“You can go very wrong with investing in real estate in Kenya,” writes Kariuki Waweru in the preface of his new book, The ABC of Real Estate Investment in Kenya: The Law, the Logic and the Math.
Waweru, a property valuer and a real estate investment adviser in Nairobi, further observes: “You can lose all your savings by buying ‘air’ in the name of land.” Kenyans are too familiar with stories of people who have bought “air” in the name of land or a house. Some, especially urban dwellers, have rented “air” instead of a house.
People are being conned their hard-earned money as they try to buy their dream homes or a piece of land where they can put up a dream house — or even when looking for a house to rent.
The Syokimau “tragedy” may have shocked many because of the sight of bulldozers flattening pricey homes and the sheer number of the victims involved, but the truth of the matter is that Kenyans are fleeced daily. It is only that some of them are too embarrassed to come out in the open to share their pain with the public.
People being defrauded almost daily has become one of the most humbling challenges relating to purchase and development of property in Kenya today. But why is it that investing in property is fast turning out to be a great source of pain for many instead of joy and fulfilment? Who is to blame? The investor? The crooks, the government?
More importantly, though, is: What is the solution? True, fraudsters are roaming our cities and towns day and night, looking for whom to fleece next millions of shillings. However, you do not have to be their next victim. All you need to do is to understand all the basics that you need to know before you get started in real investment.
According to Waweru, this involves knowing the law relating to real estate in Kenya, the logic that you should apply before making a purchase and the math that you need to do to make informed judgment.
There are ten things that you should look out for when buying a property. These are things that people overlook when buying a house, whether through mortgage or by cash, but which end up being used by fraudsters against potential property owners.
1. Verify existence: As a real estate investor, one cardinal rule you must never ignore is conducting due diligence.
Take your time to investigate and understand the deal you are getting yourself into.
To do this well, you must first make sure that you have completely detached your emotions from the deal (because fraudsters almost always play on buyers’ emotions).
Make sure you are sober so that you are not carried away by the feeling that you are only a cheque away from becoming Kenya’s latest property owner.
Verification is important because many Kenyans have bought phantom property only to realise it when it is too late.
Make sure that the property you are being sold to exist both on paper and on the ground. A valuer, an estate agent or a surveyor should help you to positively identify the property through the use of relevant documents such as survey/deed plans and registry index maps.
2. Establish ownership: It is possible for someone who wants to defraud you to show you a property that belongs to someone else.
For instance, a while back, a young man looking for a house to rent in 2010 saw an advert in a local daily for a two-bedroom house in Kilimani and liked it. After talking to the “letting agent” on the telephone number provided, they met at a city hotel and signed a lease agreement, which came ready with the “landlord’s” signature.
When the “agent” finally took him to see the house, George could not believe what he saw: a relatively new but imposing two-bedroom apartment unit with very spacious rooms.
The floor and wall finishing were any house-hunter’s dream. Workers on site doing final touches on the paintwork told him that it would be ready for occupation in two days.
The next morning, he asked his girlfriend to accompany him and see the new house and select the best curtains before they could move in. To his surprise, he found someone else moving in the house.
When he inquired, he was told the house belonged to someone else and that the owner had never asked anyone to let it on his behalf.
Lesson: Even if the property exists, establish who the true owner is. You do this through an official search. (Don’t do a personal search, which is usually given through word of mouth). An official search will show the name and address of the owner and a note of any inhibition, caution or restriction affecting his right of disposition. These restrictions or cautions are usually referred to as caveats.
The search will also give a brief description of the property, stating clearly whether it is freehold or leasehold. It will also note all the encumbrances or burdens on the property such as bank loans or mortgages.
At the end of it all, you are issued with an official search certificate. Remember you will have asked for the property’s title deed to enable you carry out the search.
3. Know the history: A title from a bad mother title (an illegally acquired title) is invariably fake.
In Syokimau, for instance, the sub-titles given to the subsequent property owners could not stand because the mother title belonged to the Kenya Airports Authority, which did not sell the land to the victims.
Also make sure the land or the property you are buying does not fall within a road reserve or a riparian area. Even if you are buying an apartment unit, you still need to ensure the mother or original title is genuine.
4. Don’t leave all to the lawyer: Most investors leave all the verification of the authenticity of the title and everything else in the process of buying a house to the lawyer. A lawyer “cannot” read a map or do a structural survey of a building. If the lawyer doesn’t consult the necessary professionals, you might end up buying a collapsing building or a plot on a road reserve.
5. Use professionals: If you are buying land, get a reputable land surveyor. If you are buying a house, seek the services of a qualified and registered estate agent.
Never say it is expensive to hire an expert if you truly value the millions of shillings you are ready to pour into your dream property. Never deal with a quack, in this case, anyone who is not registered by the relevant authorities or associations.
If you buy a fake plot after being advised in writing by a registered valuer, you can sue for professional negligence and get compensated by the valuer’s insurance company. Banks know this, which is why they insist on a valuation report before they finance you to buy a property.
6. Abide by regulations: Each property has a specific use into which it can be put. In Kenya, a property can be residential, commercial, institutional or industrial. The use must be physically possible, legally permissible, financially feasible and that which will give the highest returns hence the concept of highest and best use.
If someone is selling you a property in the city centre, you must establish who is the permitted user. Planning regulations will clearly show you what the property should be used for if you are putting up a new building, make sure you get all the approvals.
7. Beware hidden costs: When negotiating for financing, the borrower should be keen to know the true cost of borrowing.
Apart from the interest rate, there are also hidden costs such as valuation fees, legal fees and loan negotiation fee among others.
When taking a mortgage, also ensure you know the implication of taking a fixed rate mortgage or a variable rate mortgage.
8. Rates clearance: Never buy a debt-ridden property. Land rates, payable to the local authority under whose jurisdiction the property falls, sometimes accumulate into millions of shillings.
If you buy such a property, you may find yourself in the same situation thousands of property owners found themselves in recently when City Hall threatened to auction their property over accumulated rates.
People seem to be buying houses and plots disregarding land rates that should be paid annually to local authorities.
At times, real estate investors assume, ignore or forget their obligation to pay land rates, which pile into huge amounts. Among these people, are those who inherit a debt-ridden property on purchase.
Legally, it is important to obtain a clearance certificate from City Hall to confirm that dues pertaining to the property are settled. Failure to obtain the certificate means the buyer inherits the accrued debt from the previous owner. A property lawyer can help one avoid such pitfalls.
9. Insist on a title deed: Under our land laws, only a title deed is recognised by the government as proof of ownership.
A share certificate cannot replace a title deed.
Land buying companies usually purchase swathes of development land on the outskirts of major towns like Nairobi, sub-divide them, and then issue buyers with share certificates as the new owners wait for their individual titles to be processed at Ardhi House.
Buyers can sometimes wait for years before getting the titles. The sub-divisions may also stall midstream due to some conditions that the owner cannot meet or even as a result of death. If you are putting up a housing development on such land, you could end up losing money because there might not be people willing to buy the houses if you don’t have a title deed to the land. So, when buying land, let the seller give you the actual transfer documents during the transaction.
10. Structural soundness: If you are buying a completed house – whether new or old – make sure you get an expert to undertake a structural survey to ascertain that it is not falling apart.
It will cost you some money, but it is prudent that you do it. Many people do not bother to do this. But some of them start noticing cracks on the walls as soon as they occupy the house and are ultimately forced to bring it down.
If you have money you want to invest in real estate, take your and do due diligence. It will save you a lot of unnecessary heartache.
“Don’t wait to buy a house, buy then wait,” says Patricia Githu, the chief executive of Developing Africa Limited.
Speaking during the ground-breaking ceremony of Juja South Estate, a new housing project in Thika County, Ms Githu said many Kenyans miss out on real estate investments because they waited for a perfect time “which never come”.
“There has never been a good time to do anything. When it comes to investments, many people give excuses. If you want to wait and invest when the interest rates are low, where are you putting that money and will it be available when you need it?” she asked.
Since interest rates started skyrocketing early last year because of inflation, real estate industry sources have been saying that potential home buyers had put their buying plans on hold, opting to rent as they waited for the rates to come down. This, according to Ms Githu, was the wrong approach when it came to real estate investment. She admitted that people tended to invest more when interest rates were low.
However, she said, high interest rates should not be a hindrance to anyone wanting to own a home since in the long-run, the property values appreciate over time and may be out of reach of many when the rates finally come down.
“You gain more from a house that you have already bought because you can let it or even sell it later. If you are paying a mortgage even during a high interest rate regime, you, unlike a tenant, have hopes that the house will finally be yours,” she said.
Speaking at the same event, Joram Kiarie, the director of Kenya Commercial Bank’s mortgage arm, S&L, concurred that the right time to invest in real estate “is now”.
“If you wait, say, until next year, the same plot you wanted to buy today will have doubled in price,” he said, describing mortgage rates as speculative.