With housing prices going through the roof, home ownership for many Kenyans remains a distant dream.
Things have not been helped by rapid rise in inflation, the shilling’s rapid fall, and falling earnings.
However, a new concept is promising to not only make home ownership more affordable, it will enable thousands of Kenyans to own luxury homes at the Coast and other local holiday destinations without making a big dent in their pockets.
Fractional property ownership, long-associated with the United States and Europe, is slowly taking root in Kenya.
Under this arrangement, prospective buyers will be able to own a share of a luxury or holiday home worth millions of shillings at just a fraction of its actual cost.
In the words of Knight Frank managing director Ben Woodhams, fractional property ownership is “the ability to own a luxury home in a sought-after location at the cost of an average Kileleshwa studio”.
And when you cannot be there, adds Mr Woodhams, you make money from rental returns.
Makes sense? Probably not yet. Okay, imagine you want to own a Sh30 million holiday villa in Watamu or Malindi, but you cannot pay that price.
You decide to look for three other like-minded people and contribute equally towards the purchase of the villa, with each of you paying Sh7.5 million.
You become entitled to own a fraction of this luxury property.
In addition to sharing the burden of purchasing the property, the four of you will also share maintenance and other associated costs.
You will then be required to agree on how to use it on a rotational basis throughout the year — and for the entire period of the ownership.
Your “fraction” gives you full ownership rights, complete with full legal title, for the lease period of the property (usually 99 years).
A company is usually incorporated and shares in that company, equivalent to the fraction purchased, are allocated to individual buyers.
You can then either use the luxury home for holidays with your family (for the period of the year allocated to you) or ask the managing company to let it out on your behalf during high season , thereby enabling you to enjoy regular rental income.
As an owner, you are entitled to returns (equivalent to your “fraction”) from capital appreciation over the years. You are also free to sell your share should you wish to pull out.
According to the chairman of the Institution of Surveyors of Kenya, Mr Collins Kowuor, this system of property ownership is still in its rudimentary form in Kenya.
“What we have currently is fractional ownership in its basic form. The concept is yet to be refined, popularised, and extended to cover all forms of property,” he said.
Noting that the concept is not quite new in Kenya, Mr Kowuor adds that it has mainly been applied to land ownership, where people come together and buy a piece of land with the aim of developing it.
“The few times I have come across it (fractional ownership), it has been to do with land. There has been little attempt to extend it to other areas. But it is an ownership concept supported even by our laws under the Registered Lands Act,” he said.
Through fractional ownership, more Kenyans will be able to own holiday homes at affordable prices.
A local housing development company is constructing a 32-unit lifestyle residential housing complex that will offer furnished, managed, and serviced houses in Malindi.
It plans to move to Watamu, Diani, Mombasa, and Naivasha over the next five years.
Each purchaser of the 32 units — comprising one- and two-bedroom townhouses — will buy a four, eight, or 12-week fraction, hold full legal title on a 99-year lease, and have complete ownership rights to the unit bought for four, eight, or 12 weeks a year for the period of the lease.
“We are looking for clients who want luxury homes in different locations and those seeking to make money from capital growth and rental income,” an official of the company was quoted recently as saying.
The houses are going for between Sh2.5 million and Sh7.5 million, depending on the time the unit is purchased and when one wants to occupy.
The development puts Kenya in the league of South Africa, where fractional property ownership has been evolving since 2004.
It is becoming an increasingly popular way for people and businesses to own shares in professionally managed holiday homes, villas, apartments, and resort and hotel suites.
In South Africa, fractional property ownership shares are widely available at many safari and wildlife estates as well as exclusive golf, country, and wine estates around the country.
Coastal cities such as Cape Town, Uhmlanga, and George are said to offer world-class shared ownership opportunities, with fractional interests being promoted in these areas.
The momentum of fractional ownership popularity in South Africa started in 2005 when clients started seeking alternative ways of owning luxury holiday homes that were more professionally managed than private syndications, yet offered more “bricks and mortar” ownership and long-term investment potential.
Currently, South Africa has more than 100 completed fractional developments, with substantial international investment underway.
This is expected to lead to many more fractional interests being released in the next few years.
With the ever-increasing housing prices, many people around the world can no longer afford 100 per cent ownership of a holiday home, either because it sits unused for the better part of the year, or the rising costs associated with whole ownership amount to a small fortune.
The recent global economic pressures also forced many people to rethink their financial position and capital risk exposure (particularly regarding luxury assets).
This has made the idea of shared asset ownership sensible.
The other advantage of fractional ownership is that you are buying into property run by a management company.
This means you do not have to worry about what is happening to your home in your absence; you arrive to a clean, aired property with all the support you need.
The good news is that developers have not put a limit to the options one can use to finance the purchase of a piece of a fractional property.
Until recently in America and the West, where the concept has been in operation for more than two decades, buyers were required to fund their purchase of a share with cash or by borrowing on another asset.
And this was for obvious reasons — banks were not able to secure the whole property (because you only own a part of it) for resale in the event of default.
However, British lenders recently relaxed this requirement, allowing people to buy their fraction with a mortgage, spicing up fractional ownership and bringing it within reach for many people.
But there is a catch: you must buy from a developer who uses a package developed by the Fractional Ownership Consultancy.
The Malindi developers seem to have foreseen the British situation and decided to head it off by partnering with a team of international corporate partners, who include international property agents, a law firm, and a mortgage financier.
The mortgage firm will provide home loans to potential buyers “at competitive rates”.
The aim, according to the developers, is to ensure that low-cost luxury homes are brought within the reach of many Kenyans.