The value of real estate reached 326.5 trillion dollars in 2020 solidifying its position as one of the best forms of investment in the World. Real estate in Kenya is a rapidly growing venture because the cost of land is skyrocketing.
This has caused the establishment of numerous real estate development companies due to the influx of investors.
Majority of new investors require some basic knowledge of how to tap into the stream of the real estate market. There are 3 main options available in Kenya.
1. Purchasing of land
This is the most basic entry point of real estate in Kenya. As the saying goes don’t wait to buy but buy and wait.
Since all land appreciates over time, the common tradition in Kenyan society is to purchase land and later sell it after the land has appreciated in value.
The majority of experienced investors will always prefer a prime location to purchase land to increase profits to be gained.
Investors also have other ways to maximize profits like; fencing the property, connecting power and directing water lines towards the property.
Purchasing land has its merits and demerits.
- There is a lower initial cost of investment compared to buying land that has any kind of development.
- There are numerous possibilities on the uses of the land. The land can be used for various activities like agricultural activities, poultry keeping or construction of other properties.
- The land only requires a lower form of maintenance. Most investors only need to mow the land as a form of maintenance. However, if the land is in a prime location, the ideal scenario is to check up on the land after some time.
- The land has more clear records available even to the public. Land records are easily available in the Ministry of Lands whereby one can hire an agent to retrieve the information.
- Encroachments are a possibility while owning land. Landowners are always at risk of facing conmen who scam people into believing they have the right to sell a property that doesn’t belong to them. This introduces legal costs to the landowners that they may not have any way to recover.
- It takes time to sell land. While land is one of the most desirable properties in Kenya, it takes some time to sell since most people do not have the available funds to purchase it. People usually take time to decide where to buy land since it’s a big financial step.
- Few financings are available for land purchases. Receiving a loan to purchase land is difficult because it’s not the same as buying a home. Banks and credit unions usually do not offer land loans.
2. Buying or Constructing Residential Property
The buying of residential property is another option that is widely considered by most Kenyans. This option is one step more expensive compared to just purchasing land.
One can buy land, develop the land by putting up residential housing and then later can choose whether to rent out the properties or to sell the entire property.
This option offers higher profits however, it requires more capital.
- Higher profit margins. Whether renting or selling the property, there are more profits to be made compared to selling land.
- The owner has full control of the property. The initial owner will have 100% control of the design, volume and tenants of the property along with the home upgrades and improvements.
- The property provides its own financial security. Residential properties are considered to be of high value and banks and credit unions are more likely to finance the venture.
- The property will appreciate in value. Residential properties will only appreciate in value with time due to land rates and the level of development.
- The cost of construction is higher. Construction of residential properties requires a high initial cost even to start the project and may end up blowing the budget before completion.
- Residential properties are usually long-term investments. The property may take time to recover the initial finances and even more time to make any kind of profit. While selling the property is also a way to recover the costs faster, it also takes some time to get a buyer and more time for them to pay in full.
3. Buying or constructing a commercial property
Commercial real estate is one of the most reliable forms of real estate investment. It is more reliable than residential real estate and attracts better income.
This is because most commercial properties are under lease agreements that are not less than a year and may go up to 5 years or more, securing the owner of the property income over the time period.
Constructing or buying a commercial property requires a prime location and is capital-intensive thus requiring a lot of finances.
- The earning potential is sky-high. Profits in investing in commercial property are considered to be ever-changing in the favour of the property owners. The owners have the option of evaluating the value of the property after a lease has lapsed.
- Commercial real estate does not require major maintenance. The owners do not require to do major maintenance due to the fact that business owners usually shape the property to accommodate the type of business they want to establish.
- Bigger initial investment. Compared to the construction of a residential property, the construction or purchase of a commercial property requires a larger amount of capital, statistics suggest about 400% more capital.
- Professional assistance is required. Construction or even the purchase of a commercial property requires a lot of help from different professionals including lawyers, city planners, quantity surveyors, engineers, contractors and many more
- More time commitment is required. A commercial property requires more time commitment than a residential property.
- There are more risks involved. Commercial properties are set up in the middle of towns and are meant to be visited by a bigger population. This means that safety measures have to be put in place to mitigate any kind of risk.
In Kenya, the options available in the real estate space are widely adopted by the population and other foreign investors. Real estate is a highly achievable form of investment that still has a way to go and the market keeps growing with no end in sight.