Consider the auction option

This year’s budget might go down in history as the most unfriendly to the real estate sector in nearly a decade.

Since 2003, the sector has been getting incentives such as tax rebates on mortgages and a reduction or scrapping of some taxes altogether. Last year’s budget, though, seems to have set the tone for this year’s as regards incentives.

In the 2011/2012 budget statement read by then Finance minister Uhuru Kenyatta, the real estate industry only received a tax exemption for investors in the yet-to-be launched Real Estate Investment Trusts (REITS), an investment vehicle that will see real estate developments traded on the Nairobi Securities Exchange.

The mortgage industry, in particular, did not get any direct benefit, despite high expectations that the government would introduce a raft of incentives to spur growth.

Mortgage lenders had called on the government to scrap stamp duty on pension-backed mortgages, which allow pensioners to use up to 60 per cent of their savings as collateral for mortgage. That never happened.

In this year’s budget statement read by Finance minister Njeru Githae, the property sector got absolutely nothing. Instead, the minister said they would go after landlords who have been evading paying tax on rental income.

Of course we don’t expect the property market to go bust because of this, but what is sure to happen is that property prices will continue going up (although moderately if interest rates come down). And it is still going to be hard for buyers, especially first-time buyers.

True story

So, what can a first-time buyer do to ensure they still get bargain deals in a housing market without incentives and where prices only move upwards? Let me explain by giving the true story of what a first-time buyer in America in circumstances similar to ours did.

When Crandon, 30, finished college in 2005, his dad offered him his old room rent-free on the condition that he starts saving for a house.

So Crandon began diligently depositing a portion of every pay cheque into the savings account he opened with his parents when he was just 12.

As home prices peaked in the mid-2000s, he doubted he would ever be able to buy a house near his family in an area that was now considered prime real estate with its renowned wineries and picturesque hills lined with grapevines.

But five years ago, Crandon’s prospects drastically changed. Housing prices everywhere plummeted as overburdened homeowners began defaulting on their mortgages, causing one of the nation’s deepest recession since the 1930s.

For Crandon and other first-time home buyers, the collapse led to historically low home prices and low interest rates.

“For a lot of people, it has been pretty hard, but for someone like me, it was pretty beneficial,” Crandon was quoted in a World magazine article early this month. After six years of saving, last year he bought a Windsor, California, home with his wife Angela.

Like the Crandons, first-time home buyers in the United States (the World article featured three such buyers) are taking advantage of the market’s bargain prices — at least for now. Thus, a depressed housing market has proved favourable to new home owners willing to work and save.

Ours is not a depressed market yet, and I don’t see it becoming depressed soon, especially in the way it happened in the US. But the virtues of hard work and thrift, plus knowledge of how to clinch bargain deals, are still very relevant to any prospective home buyer in Kenya.

Savings on time and money