Moving abroad? Don't send cash back to relatives to invest for you

In 2012, Mr Francis Mureithi, a Kenyan living in Texas, US, decided to build residential apartments in Muchatha, near Ruaka in Kiambu County, to rent out.

“I was working double shifts in a library in Texas while my wife was working three different jobs. According to our plan, the apartments would provide us with additional income,” he told DN2 by phone from the US.

So Mr Mureithi started sending about Sh200,000 to his brother every fortnight to facilitate the construction. To reassure him, his brother  regularly sent him pictures of the building under construction as well as the receipts for the building materials such as cement and quarry stones.

When Mr Mureithi decided to visit his investment two years later, in 2014, he had already sunk more than Sh10 million into the venture. But to his utter shock and dismay, all  the money had gone down the drain.

He discovered that the photos his brother had been sending him were not of his apartments, but those of an adjacent building. His own land lay bare, with not as much as the foundation dug.

“I would be lying if I said I wasn’t furious. My brother dodged me for a couple of weeks but I finally cornered him at a relative’s house a few weeks later. When I confronted him, he said, ‘You mean to tell me that you can get mad at your own blood brother just because of Sh10 million?’” Mr Mureithi recounts bitterly.

The distressed Mr Mureithi, who had lived in the US for close to a decade at the time, contemplated suing his brother to compel him  to pay back the money after he discovered that his brother had instead pumped his remittances into expanding his own matatu business. However, his relatives advised him against it, saying such a move would strain relationships within the extended family.

“My wife and children were mad at me because of my brother’s actions and it nearly broke up my marriage,” he says. Mr Mureithi sold the land and resolved never to invest in Kenya again.

However, he acknowledges that his story is not unique and even refers us to a few of his friends in the US  who have also been duped by relatives, but only find out years later.

The population of Kenyans in the diaspora is estimated at three million, and it is generally considered to be a well-educated group, living mainly in Europe and the US. However, many of these people have heard horror stories and misgivings from their compatriots who attempt to invest back home.

It is just such an experience that prompted Mr Francis Kihanya, who had worked as a real estate agent in California for more than 10 years, to set up a real estate firm in Nairobi that primarily caters for the needs of Kenyans in the diaspora looking to invest back at home.

“While working in the United States, many Kenyans would come to me with tales of how their money had gone down the drain as they tried to build  homes or set up businesses through relatives back in Kenya. I realised that Kenyans living in the US are ignorant of how the property market in the country operates. It was then that I came back to the country and started Manyatta Capital to cater for that clientèle,” explains Mr Kihanya.

Mr Kihanya, who is Manyatta Capital’s CEO, strongly advises Kenyans abroad against sending money to relatives at home to invest on their behalf.

“Sometimes the people living in the diaspora are to blame for their naivety. How can a lawyer in London send millions of shillings to his 75-year-old mother, who has never done a single property transaction in her life, and expect her  to buy him a piece of prime land in Kilimani? How can you send money to your little-exposed brother in Kirinyaga and ask him to buy you an apartment in Kileleshwa? Aren’t you deliberately throwing him in at the deep end, where he will definitely drown?” Mr Kihanya wonders.

ERRONEOUS BELIEF

He advises that one avoid relatives and friends when it comes to investing, and deal only with reputable firms.

“Many Kenyans have this perception that those living in the diaspora have an endless supply of money. This erroneous belief  drived them to be callous to the point that they don’t see anything wrong with bleeding their relatives dry, often disregarding the fact that those living overseas also have to work hard for their money,” he offers.

Manyatta Capital buys land through syndication, whereby it pools together a number of foreign investors who buy shares into one project. The project is then subdivided and the buyers given individual title deeds.

To communicate with the clients abroad, the company uses courier services, through which documents requirements such as identity cards and title deeds can be sent. Besides, Manyatta Capital, whose clientèle is based mainly  in the US and Canada, have a branch in California.

They have also conducted road shows in major US cities including Boston, Washington, California, Minnesota and Chicago to sensitise Kenyans to the realities of the property market back home.

Even when dealing with real estate companies, Kenyans living abroad still insist on involving their relatives to  play a supervisory role. This, as Mr Kihanya has experienced, is not always a good option as it provides avenues for realtors to collude with relatives to swindle those not in the country.

“The relatives of those who wish to invest back in Kenya often approach us, asking if we can inflate our prices by several millions. When we refuse to do so, they call their relatives abroad and tell them that our firm isn’t legitimate, then move on to the next firm until they find one that can satisfy their greed,” he says.

But even real estate companies themselves, Mr Kihanya admits, are sometimes of questionable integrity.

“I know of Kenyans abroad who have entered into phony deals with real estate companies that exhibit at property expos in the diaspora. The victims are often asked to put down a deposit of say, Sh1 million to secure a piece of real estate, only for  the company to go quiet on  its clients after a few months. The only recourse for the victims is to take the real estate company to court, which is not only expensive, but can also drag on for more than five years.” he says.

ELIMINATING RISK OF FRAUD

To counter the problem and increase confidence among their clients, Manyatta Capital asks their clients to hold their money in escrow.

This means that a third party — mostly lawyers appointed by the buyer — holds the money and only releases it to Manyatta Capital once the title deeds have been processed. This eliminates the risk of fraud and breach of contract.

Mr and Mrs Amos Omollo, a Bungoma-based couple who lived in the United States until last year, had just  such an experience with a real estate company  whose representatives they met at an investors’ forum in Washington.

They were coerced into buying a piece of land, which the realtor claimed was prime for development and was located in an area that would soon have its own golf-course, while a major road was being built  nearby.

However, when they came to view their land a year later, they discovered it was located in a remote area with little rainfall throughout the year. The plot itself was not easily accessible as the roads leading to it were mere paths.

 “I would rather be conned by a relative than waste my money on phony real estate companies,” declares Mrs Omollo.

When it comes to determining prices in real estate, the markets in the US and Kenya, Mr Kihanya points out, contrast sharply. In the US and most Western countries, it is easy for a buyer to understand how the price for a property was arrived.

This is because a commissioner of real estate keeps records of all the sales within the specific region, and realtors compare the cost of such sales to decide on a particular amount for property within the same region.

Unfortunately, such a mechanism does not exist in Kenya, so agents set  property prices with the aim of maximising profits. As a result,they often inflate prices way above the prevailing market rates when selling to those in the diaspora.

Mr Kihanya acknowledges that lack of honesty and integrity fuels impunity among unscrupulous property agents. He notes that some people have lost their entire life savings yet are still servicing loans for plots they bought while living abroad, only to discover that the title deeds they were given were illegitimate.

Manyatta Capital has since instituted an entire department whose sole role is to carry out due diligence to ensure that properties being sold to investors have clean title deeds. Mr Kihanya says, “We also consult with property valuers to identify prime properties with great development potential and ensure that the prices quoted are fair. In addition, we ensure that infrastructure such as electricity, water, roads and the necessary security measures are in place in order to deliver only the best to our clients.

We make sure we’re with the investor all through in identifying the ideal property, validating ownership and negotiating the price.”

FINANCING

Often, financing is a major hurdle for Africans living overseas who wish to invest in their home countries. Thus in July last year, Mr Robinson Githae, the Kenyan ambassador to Washington, urged Kenyans living in the US to borrow money from banks  in

that country and invest it in Kenya. The interest rates in US banks were at an all-time, and the envoy thought  it would be prudent for Kenyans to borrow  there and invest in the home property market, which promises handsome returns.

But Mrs Omollo says the ambassador’s preposition is impractical since American banks will rarely give money to a foreigner for them to invest outside the US.

Speaking from her Bungoma home she said: “Despite the interest rates there being great, banks mistrust foreigners and you can get a loan only for investments in the US. The money people send back home when they’re abroad are usually savings.

If your bank detects that you’ve been channelling money from a loan outside the country, the lender can sue you and demand a recall of the loan proceeds and you might even end up in jail.”

Mr Kihanya says that many Kenyans in the diaspora prefer putting their money in foreign stock markets due to lack of confidence in the local market, but avers that the buck stops with the government.

“The government needs to offer guarantees to Kenyans in the diaspora so that they know that if something goes wrong with their investments, they can be cushioned against staggering losses.

If an investors uses a company that is duly registered in Kenya to buy property and the company turns out to be unscrupulous, it should be the role of the government to reimburse the investor.

This model has worked in countries like America, and it can serve as a great enticement to Kenyans abroad looking to create wealth in the country,” he says.

The government should also intensify its efforts to create awareness among Kenyans abroad of the investment opportunities available in the country.

As Mr Kihanya puts it, some Kenyans have been away from the country for very long periods, and  they lack up-to-date information on how to go about investing in their home country.

They get information from the international media which, unfortunately, does not always portray Kenya in a positive light. It is the role of the government to counter this negative image by sensitising Kenyans through its embassies.

Last year, Kenyans in the diaspora remitted $891 million (Sh89.1 billion) to the country.

But Mr Kihanya believes that we have not even scratched the surface, saying that remittances from Kenyans in the diaspora have the potential to surpass sectors like agriculture and tourism in strengthening the economy.