Piracy money distorting property prices

Colossal amounts of money received by Somali pirates in the Indian Ocean are being used to buy houses and land in Nairobi, thus distorting the property market.

With the dwindling receipts from Kenyans working abroad in the wake of the global financial crisis, piracy money has replaced diaspora remittances, according to Stanbic Investment Management Services.

“This cash unfortunately, has found a home in Kenya,” said the company’s investment manager Kenneth Kaniu. “They view Kenya as home and they want to plant their money here.”

Interfering

That these are investors who do not care about the value of the property they are buying and pay any price is interfering with property prices, he said.

“There is no reason why the price of land should suddenly go up by 500 per cent,” he said.

Although the precise extent of ransom used to invest in Kenya’s property market is unknown, Mr Kaniu said conversations with property management agents indicates the immense levels of investment.

Making it even more difficult to track these transactions is the fact that the money does not go through the banking system. They are cash-based transactions.

Mr Kaniu asked the government to be more vigilant to verify the nature and source of money used to buy land and houses in the country.

The company’s chief investment officer, Anthony Mwithiga, said the new Retirement Benefits Authority regulation allowing access of up to 60 per cent of pension benefits as mortgage security, would unlock idle land.

“The 150 per cent allowance for capital development outside major towns, which means it can be deducted when doing tax returns, is another development that puts new energy in mortgage industry,” he said during the release of the bank’s Property in Kenya: An Investment Opportunity report in Nairobi.

Hamper investment

Mr Mwithiga said that although there is sufficient supply of houses for upper and middle classes, low income market — house prices ranging from Sh500,000 to Sh3 million — is under served.

Land-associated costs such as stamp duties and transfer fees hamper investment in low-end housing, he said.