Questions & Answers:
Q. I was in the process of buying a parcel of land on the outskirts of Nairobi when I discovered that the owner had accumulated land rates arrears running into hundreds of thousands. Save for that, I like the plot because of its strategic location and the price. Should I proceed with the deal? Juma, Nairobi.
A. First, you need to be sure you are dealing with a genuine person. It sounds to me like it took your own effort to discover that the land had accumulated land rates arrears. If that is true, why didn’t he inform you? Have you done a search at the Lands ministry to establish if he is the true owner of the land? But even if he is the true owner, you should not proceed with the deal until the rates arrears are cleared. Indeed, if you are involving experts like a conveyance lawyer in this deal, the title of the property cannot be transferred to you until the rates arrears are cleared. If the owner does not have the money to clear the dues, you can strike a deal in which he uses part of the money you are paying him to clear the debt. What is more important, however, is to ascertain that he is actually the authentic owner of the land.
Q. I have been running a hardware business for five years in Nairobi. After the normal initial challenges, the business has picked up is now doing well, giving me a modest income. I now want to take a mortgage to buy a house for myself and my family. Can I qualify without a payslip? Evans, Nairobi.
A. Yes you can. Even though lenders tend to be more stringent on those running their own businesses or the small and medium enterprises (SMEs) generally, it is possible to get a mortgage. What is important is that you begin to prepare early for the mortgage process by keeping good records. There are now mortgage specialists who can assist you to formalize your income and arrange the mortgage for you. The Mortgage Company, for instance, advises entrepreneurs to begin drawing a formal salary from the business instead of having expenses paid directly. In this way, you begin to build an individual track record of income and expenditure thereby simplifying the mortgage process. The business can also borrow in its own right either to purchase office space, diversify into real estate investments or even to purchase directors housing. Mortgage brokers like can help you get the right partner for the specific requirements of your business because not all mortgage providers offer home loans to those who run their own businesses.
Q. Every month, I spend over 60 per cent of my salary on house rent. Something tells me this is not right. What can I do to spend less on house rent and still continue living in a decent environment? Joseph, Nairobi.
A. The rule of thumb is that you should not spend more than a third of your gross salary on housing. This does not always work for everybody. But if someone – an employer or a “Good Samaritan” – is not paying your rent, giving the landlord over 30 per cent of your gross salary every month is something to worry about. It is true you should be prepared to spend good money to live in a decent environment. However, it does not make sense to spend more than half of your salary on one item – every month. That means you cannot save for the future, and chances are very high that you often borrow to make it to the end of the month. You are also not safe from the auctioneers’ hammer – all it will take is for you to default for two months. My advice is that you should relocate to a less expensive house. If you do your homework well, you can get the same size of house, sometimes with almost similar amenities, at half your current rent. Of course that means living in a less-premium neighbourhood. But that should not be an issue as long as it is a secure neighbourhood. Don’t be afraid to downgrade if that will help you regain control over your finances. Instead of spending so much on rent, why don’t you start saving part of that money for your dream home?
Q. I keep hearing people talk of a likely bubble burst in Kenya’s property market. What does it mean and how would it affect me as a property owner? John, Thika.
A. A real estate bubble or a property crash happens when property prices fall drastically as a result of low demand. A housing bubble burst is usually preceded with a high demand in the face of limited supply. The limited supply leads to increased prices, with some developers overpricing the few available housing stocks. Speculation sets in as everyone wants to make a killing from the property boom. Before long, the market – or some segments of the market – starts experiencing glut because of oversupply. This leads to stagnation and a fall in price ultimately. When the prices nosedive, those who had invested in new housing units are forced to sell them at a cheaper price and inevitably run into big losses. In Kenya, we are not there yet and we are not likely to get there any time soon because the demand still outstrips supply by far. That is why prices of houses continue to skyrocket almost daily. But these prices will not be tenable when supply and demand start evening out.
