified and the LR number obtained from the seller and the process proceeds as follows:

Step 1: Ground Verification

Visit the land on the ground. Have a tape measure to confirm the dimension from the map drawn to scale. Make sure you see the beacons.

Step 2: Search at Ministry of Lands

Do search with Ministry of Lands at district or county HQ; this will reveal the true land owners and establish the presence of brokers if any, If the title has been charged or has a caveat e.g when title used to secure a loan, or there is a court order barring any transaction on that land,  etc.
A search cost 520/= and should be ready normally within two hours. A valid search should be no more than six months old.

Step 3: Sale Agreement

The law requires any land transaction to be in writing. While it is not a must a lawyer be involved it is very advisable to have a lawyer. According to the tariff provided by Law Society of Kenya the lawyer should charge 3000 if land is 1,000,000 and below 8000 if land value is above 1,000,000. Lawyers cost is normally shared 50:50 between buyer and seller.
Ensure that the spouse to the seller is present at this stage or at least the spouse is aware and agrees with the transaction to avoid later complications. Consent from children is not required though it may be important since you need good neighbors after you have bought the land.

Step 4: Post Agreement Transaction

After this everything now depends on the agreement. According to the agreement, you may be paying cash or by installment. Either way the seller will demand some money. Ensure by the time you make the initial payment the title deed and other legal documents are in the custody of the lawyers.

Consider a scenario where the seller takes a bank loan a day after you did the search and used the title deed as a security. The search would be a clean but the title isn’t available by the time you are at step 4.

I repeat : remember he can take a loan in the middle of your transaction if he continues to keep the title.

Step 5: Land Control Board

Book the Land Control Board (LCB) meeting. The LCB Is a forum made of the Assistant County Commissioners( Previously called D.O ) and the local village elders and meets once a month. They are the ones who give the final consent for the land to be sold. Their role is to protect the seller from self destruction
LCB cost 1000/= however there is a special Land Contol Bond (SCLB) which involves only the D.O and the two transacting parties instead of waiting for the main LCB which meets once per month. Cost: 5,000/= time 2 hours depending with availability of D.O

Step 6: Land Transfer

After all payments, seller signs Land Transfer Forms which together with Consent from LCB, land search – not more than 6 months old(see step 1) clearance from county/ municipal council (that you have paid all land rates), passport photos, KRA pin, agreement and old title deed you go to Ministry of Lands to change ownership. Cost varies to process new title. Time 2 weeks, but if you can make the ministry of lands official to smile you will have the title later that afternoon. Cost: undisclosed token of appreciation given to land officials. This is Kenya, remember?

Note it’s possible and advisable that the land transfer documents be signed in advance and be deposited with the lawyer i.e when you pay the first installment (see step 6). This ensures that the seller cannot backtrack.

Step 7: Stamp Duty and Transfer Fees

After you have all the transfer documents as stated above you need the seller no more. However you will also need to pay stamp duty based on value of land i.e 4% for Municipalities 2% for reserve. i.e if your land is in the municipality and you bought at 1,000,000 you pay stamp duty of 40,000.

Notice the value of land could be different from the purchase price and in such cases, though extremely rare, the Ministry of Land official might demand a valuation. In most cases they just use the purchase price.

Step 8: Post Purchase Activity

After one week the buyer should do another search with Ministry of Lands to confirm that the land now reads your details after which you call your family and friends to slaughter a goat to give thanks to God. Remember to call me so that we can celebrate your new achievement together.

BUYING VS SELLING, WHICH IS THE BETTER OPTION?

All of us want to have a house of our own. But given that a property purchase is a costly affair, not all of us can afford it. However, there are varying opinions on whether to rent a house or to buy one. Some believe that renting is a total waste of money which could be saved and utilized to finance a property purchase. On the other hand, some believe that renting opens the doors to more options in terms of location, type and proximity to the workplace.

The first and foremost advantage of home buying is asset creation. When you buy a house, you add an asset to your wealth portfolio which would also give excellent returns after 10-15 years. Owning a house brings stability to your life which is really important after you settle down with your family. On the other hand, renting provides one of the biggest advantages an own-home cannot offer i.e., flexibility. If you are in the initial stages of your career, renting is a viable option as you can change your house as per the needs of your changing lifestyle.

An owned home also gives you more liberty in terms of the type of house you want and how you want to decorate it. When you shift to a bigger and better house, the rents would also increase.

Some are also of the opinion that renting, in some cases, is economical than buying. If you choose to pay 60,000 as monthly rent , you would get a house in central area surrounded by all amenities. However, if you choose to pay the same amount as mortgage, you would get a house in a distant place with poor social infrastructure. Experts suggest that one can meet the lavish lifestyle needs better when on rent.

Home-buying is a really important decision and should not be taken lightly. Hence, your decision to rent or buy should depend on a few relevant factors. Be sure about how long you want to stay in that location. Also try to make a realistic future plan for at least 10-15 years. As long as you are sure that you can financially afford a house, buying is surely a smart financial move.

Themes that could significantly disrupt the commercial real estate industry- Delloitte

Commercial real estate redefined

There are a number of dynamics that have great potential to fundamentally change the commercial real estate (CRE) business over the next decade. Market disruptors in technology—including cloud computing, mobile, social media, and analytics—have primed the sector for some of the most important shifts in its history. It’s important that industry leaders continue to think about the longer-term strategic issues at play and how they can stay ahead of the disruptive forces.

In our inaugural longer-term outlook, produced by the Deloitte Center for Financial Services, we have identified four themes that we believe will result in significant disruption for the commercial real estate industry:

• Collaborative economy

• Disintermediation in brokerage and leasing

• War for talent

• The last mile

This outlook is part of Deloitte’s Financial Services Industry Outlooks series, which provides disruptive trends and bold predictions over the long term for banking, insurance, investment management, and commercial real estate.

Collaborative economy

Based on the premise of “on demand,” technology advancements, consumption and lifestyle patterns, and societal factors are driving the rapid growth of the collaborative economy. Companies such as Uber and Lyft are leveraging technology to offer on-demand taxi services, reducing the need for car ownership. This trend can be equally applied to commercial real estate, as collaborative space usage is gaining prominence in places where one lives, works, and plays.

Our CRE forecast:

The growth of the collaborative economy will have far reaching implications for traditional commercial real estate player

Key takeaway:

Technology advancements, consumption and lifestyle patterns, and societal factors are driving the rapid growth of the collaborative economy.

Disintermediation of brokerage and leasing

Technological advancements are increasingly automating brokerage and leasing tasks and activities, bringing down barriers between potential tenants and real estate owners. Developments in cloud computing combined with mobile and social media are resulting in cost-effective and real-time availability of property information and are enabling many leasing activities online. This has reduced entry barriers for niche and smaller companies.

Key takeaway:

Technology enhancements can further disrupt the traditional brokerage model that already obviates the need for human touch by revolutionizing data ubiquity and transparency, and by providing even more information to tenants.

Our CRE forecast:

There is every possibility that the current brokerage model will undergo a metamorphosis over the next decade.