Here’s how to invest in land and the kids’ education all at once

The National Spatial Plan will serve as a guide for the counties to ensure maximum benefits from judicious use of land. PHOTO| FILE| NATION MEDIA GROUP

What you need to know:

  • In 2015, the Standard Chartered Bank conducted a study titled Emerging Affluence Report, which aimed to provide insights into the spending habits and long-term aspirations of consumers with fast-rising disposable incomes across Africa and Asia.
  • While indicating that affluent Kenyans are ambitious and save nearly 30 per cent of their disposable income, the report pointed out that acquiring property and funding children’s education are Kenyans’ key spending priorities.

Although he is only eight years old,  Ryan Kasina already owns an eighth of an acre piece of land in Juja in Kiambu County, complete with a title deed. And so does his three-year-old sister, Natasha, who is just starting school. Though still very young, the two children’s  real estate portfolios are already more impressive than those of most Kenyans.

While the significance of the properties under their names might not mean much to them, to their mother, Mrs Eveline Kasina, it was a well-thought-out move; she bought the pieces of land to serve as insurance policies for their secondary and university education.

 “I want to take my children to prestigious international schools and thereafter to universities abroad,” says Mrs Kasina. “I tried saving up using traditional education policies offered by insurance and mutual funds firms but they just weren’t for me,”

Like Ryan and Natasha, four-year old Nicole Mwambua also has a piece of land reserved for her higher education by her father, Mr Mathias Muya. “Given the rate at which property prices are rising in Kenya, investing in property is a sure bet to financial security,” says Mr Muya, a Nairobi-based auditor.

The two parents are among an increasing number of investors who are buying into a new trend that fuses a real estate portfolio with education insurance. Manyatta Capital, a local property and investment firm that also targets Kenyans in the daspora, came up with a product last year which they named PlotiyaMasomo.

 The firm’s CEO, Mr Francis Kihanya, explains that in this scheme, parents are allowed to buy a piece of land in instalments at the prevailing market prices with the aim of using the proceeds from the land’s appreciation to pay for their children’s education later.

EDUCATION COST HIGHER THAN PROPERTY

“We conducted a survey and realised that the cost of higher education is way above that of owning property for most middle-class parents. Parents also put a heavier premium on their children’s education than on their own investment portfolio. This sees many couples postpone investing in property until they have saved up enough for their children’s education. With PlotiyaMasomo, we are offering an innovative way to help parents and guardians own property while at the same time securing a good education for their children and dependants. In essence, we offer a way in which parents can have their cake and eat it,” says Mr Kihanya.

In 2015, the Standard Chartered Bank conducted a study titled Emerging Affluence Report, which aimed to provide insights into the spending habits and long-term aspirations of consumers with fast-rising disposable incomes across Africa and Asia. While indicating that affluent Kenyans are ambitious and save nearly 30 per cent of their disposable income, the report pointed out that acquiring property and funding children’s education are Kenyans’ key spending priorities.

“At present and over the next one year, 55 per cent of affluent Kenyans have indicated that they are/will be saving for their children’s education. When it comes to long-term saving goals, most affluent Kenyans (67 per cent) aim at buying new property, mainly for investment,” the report says. Saving for emergencies, overseas travel and buying a new car all seem to play second fiddle compared with securing children’s education and investing in property.

“Years ago, education in public institutions was cheap and of good quality. Over the years, however, the quality of public education in Kenya has deteriorated,” says Ms Wanjiku Kiogothe, a manager with a local insurance firm, noting the recent complaints by the education stakeholders about the state of Kenyan universities. Early this week, the Commission for University Education criticised universities for letting students live in poor conditions. “It is the need to seek quality education that has driven many middle-class Kenyans to take up education policies for their children,” the insurance manager offers.

FLEXIBLE TERMS

When applying for an education policy, you should take into consideration the child’s age and the amount  you intend to save for his/her education. The insurance company will design a cover with flexible terms that allows you to pay monthly or quarterly instalments for a number of years. At the end of the investment term (usually a minimum of 10 years) the parent and the child are entitled to the money saved during the period, plus the interest accrued. Ms Kiogo points out that some insurers might offer annual bonuses in the course of the investment  once a child reaches 13 years to cater for high school education.

Some of Parents who have opted for PlotiyaMasomo say they ran  into problems with traditional education policies offered by insurance firms and other financial institutions.

“I had an education policy for my daughter with one of the leading insurance companies. It was to mature in 12 years,” reveals Mr Mathias Muiya. “I was required to pay monthly premiums of Sh15,000, which I faithfully did for several months. I became temporarily unemployed later and was thus unable to remit premiums regularly. That cost me the education policy and I was forced to surrender all the interest that my money had attracted when my policy was suspended. While I had remitted well over Sh250,000 to the insurance company, I was given back only Sh187,000 as surrender value after I forfeited my policy.”

“Conventional insurance policies are only good when one can afford the monthly premium. I found myself on the losing end after I was slapped with heavy penalties for defaulting on the education policies of my children,” says Mrs Kasina. She adds  that, although she maintains several education policies with insurers, she is banking mainly on PlotiyaMasomo.

“I am a business person without regular earnings while my husband is a doctor with an erratic salary. It is, therefore, risky to commit to paying regular premiums while our incomes is unpredictable,” she says.

With PlotiyaMasomo, a parent picks a piece of land from one of Manyata Capital’s projects across the country. “We have projects in Juja, Kitengela and Namanga at the moment and are opening offices in Bungoma, Kisumu, Maai Mahiu Ruai, Isiolo and Nanyuki,” says Mr Kihanya. The parent can pay fcah for the land or in regular monthly instalments, which count as premiums towards the education policy.

“Once an individual has fully paid for a piece of land, a title deed is processed  bearing the name of the policy holder (parent) and the beneficiary (child). However, the title deed is held by Manyatta Capital on stakeholder terms to prevent the buyer from transacting the land,” he explains.

Upon purchasing the land, there is a “lock period” of five years, during which policy holders are not allowed to sell it. However, they can develop the land for income-generating purposes such as farming and can even build structures on it for additional income.

“We will also manage the land and projects on it and give annual dividends to the policy holders for the period that their land generates income,” Mr Kihanya says. “And in case a parent dies or gets disabled before paying fully for the land, the insurance policy purchase kicks in and ensures that the child’s educational needs are met as envisaged.

Between five and eight years after buying the plot, parents can sell their land, although this is highly discouraged. If a parent decides to sell their land within this period, they risk forfeiting the appreciation accrued over the years from the time the land was bought. This, Mr Kihanya insists, is to encourage them to stay focused on the original goal of financing their child’s education.

When the contract comes to term after eight years, Manyatta Capital offers the property to the market a year before the money is required at the  prevailing market rates. The plot buyer receives the full amount of the sale price, which can be deposited directly in the child’s university bank account in instalments. The parent can also  live off the land’s returns, if it  generates any income.

The trick, Mr Kihanya says, lies in identifying land in strategic locations with high  investment potential. “We  are constantly looking to get land in areas that are likely to see heavy infrastructural developments that  will act as catalysts to more than double the  land prices. For instance, our plots in Juja, the fastest growing satellite town around Nairobi, according to the Haas Property Index, are located near the proposed Greater Eastern Bypass. We expect their value to increase greatly once the by-pass is constructed,” he says.

“I put my faith in land because I have never seen a piece of land depreciate in value,” says Mrs Kasina. However, there have been rare instances in which natural disasters and ethnic conflicts have seen land prices dip in some areas. What happens in such a case?

Mr Kihanya says that the property market will always have higher returns than any education policy. “For the next 20 years, real estate prices in the country are bound to only go up,” he says confidently.

Elizabeth Nkukuu, Cytonn’s Investment’s chief investment officer, agrees. “Real estate continues to provide investors with attractive yields and capital appreciation, culminating in attractive total returns, as witnessed by the 25.8 per cent total return the sector delivered in 2016,” she said. “The asset class returns were attractive compared with the stock market, which registered a negative 8.5 per cent performance, while the bond market made a 0.2 per cent capital loss, with the average yield on the 364-day bill being 11.6 per cent.”

INSURANCE NOT AN AVENUE FOR RICHES

The problem with many investors is that they have little understanding o insurance contracts.  For instance, insurance policies, education insurance included, are not meant to enrich the policy holders.

Ms Wanjiku Kiogothe, a middle-level manager in a leading insurance company in Nairobi, advises that parents who take out education policies for their children take note of a clause in the insurance contract known as the principle of indemnity. “Indemnification means that insurance firms strive to restore a person to a financial position that is close to where  they were prior to the occurrence of a loss without rewarding or penalising them. “Many Kenyans, Ms Kiogothe explains, do not fully understand  the terms of an insurance before signing a contract. They thus end up frustrated when the insurer penalises them for skipping on premiums and abandoning their policies mid-way.

The upside of taking an education policy with an insurance firm, Ms Kiogothe points out, is that were a parent to die or become incapacitated while still servicing the policy, the insurance company will still cater for the child’s education in full. “It does not matter whether you’ve paid your premiums for just a year. This is security that is not offered by other investment options such as real estate,” she notes.

“Unlike other alternatives for securing your children’s education, dealing with reputable insurance companies will give you peace of mind as insurers are strictly regulated by the Insurance Regulatory Authority,” she adds.