What to consider before investing in the property market

Wednesday March 18 2020

Property business is a long-term investment. Short-term expectations yield disappointment or losses. PHOTO| FOTOSEARCH


Property business is increasingly becoming one of the most attractive investment avenues in Kenya. This is due to a bulging population, coupled with increased urbanisation and growing disposable incomes for most households.

Experts estimate that the industry will keep growing steadily in the foreseeable future. Investment in residential units targeting mid-range and high-end markets has remained lucrative for a long time.

With the government currently initiating various projects to realise affordable housing for Kenyans, the lower middle-income segment of the residential market presents attractive opportunities for investors, the head of property management at Regent Management Ltd, Ms Njeri Njoroge, notes.

Student enrolment

According to Ms Njoroge, who has more than eight years of experience in the property business, decent student accommodation, for instance, has not received sufficient attention from developers.

Exponential increase in student enrolment at universities over the last decade has severely stretched hostel capacities in local universities, she says.

“Private developers, who have stepped in to plug this gap, are yet to meet the entire demand, which will continue to outstrip supply for the next few years,” she observes.

As lucrative as this venture is, the property business is fraught with risks, some that could blow your investment out of the water, she warns. Ms Njoroge advises investors to avoid being caught up in the ‘speculation hysteria’ if they hope to flourish in real estate.

“Speculation is currently widespread in our property market. Many Kenyans are buying land or residential units with the assumption that they will appreciate swiftly so that they can sell them at a handsome profit.

“Some of the properties they buy usually have already been over-hyped and are, as a result, already overpriced,” she points out.

This situation has only resulted in an oversupply of properties in the market, with counties, such as Nairobi, bearing the brunt of the glut.

Ms Njoroge argues that Kenyans’ tendency to commodify land, instead of treating it as a factor of production, contributed to its speculative valuation of in the market.

“Before buying or developing property, be thorough in your research. Exercise due diligence to cushion yourself from being defrauded.”

She adds: “Speak to locals where you intend to buy land or property. Strictly involve the relevant professionals, such as lawyers and surveyors, in the process to avoid being conned. As they say, a fool and his money are soon parted.”

Many innocent investors, she says, have been left holding onto title deeds to land they can neither farm nor lease out for any commercial purposes or convert to any meaningful use.

“The property market is dynamic; therefore, past performance is not an indicator of future gain. If you cannot stand your ground for what is economically viable, then perhaps you are not cut out for this type of business,” she cautions.

Besides the risks, the real estate cycle has its share of challenges.

“Real estate is an illiquid asset. It will, therefore, take longer to sell than anticipated, from months to several years, depending on various factors. Sellers should be aware of this,” she warns.

Sustainable practices

Also to bear in mind is that obtaining permits and undertaking construction is a hectic process that many small inexperienced individual developers do not foresee.

Speaking to those who have done construction, and involving key professionals, is another piece of advice Ms Njoroge gives.

According to her, management of complete units is a critical element in property business, but is also an area that not often given due consideration.

She says: “Getting the right tenants, achieving maximum occupancy of the units, and receiving regular cash flow from rent is not automatic.”

Hiring a professional property manager to deal with this process on your behalf is another point investors in real estate should consider.

Ms Njoroge concludes with advice on sustainable practices. This includes use of innovative technology and sustainable building materials. These will not only be a win for the investor, but will also promote long-term sustainability of the environment.

Important take-homes

If developing units for rent or sale, take time to study the market.

Engage a consultant with a proven track record for advisory services to carry out a feasibility study on demand and supply factors on your behalf.

The consultant will study the relevant asset classes in your area of choice, conduct a financial analysis to determine costs, revenues and profitability and make recommendations.

Remember: property business is a long-term investment. Short-term expectations yield disappointment or losses.


Amani Ridge is now up for sale

Optiven Group is selling its latest property, a 100-acre gated property, Amani Ridge, where it plans to build 400 luxury housing units, establish a 1.5-acre recreational area (Central Park), 2 water-gardens as well as 7 garden courts at a cost of Sh8 billion.

The development will see a private school built to offer early childhood development and primary education as well as a mini-mall, a police post and a clubhouse. Optiven Group Chief Executive George Wachiuri said individual plots are retailing at between Sh2.995 million to Sh10.695 million.

Kiambu County Government has approved pre-selected housing designs, which individual buyers will choose from. Optiven Group will be develop the houses.

New approval directive hurting real estate business

A tedious and complicated approval process has turned away real estate investors and made construction expensive while hurting employment prospects for skilled and unskilled artisans in Nairobi.

Architectural Association of Kenya (AAK) notes that built-environment experts, the county and national governments as well as construction materials dealers and banks are also counting losses.

Further, the impediment has pushed foreign-based investors to look for more favourable real estate markets.

The association says it is willing to help the government and the Nairobi County to set up a digitised one-stop shop facility.

Governor Mike Sonko supported the architects saying that while the county has a digital platform to speed up approvals, multiple agencies housed in separate government offices had made it impossible for local and foreign companies to launch operations within months after filing their applications.

Optiven opens office in the US

Real estate firm Optiven Group now has a permanent office in the US, opening up markets for its premium housing units.

The office will help address challenges faced by Kenyans in America when searching for properties back home.

Optiven Group Chief Executive George Wachiuri said Kenyans living in North America will now be able to sign their transfer documents, make payments and have title deeds delivered to them, which will in turn save them the cost of travelling to Nairobi.

The move targets about 120,000 Kenyans living in America and are known to be ardent investors back home in real and commercial estates.

Optiven has also partnered with Equity Group to enable diaspora Kenyans acquire Optiven properties by acquiring loans and repaying the same in five years in efforts to increase its share of the local real estate market.

The firm that started operating 20 years ago is engaged in buying large parcels of land that are later subdivided into smaller portions for sale to Kenyans.

-complied by John Mutua