KMRC Affordable Home Loans: Breaking Down Barriers to Homeownership in Kenya

by | Jan 10, 2025 | Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

  • KMRC Affordable Home Loans PMLs

  • KMRC “Affordable” Home Loans: Key Features

  • About KMRC

  • Funding model

  • Partnerships With PMLs

  • KMRC “Affordable” Home Loans Program: Is this Solution to Kenya’s Homeownership Needs?

KMRC “Affordable” Home Loans program is a mortgage scheme financed by the Kenya Mortgage Refinance Company (KMRC) – a non-deposit taking financial institution in Kenya. Established in 2018 under the Companies Act of 2015, KMRC is reshaping mortgage finance in Kenya.

KMRC Affordable Home Loans PMLs

Loans under the KMRC Affordable Home Loans program are not issued by KMRC itself but instead disbursed by Primary Mortgage Lenders (referred to as PMLs). Currently, the following institutions have partnered with KMRC as PMLs:

  • Commercial banks: KCB Bank, Cooperative Bank, DTB, HFC Limited, NCBA Bank, Absa Bank Kenya, Stanbic Bank, and Credit Bank
  • Microfinance Institutions: Kenya Women’s Finance Trust (KWFT)
  • SACCOs: Unaitas, Bingwa SACCO, Kenya Police SACCO, Safaricom SACCO, Harambee SACCO, Imarika SACCO, Imarisha SACCO, Apstar SACCO, Stima SACCO and Mwalimu National SACCO

SACCOs are aided to develop capacity in mortgage lending, including origination, developing underwriting criteria, and technical assistance. By working with SACCOs, KMRC aims to increase the reach of its mortgage products across the country, not just in urban areas and big towns.

KMRC Affordable Home Loans target to deepen accessibility to mortgages by offering loans with a single-digit fixed interest rate and long mortgage tenures. This makes them more affordable and accessible to a wider demographic of borrowers who would not otherwise be able to afford homes.

KMRC “Affordable” Home Loans: Key Features

  • Reduced Interest Rates for Borrowers: KMRC obtains concessional loans in Kenyan shillings and extends these to its partner PMLs. They in turn pass on the benefit to mortgage borrowers at single-digit interest rates. The rates are also fixed which gives predictability and some certainty for KMRC, its PMLs and borrowers.
  • Extending Loan Terms to Increase Affordability: KMRC’s funding allows partner PMLs to extend mortgage terms to up to 25 years.
  • Supporting Down Market Lending: KMRC focuses on refinancing mortgages for low and moderate-income households. KMRC’s affordable home loans are capped at Kshs. 10.5 million for borrowers with a monthly income of 200,000 shillings or less.
  • Supporting SACCOs as Mortgage Providers: For the first time in the Kenyan market, SACCOs can participate as mortgage providers through KMRC. Eleven SACCOs are shareholders in KMRC and act as partner PMLs.
  • Promoting Competition and Innovation: KMRC’s entry into the mortgage market has increased competition among lenders and encouraged the development of more affordable mortgage products.

About KMRC

KMRC is regulated by the Central Bank of Kenya (CBK), while its capital-raising efforts are overseen by the Capital Markets Authority (CMA). It is a public-private partnership with the Kenyan government, through the National Treasury, which holds a 25% stake in the company, with private sector players owning the remaining 75%.

KMRC’s mandate is to:

  • Provide long-term funding to PMLs which will make home loans more accessible and affordable for Kenyans.
  • Contribute to the growth of Kenya’s capital markets. This is done through the issuance of corporate bonds as a source of sustainable long-term finance.
  • Support the standardization of mortgage origination practices in Kenya.
  • Contribute to the growth of the mortgage market in Kenya.

It aims to increase the availability of affordable housing, particularly for those in the moderate to low-income bracket. As such, the margins on loans are intended to cover operational expenses and develop long-term sustainability.

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KMRC “Affordable” Home Loans program and funding model

This is how it works:

  • KMRC obtains funding from a variety of sources, including the Kenyan government, international Development Finance Institutions (DFIs), and the capital markets. It also raises capital from the bond market and blends this more expensive capital market funding with the concessional funding to reduce lending costs.
  • It then lends this funding to its partner PMLs, which include commercial banks, a microfinance bank, and 11 SACCOs – primarily lends to its shareholders, which includes 8 commercial banks, 1 microfinance bank, and 11 SACCOs. 
  • The partner PMLs, in turn, use this funding to originate mortgages for individual borrowers. The PMLs set their interest rates on the mortgages, but KMRC encourages them to offer single-digit interest rates to borrowers. KMRC also requires that partner PMLs meet certain criteria in order to qualify for refinancing, including that the mortgages be for first-time homeowners and owner-occupied properties, be performing loans, and meet specified Loan-to-Value (LTV) and debt-to-income ratios.

Partnerships With PMLs

This model allows KMRC to leverage the existing infrastructure of the PMLs and to reach a wider range of borrowers. It is designed to address the challenges that have traditionally made it difficult for Kenyans to access affordable home loans.

By providing long-term, fixed-rate financing to PMLs, KMRC’s “Affordable” Home Loans program helps to reduce the risk and cost of mortgage lending. This makes it possible for PMLs to offer more affordable mortgages to borrowers. 

KMRC “Affordable” Home Loans Program: Is this Solution to Kenya’s Homeownership Needs?

The presence of KMRC in Kenya’s mortgage market is a positive development and can be integral to driving homeownership in Kenya. Accessibility to affordable housing in Kenya is a complex, multifaceted problem, plagued with many challenges. The establishment of KMRC is a step in the right direction. The impact KMRC will have is still in its nascent stages.

With a reported disbursement of over three thousand mortgages over just five years, KMRC has energized the mortgage market. It has improved accessibility for individuals at lower levels of income than traditional mortgage lenders would ordinarily target.

Conclusion

Considering differentials in household incomes, factors like inflation, and an onerous and unpredictable tax regime, the dream is not yet within reach. Additionally, KMRC’s may need more innovative approaches for its funding to ensure the long-term sustainability of its funding model. The jury is still out on this one.

Getting a Home Mortgage in Kenya? Here’s Everything You Need to Know – Part 1

by | Jan 7, 2025 | Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

  • What is a Mortgage

  • Essential Terms in Mortgaging

  • Types of Mortgages

  • The Mortgage Market in Kenya

  • Vital Statistics on Mortgages in Kenya (2023)

  • Qualifying for a Mortgage

  • Costs Associated with Mortgages

  • Tips for Finding the Most Affordable Mortgages in Kenya

Getting a Mortgage in Kenya is no easy walk in the park. The reality is that homeownership remains far out of reach for many Kenyans. The Central Bank of Kenya, in its 2023 Bank Supervision Report highlights that low levels of income, the high cost of property purchases and limited access to affordable long-term finance are the key deterrents to the uptake of mortgages.

Mortgages are, however, seen as the bridge between renting and owning property. In as dauting as the process of securing a mortgage might be to the vast majority, they are an option well worth understanding. Of course, you have the option of deferring your homeownership dreams and saving your way to your dream home or even leveraging your SACCO or Chama through an unsecured loan. Still, if you don’t know what you don’t know, then you may be missing out.

Getting a Mortgage in Kenya: What Are Mortgages?

A mortgage is a loan secured by real estate, where the borrower (mortgagor) agrees to repay the lender (mortgagee) over time, typically through monthly payments, with the property acting as collateral.

This loan is specifically designed to help you purchase property, using the property itself as security.

In Kenya, mortgages are typically offered by banks, SACCOs, and microfinance institutions, and they cater to individuals looking to own homes, develop land, or refinance existing loans.

Essential Terms in Mortgaging

  • Principal: the original amount borrowed in the mortgage (the base amount upon which interest is calculated).
  • Interest: The cost of borrowing money, expressed as a percentage of the principal, paid to the lender.
  • Interest Rate: The percentage charged annually by the lender for the borrowed money. It can be fixed (unchanging throughout the loan term) or variable (subject to periodic adjustments based on market conditions).
  • Amortization: The process of paying off the loan through scheduled payments over time, which typically include both principal and interest.
  • Tenure: The length of time agreed upon for repayment of the mortgage, commonly ranging from 5 to 30 years.
  • Monthly Repayment: The amount the borrower pays each month, comprising of two elements – the principal repayment and interest charges. Depending on the agreement with the lender, it sometimes includes any applicable taxes and any mandatory insurance premiums charged under the mortgage.
  • Down Payment: The upfront cash payment made by the borrower, often expressed as a percentage of the property price (e.g., 10%-20%).
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Getting a Mortgage in Kenya: The Different Types of Mortgages

Kenya offers various mortgage options tailored to different needs. Understanding these can help you choose what works best for you:

  • Fixed-Rate Mortgages: These come with an interest rate that remains constant throughout the loan period, offering stability in monthly payments.
  • Adjustable-Rate Mortgages: Here, interest rates fluctuate based on market conditions, which can be risky but sometimes cheaper in the short term.
  • Sharia-Compliant Mortgages: They do not carry any interest charges but instead rely on profit-sharing agreements and are typically only available to adherents of the Islamic faith.

Getting a Mortgage in Kenya: An Overview of the Mortgage Market

In Kenya, mortgages are typically issued by banks (traditional lenders). While banks are estimated to hold the larger portfolio of mortgage loans, Savings and Credit Cooperative Organizations, (SACCOs) and Microfinance Institutions (MFIs) augment the financing gap for mortgages typically lending to their members only at lower rates compared to commercial banks.

While banks and MFIs are regulated by the Central Bank of Kenya (CBK), which publishes a Bank Supervision Report each year which includes data on mortgage loans issued by banks, SACCOs, which are regulated by the Sacco Societies Regulatory Authority (SASRA) which doesn’t provide data on mortgage loans issued by SACCOs.

Vital Statistics on Mortgages in Kenya (2023)

Data from the CBK’s Annual Bank Supervision Report for 2023 (which does not include mortgages disbursed by SACCOs) shows the following:

The five top mortgage lenders in Kenya in 2023 and their respective mortgage portfolios are:

    • KCB Bank Kenya Ltd: Ksh.88,083 million
    • Stanbic Bank Kenya Limited: Ksh.34,554 million
    • HFC Ltd: Ksh.24,021 million
    • Standard Chartered Bank Kenya Limited: Ksh.23,020 million
    • NCBA Bank Ltd: Ksh.21,749 million
    • 5 percent of mortgage lending in Kenya was done by 9 institutions, including the top 5 listed above.
    • The average mortgage loan size in Kenya in 2023 was 9.4 million.
    • The average interest rate charged on mortgages in 2023 was 14.3 percent.
    • The average loan maturity for a mortgage in 2023 was 11.7 years, with the shortest loan being 5 years and the longest 18 years.

Several SACCOs and deposit-taking microfinance institutions (MFIs) offer mortgage products. Notably, SACCOs such as UNAITAS, Stima SACCO, Mwalimu Nation SACCO, Ukulima SACCO, Harambee SACCO and several others offer mortgages to help members achieve homeownership.

The Kenya Mortgage Refinance Company (KMRC) is partnering with banks, MFIs and SACCOs such as Harambee SACCO, Ukulima SACCO, UNAITAS and Mwalimu National SACCO to provide and extend access to affordable mortgages. Other SACCOs, like AMREF SACCO, are developing innovative products (its Miliki Mortgage Loan product), designed for homeownership and property investment with flexible financing options. These mortgage products typically feature competitive interest rates and repayment terms.

In addition, banks like Diamond Trust Bank (DTB), Dubai Islamic Bank, National Bank of Kenya, Kenya Commercial Bank (KCB) are also developing Sharia-compliant financial products for the housing finance market that adhere to the principles of Shariah (Islamic Law) and are consistent with the ethical and moral values of Islam.

As far as MFIs go, institutions like Kenya Women Microfinance Bank (KWFT), Faulu Microfinance Bank, and Uwezo Microfinance Bank also offer mortgage and housing loans, which cater to the needs of home buyers through mortgages for acquisition and construction of homes.

Getting a Mortgage in Kenya: Qualifying for a Mortgage

Typically, financial institutions use a variety of risk-assessment tools to decide if you meet the threshold of credit-worthiness for the loan amount you seek. They are in the business of making profit so naturally, they are looking at an acceptable level of risk for the funds you intend to borrow – one that ensures that should you default, they can recover their financial losses comfortably. In the most basic of terms, you would need to meet the following criteria just to prequalify:

  • Have a Stable Income: Lenders require proof of steady income, whether salaried or self-employed.
  • A Dependable Credit History: A good credit score increases your chances of approval and, potentially, even better rates.
  • A Professional Property Valuation: The property you intend to buy must be professionally valued and deemed suitable as collateral.

The financiers will also make assessments around your level of debt at the time of borrowing, your job security, the resultant debt-to-income ratio given the repayments you will be required to make when the mortgage is released, your compliance with existing debt obligations and regulatory obligations, outstanding risks that may be associated with the property you intend to acquire, prevailing market and economic conditions, your character and assessments of personal risk based on your lifestyle and many other factors.

They will be looking out for anything that stands out as a possible red flag, but also, any factors that may diminish their likelihood of recovering the loan from you without earning the interest for which they financed the acquisition.

Costs Associated with Mortgages

Beyond monthly repayments, mortgages attract the following costs:

  • Processing Fees: A percentage of the loan amount, usually between 1% and 2%.
  • Valuation Fees: This are costs for a professional assessment of the value of the property.
  • Legal Fees: Costs for property transfer and registration, and costs for the registration of a charge
  • Insurance: This includes life insurance for the mortgagor and property insurance for both contents as well as the physical structure which are mandatory to protect the asset.
  • Stamp Duty: This is charged at 4% of the property’s value in urban areas and 2% in rural areas.

Tips for Finding the Most Affordable Mortgages in Kenya

Affordability is a top concern for most Kenyans seeking mortgages. Key factors to consider include:

  • Interest Rates: Compare rates from various institutions to find the cheapest mortgages in Kenya. Some SACCOs and microfinance lenders offer competitive rates.
  • Loan Tenure: Longer loan periods result in lower monthly payments but higher total interest paid. It is important to choose a term that aligns with your financial goals.
  • Hidden Costs: Watch out for additional charges, such as legal fees, valuation fees, and stamp duty, which can significantly increase the cost.

Getting a Mortgage in Kenya affordably requires, you to shop around and compare the different offers from banks, SACCOs, and microfinance institutions. Shopping for a mortgage may also require you to hone your negotiation skills and push for better rates or fee waivers. You can use an online Mortgage Calculator to estimate monthly payments and overall costs so that you can plan ahead and ensure that you have funds for fees and down payments.

Conclusion

Mortgages are a viable path to homeownership, but they require careful consideration. By understanding them, you can make an informed decision that aligns with your financial goals. Whether you’re eyeing a house in the suburbs or an apartment in the city, take the time to explore all your options and consult experts for advice.

In Part 2, we delve into how mortgages work and developments in the market that will deepen financial inclusion that may make mortgages more accessible.

Cautions, Caveats & Restrictions in Kenya: What You Need to Know – PART 2

by | Sep 9, 2024 | Buying and Selling Land, Property Market Advisory Series, Real Estate Market Intelligence | 0 comments

  • Cautions Caveats & Restrictions: Reasons for Placing Property Restrictions

  • Cautions, Caveats & Restrictions: How to Place a Caveat or Caution in Kenya

  • Cost of Placing Cautions, Caveats & Caution in Kenya

  • Removing Cautions, Caveats & Restrictions on Property in Kenya

  • Other Types of Property Restrictions

  • Client Question: Can a Lease Function as a Form of Restriction?

Cautions, Caveats, & Restrictions: An Introduction

Caveats Cautions and Restrictions are applicable in very many different circumstances.

They offer property investors and third parties the legal mechanisms to protect their rights and interests.

How is property, for instance, used as collateral to secure debt?

How can a financier ensure that, in the event of a default, his interest in the property (as financier) is adequately secured against the property so that the property developer meets his obligation to repay the debt, or that the property developer won’t proceed to sell their property without any due reference to him (the financier)?

Cautions Caveats & Restrictions: Reasons for Placing Property Restrictions

Common Reasons:

  • Protecting family interests in inheritance cases.
  • Securing creditors’ financial interests.
  • Safeguarding tenants’ rights.
  • Preventing unauthorized sales or fraud.

Caveats, cautions and restrtictions are all different forms of property encumbrances designed to protect parties interest in the property and to prevent unauthorized transactions. Here are some common reasons why someone might place a caveat or caution on a property in Kenya:

Protecting Ownership Rights or Claims: If you have a legitimate claim to ownership, such as through inheritance, purchase, or gift, you might place a caveat to prevent others from transferring or selling the property until the claim is resolved. In cases where there’s a boundary dispute or an overlapping claim, a caveat can protect the party’s interests while the issue is being resolved.

Pending Legal Proceedings: When there’s an ongoing court case concerning the ownership or rights to a property, a caveat can be placed to prevent any transactions until the legal matter is concluded. This is often done to prevent the owner or other parties from attempting to sell or mortgage the property to sidestep the court’s decision.

Protection of Buyer’s Interest During a Transaction: When a buyer has agreed to purchase a property but the transaction is not yet complete, they may lodge a caveat to prevent the seller from transferring the property to another buyer. This is particularly useful in long or complex transactions where the transfer process may take time and there’s a risk of the seller seeking alternative buyers.

Protection of Financial Interest by a Lender: If someone has lent money with the property as security (for example, through a mortgage or lien arrangement), they may place a caveat to ensure that the borrower does not sell or transfer the property before repaying the debt.

To Assert Rights in Probate or Inheritance Matters: A family member or beneficiary of a deceased person may place a caution on the property if they have an interest in the inheritance. This helps prevent the executor or other heirs from transferring the property without acknowledging their rights. This is also common when a property is subject to succession and there are multiple claimants or heirs to the estate.

Prevent Fraudulent Transfers or Sales: In cases where a property owner suspects a fraudulent sale or transfer, a caveat or caution can be placed to halt any transactions. For instance, if there’s a risk that someone with forged documents might attempt to sell the property, the legitimate owner can lodge a caveat to protect their ownership.

Disputes in Business or Partnership Agreements: When the property is jointly owned by business partners or through a partnership, a caveat can help prevent any partner from selling or mortgaging the property without the consent of all parties involved.

Protecting an Unregistered Interest: In some cases, a person may have an interest in the property that is not yet formally registered, such as a long-term lease agreement, an easement, or a right to occupy. Lodging a caution alerts others that there is an unregistered interest in the property.

Ensuring Fulfillment of Contractual Obligations: A caveat or caution can also serve as a tool to ensure that any outstanding obligations between the parties are met before a sale or transfer. For instance, if one party is supposed to perform specific duties (like making repairs or paying off certain liabilities), a caveat can be placed to ensure compliance.

Preventing Unauthorized Development: A caveat may be used to stop any development or change in the property’s use until certain conditions are met. For example, a local authority or regulatory body may restrict a property to prevent construction until relevant permits are obtained.

Seven Tips from My Wild Misadventures House-Hunting in Nairobi

How to Place a Caveat or Caution in Kenya

To place a caveat on land in Kenya, follow these steps:

  • Step 1: Obtain the Land Caution Form (also the Application for a Restriction Form) from the State Department for Lands & Physical Planning.
  • Step 2: Complete the form, providing your identification details, the property details, and the reason for placing the caveat (e.g., to prevent a sale due to an unresolved dispute).
  • Step 3: Submit the completed form, along with any supporting documents, to the Ministry of Lands.
  • Step 4: Pay the required fees.
  • Step 5: The Ministry will process the application, and once approved, the caveat will be registered against the property, preventing any unauthorized transactions.

Cost of Placing a Caveat or Caution in Kenya

Placing a caveat on a property in Kenya usually incurs various fees, which may include legal fees and government processing fees.

The specific cost can vary depending on the lawyer’s charges, the complexity of the case, and the fees set by the Ministry of Lands. As of recent estimates, the cost typically ranges from Ksh 1,000 to Ksh 10,000.

For exact figures, it’s recommended to consult with a lawyer or directly inquire with the Ministry of Lands.

How to Remove a Caveat or Caution on Property in Kenya

Removing a caveat in Kenya can be straightforward or complex, depending on the circumstances:

  • Consent-Based Removal: If the person who placed the caveat agrees to remove it, they can apply with the Ministry of Lands to lift the caveat.
  • Court Application: If there is a dispute, the property owner or another interested party may apply to the court for the removal of the caveat. The applicant must prove that the caveat is unjustified or no longer valid.
  • Legal Fees: In cases involving court applications, legal fees will apply, and the time taken will depend on the court process.

Other Types of Property Restrictions

Lien: A financial restriction placed on property as security for a debt. The property owner cannot sell or transfer the property without settling the debt. Liens are commonly used by creditors or lenders to secure payment, and they can prevent any legal transfer of property until the obligation is fulfilled.

Easement: This grants a non-owner the right to use or access part of the property for a specific purpose, such as a pathway or utility access. Easements restrict certain uses of the property by the owner, allowing others (such as neighbours or utility companies) certain rights to access or use the land. While an easement does not prevent the sale or transfer of the property, it binds future owners to the terms of the easement.

Right of Occupancy: This is often granted to a specific individual or entity, allowing them to occupy the property for a defined period or under specific conditions. The property owner cannot evict the occupant or sell the property without respecting the occupancy rights. This right can limit the owner’s freedom to use the property for other purposes.

Zoning Restrictions: These are set by local authorities to control the use of land for specific purposes, like residential, commercial, agricultural, or industrial use. These restrictions limit the type of developments or activities that can be carried out on the property. For instance, a residential zoning restriction would prevent the owner of a property for commercial purposes, or for the development of multi-dweller structures.

Building Restrictions and Covenants: These are often placed by residents’ associations, developers, or local governments to control the type, size, and style of buildings that can be constructed on the property. The owner may be restricted from constructing certain types of buildings, altering the property, or making modifications that do not conform to the set guidelines. Violating these restrictions can lead to fines or legal action.

Environmental Conservation Restriction: Cautions Caveats & Restrictions may be imposed by environmental agencies to protect sensitive ecological areas, water bodies, or natural resources. It restricts certain uses of the property, such as prohibiting deforestation, mining, or construction in protected zones. These restrictions help maintain environmental integrity and prevent actions that could harm the ecosystem.

Probate and Succession Restriction: Cautions Caveats & Restrictions may be imposed by courts in succession matters, this restriction ensures that property cannot be transferred or sold until inheritance disputes are resolved. The property remains frozen and cannot be transacted upon until the court grants permission. This is often to protect heirs’ interests and to ensure compliance with inheritance laws.

Right of First Refusal: Sometimes, an agreement may give a specific individual or entity the first right to purchase the property if the owner decides to sell. The owner must offer the property to the designated party first before considering offers from other buyers. This limits the owner’s flexibility in selling the property.

Private Settlements: There may be occasions when Cautions Caveats & Restrictions may be sought owing to private settlements in which the parties in the agreement (settlement) want to secure their different interests. This could be on account of pending legal outcomes or some other legitimate reason, for example where the property is the subject of probate but the beneficiaries have a buyer in hand who wants to commit to acquire the property pending the conclusion of probate.

Client Question: Can a Lease Function as a Form of Restriction?

While the purpose of lease registration isn’t to restrict the property, a lease can indeed function as a form of restriction on a property. Leases work as a restriction in the following way:

  • Registering a lease formally records the lessee’s (tenant’s) rights to occupy and use the property for a specified term, under agreed-upon conditions.
  • The lease agreement outlines the conditions and limitations on how both the lessee and lessor (property owner) can use the property during the lease period.
  • A Registered Lease Limits the Owner’s Rights: The property owner cannot use, sell, or develop the property in ways that would interfere with the tenant’s rights as specified in the lease. For example, an owner cannot evict the tenant or make substantial changes to the property without adhering to the lease terms.
  • If the property is sold during the lease term, the new owner inherits the lease and must respect the tenant’s rights until the lease expires. This limits the buyer’s immediate control over the property.
  • By registering the lease, it becomes a public record, notifying any prospective buyers or interested parties of the existing tenant’s rights, thereby deterring unauthorized transactions that might disrupt the lease.

Although the primary intent of a lease is to grant occupancy rights, it does restrict the owner’s full control and limits the actions they can take with the property until the lease term ends.

It affects the marketability of the property, as prospective buyers are informed that they may have to honour the existing lease, which could influence their decision.

A lease is not necessarily aimed at preventing unauthorized sales or claims; it’s more about granting use rights and limiting ownership control temporarily.

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Conclusion

As a prospective buyer, lender, and stakeholder in property, understanding these mechanisms is crucial not just for informed decisions, but also for understanding how to deal with the market in a secure manner.

Seven Tips from My Wild Misadventures House-Hunting in Nairobi

by | Aug 9, 2024 | Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

Ah, Nairobi! The city of endless opportunities, stunning skylines, and—let’s face it—exhausting house-hunting escapades. If you’ve ever tried house-hunting in this bustling metropolis, you know it can feel like embarking on an epic quest. Picture this: you, armed with a thoughtful list of must-haves, a budget tighter than your favourite pair of jeans post-holiday season, and the unwavering optimism that your dream apartment is out there, somewhere. What follows is a tale of oscillation between woe, laughter, and the defeating realization that house-hunting in Nairobi is not for the faint-hearted. And perhaps that you have taken on the challenge of a lifetime!

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House-Hunting in Nairobi Requires Patience & Courage

You’ve got to approach house-hunting in Nairobi with an attitude of patience. Really. Otherwise, you just won’t have the courage to get into it! I had no trepidation at all! Not at first anyway. It started with a decision as innocent as a baby’s first smile: “I think I’ll move to a new apartment.” With the resolve of a novice snake charmer setting out to spellbind the snake in the bag before him, I enlisted the help of a property agent, convinced that his expertise would turn my search into a walk in Uhuru Park. Little did I know, I was about to step into a whirlwind of bewildering experiences.

House-Hunting in Nairobi Requires “Measured Expectations”

Armed with Pinterest-inspired dreams, a laundry list of demands as long as a giraffe’s neck and the naïve optimism of someone who’s never had to go house hunting in Nairobi, I conveyed my wishes to the property agent. “I want a two-bedroom apartment, spacious kitchen, modern amenities, secure neighbourhood, and, oh, a nice view would be splendid.” The agent nodded sagely, a gleam of hope in their eyes—or was it amusement? I couldn’t tell.

The First Viewing: Reality Strikes

 My first viewing was in a neighbourhood that my agent described as “up and coming.” Translation: it was neither up nor coming. The apartment was a throwback to the 1970s, complete with peeling wallpaper and a bathroom that looked like it hadn’t seen a mop since Moi was president. The “spacious kitchen” turned out to be a tiny corner with a stove that probably had a direct hotline to a fire extinguisher. The living room had a tiny window overlooking a neighbour’s laundry line. But hey, the view was indeed “nice”—if you squinted just right, you could see a sliver of sky between two high-rise buildings. I couldn’t decide whether to laugh or cry.

Can’t Laugh at Yourself? House-Hunting in Nairobi Will Really Suck!

After several more disappointing viewings, each one more comical than the last, I began to see the humour in my situation. I also began to get less irritable with the whole experience. My agent, who it seemed was either unable to comprehend my requirements, or couldn’t simply meet them made up for some of his gaffes with such positivity that I was struggling to find fault with him. There was the apartment with a “unique layout”—essentially a labyrinth of tiny rooms connected by narrow hallways, perfect if you’re practising for a career as a maze runner. Another gem had a balcony so small, standing on it felt like balancing on a matchstick.

One particularly memorable apartment had a bedroom with no windows. There was no negligible natural lighting in any of the other rooms too. “It’s great for privacy,” the agent assured me. “And claustrophobia,” I muttered under my breath. I began to suspect that my agent’s sense of humour was the only thing getting them through the day.

Inflexible? House-Hunting in Nairobi Will ServeYou a Budget Reality Check

One sunny afternoon, I came across a listing that seemed too good to be true. It was a two-bedroom apartment in Westlands, within my budget! I rushed to view it, only to find out that “within my budget” meant excluding an array of hidden costs: service charges, parking fees, and a mysterious “maintenance fund” that apparently covered everything from fixing light bulbs to feeding the guard dogs. Lesson learned: always read the fine print.

Clarity Wins When House-Hunting in Nairobi

After several more duds, I realized that part of the problem was me. I wasn’t being clear enough with my agent. My vague requests for a “nice place” weren’t cutting it. I needed to be explicit. “I want two bedrooms, two bathrooms, a balcony, and a place that allows pets,” I finally spelt out. My agent’s eyes widened—either in understanding or shock at my newfound assertiveness.

Infer What You Will From The Language of Listings

Just when I thought I had seen it all, my agent took me to a place with “artistic charm.” It was an understatement. The walls were painted in psychedelic colours, and the kitchen sink was in the living room, right next to what appeared to be a homemade disco ball. The landlord proudly showed off the “custom features,” and I nodded politely while internally plotting my escape.

Despite the setbacks, I pressed on, buoyed by the belief that the perfect apartment was just one viewing away. I developed a thick skin and a keen eye for red flags. “Close to amenities” became code for “next to a noisy bar,” and “charming” meant “tiny but overpriced.”

House-Hunting in Nairobi is a Marathon not a Sprint!

Just when I was about to throw in the towel and resign myself to a life of perpetual couch-surfing, I stumbled upon a listing that sounded too good to be true. Naturally, I approached it with the skepticism of a cat faced with a cucumber. But to my amazement, the apartment was everything I wanted: spacious, modern, secure, and with a view that didn’t involve peeking through alleyways. It was priced slightly above the price point I had indicated to the agent. But, to say the least, I was just happy to chalk this down to unrealistic expectations on my part if it meant that this whole protracted, woefully slow search could finally come to an end.

The Happy Ending (With a Twist)

Of course, the rental process wasn’t without its hiccups. There was a moment of sheer panic when the landlord mentioned a “slight issue” with the plumbing, which turned out to be a geyser-like fountain in the bathroom. But after a few negotiations, repairs, and a lot of patience, I finally moved into my new apartment.

    Lessons Learned: My Tips for House-Hunting in Nairobi

    If you’re embarking on the noble quest of finding a rental apartment in Nairobi, here are a few tips to help you navigate the chaos:

    Manage Expectations

    Your dream apartment might be out there but be prepared for some compromises. It’s a jungle, and flexibility is your survival tool.

    Know the Lingo

    Understand the coded language of property listings. Words like “spacious” and “charming” and “near tarmac” can have as many meanings as the number of agents using them. Depending on the rental market you’re targeting, agents invariably offer scant details – usually just enough to get you to pay for viewings!

    Less is Often More

    The advice that working with several agents improves your odds is birdfeed! House hunting in Nairobi is fraught with non-exclusive agency arrangements, so having several agents can complicate your search, exposing you to their cut-throat antics. Will one work? In my limited experience, more won’t particularly lend your search to efficiency. Many are now demanding showing fees because of non-exclusivity with landlords and the territorial nature of agency. My thoughts –  find a dedicated, knowledgeable, trustworthy agent and work with them exclusively. Or at least limit the pool! Make sure they understand your needs and are transparent about what’s available.

    Persistence Wins in the End!

    The perfect apartment won’t just fall into your lap. Keep looking, and don’t get discouraged by initial setbacks.

    Patience and A Good Sense of Humour are Key

    House hunting in Nairobi can be stressful, but finding the funny side of things can make the process more bearable.

    Align Your Budget With the Reality of the Market.

    Expecting a penthouse suite on a shoestring budget is a recipe for disappointment. Set realistic financial boundaries and stick to them—your bank account will thank you.

    Clearly Communicate Your Needs and Non-Negotiables to Your Agent.

    Speak up, don’t just hint at wanting a second bathroom or a pet-friendly space—spell it out! Agents aren’t mind readers, and explicit communication can save everyone time and frustration.

    Prepare to Compromise

    Understand that you might need to prioritize your must-haves. The perfect apartment with everything you want at your price point is rare. Decide what you can live without and what’s absolutely essential.

    Conclusion

    House hunting in Nairobi is an adventure filled with highs, lows, and plenty of laughs. Whether you’re dealing with quirky listings or navigating the complexities of the rental market, remember that persistence and a good sense of humour are your best allies. So, gear up, take a deep breath, and dive into the rental jungle—your perfect home might just be one viewing away.

    Private Settlements: A Fast, Flexible Path to Property Deals in Kenya

    by | Aug 1, 2024 | Buying, Selling, Leasing & Rentals, Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

    • An Introduction to Private Settlements?

    • What Are Private Settlements?

    • Benefits of Private Settlements

    • Scenarios Where Private Settlements Excel

    • What Makes Private Settlements Attractive?

    • Potential Drawbacks of Private Settlements

    • Conclusion

    An Introduction to Private Settlements?

    Private settlements are unfamiliar to many, but they can offer great benefits for both buyers and sellers. In particular, for properties that present unique opportunities or whose disposal presents unique challenges, private settlements can be very ideal.

    In Kenya, the usual way to handle property transactions is within a 90-day window. This isn’t set by law but is a widely accepted practice. Sometimes, plot sellers offer longer payment terms, like 6 to 12 months, especially for lower-end markets. With private settlements, these periods, for example, can be extended to much lengthier periods for the fulfilment of conditions upon which the agreement sets out conditionally, as long as both parties concur.

    Private settlements offer a personalized touch, often leading to quicker sales and better outcomes for both parties. With the rise of private mediation, these kinds of transactions are gaining attention. Whether you’re in Kenya or part of the diaspora, private settlements could change the way you invest in property.

    What Are Private Settlements?

    Private settlements are property deals negotiated directly between a buyer and seller, or by parties who wish to make a self-determined agreement they co-own without subjecting themselves to court-determined action, public auction or listing of these properties. These deals are customized to meet the specific needs of both parties, making the process more efficient and tailored.

    For example, a buyer and seller might enter into a private settlement to create a seller-financed deal that extends their transaction timeline to as many as three years or any other agreed period, depending on their agreement.

    Another example would be when beneficiaries of an inherited property, who might be in dispute or lack the resources for probate, work with a developer under a joint venture. They can establish a joint venture through a private settlement, agreeing to terms that protect everyone’s interests. In this way, beneficiaries can progressively exit ownership of the property until the conclusion of probate, while the developer can enhance the property’s value and profit from it.

    Similarly, a married couple undergoing divorce, can make a private settlement for the division of their marital properties and have their agreement adopted as part of their divorce decree without prejudice.

    They give the parties confidentiality to handle their matters outside of public purview.

    While they are by and large considered a course of action taken only where disputes between parties subsist, private settlements are also “curative” in their nature and can be used to reduce the risks that would arise from disputes.

    Harness the Power of Private Settlements to Buy or Sell Your Property

    Are you interested in exploring the option of disposing or acquiring property seamlessly and successfully via private settlement?

    BOOK A CONSULTATION

    Benefits of Private Settlements

    • Speed and Efficiency – Quick Sales: They allow for quick deals. Sellers can skip the long process of listing, marketing, and waiting for offers, making it ideal for those needing a fast sale. They can also avoid lengthy legal processes by having a clear agreement that outlines their goals.
    • For instance, a family with an inherited property that hasn’t undertaken succession of their deceased relative’s property would usually have to wait until that process is completed. If a buyer presents, even if the family can prove ownership, it’ll be tough to sell before succession. However, a private settlement can be drafted, detailing terms that protect both parties. This might include the buyer’s rights to the property and a payment schedule tied to the succession progress. Private settlements offer a streamlined process that is more direct, efficient and less bureaucratic.
    • Tailored Agreements – Bespoke Transactions: Private settlements let buyers and sellers create agreements that fit their specific needs, including payment plans, possession dates, and unique conditions.
    • Confidentiality – Privacy: These deals are more discreet than public sales, keeping the details and parties involved confidential.
    Chamas Can Never Replace a Clear Personal Financial Strategy

    Scenarios Where Private Settlements Excel

    • Probate Properties & Properties that are Subject of Property Division in Divorce Matters – Selling properties under probate can be tough. They offer a streamlined solution for heirs wanting a quick sale, reducing the emotional stress of public sales. Also, properties that are subject to division when divorce happens are ideal for distribution or sale under a private settlement if the couple divorcing can agree to terms that are mutually beneficial to both of them and a prospective buyer should they choose to secure a quick exit under an amicable agreement.
    • Seller-Financed Transactions – Flexible Financing Options: When sellers offer financing, private settlements allow flexible terms that benefit both parties. This can include customised interest rates, repayment schedules, and down payments, making property buying easier for those who might not get traditional bank loans.
    • Urgent Sales Required – Immediate Cash Sales: Sellers facing financial issues or urgent relocation can benefit from private settlements by getting immediate cash offers and closing deals quickly. Private settlements in such instances would be ideal for buyers looking to get bargains with inherited properties, or even those sellers in distress.
    • Unique Properties – Niche Market Sales: Properties with unique features or in niche markets might struggle to find buyers through public listings. They allow targeted negotiations with interested parties, ensuring the property is sold to someone who values it.

    What Makes Private Settlements Attractive?

    • Personalized Negotiations: Direct communication between buyer and seller allows for more personalized and flexible deals.
    • Cost Savings: Avoiding real estate agent fees and marketing costs makes the transaction more cost-effective, freeing up money for other needs.
    • Legal Flexibility: Private settlements allow for tailored legal agreements that meet the unique needs of both parties.
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    Potential Drawbacks of Private Settlements

    • Lack of Market Exposure: Public listings reach a broader audience and provide market feedback. Without this, sellers might miss out on potential buyers and market insights.
    • Risk of Unfair Terms: Sellers might negotiate from a weaker position, leading to poorly negotiated deals. Professional mediation can help ensure fair terms.
    • Gaps in Due Diligence: Buyers must conduct thorough due diligence since private settlements may lack the oversight and transparency of traditional transactions. While these deals can offer great bargains, buyers should always insist on high levels of due diligence before proceeding.

    Conclusion

    Private settlements provide a bespoke, efficient, and confidential approach to property transactions, making them an attractive option in many situations. Whether dealing with probate properties, seller-financed deals, or urgent sales, private settlements can yield favourable outcomes for both buyers and sellers. However, it is crucial to navigate these transactions carefully, ensuring fair terms and thorough due diligence.

    Acquiring Agricultural Land for Leasing: A Win-Win Proposition for Investors & Farmers

    by | Sep 14, 2023 | Agricultural Land, Property Market Advisory Series, Real Estate Leasing, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

    Introduction

    Did you know that the leasing of agricultural land sustains a wide variety of commercial and large-scale agricultural production activities in Kenya? From pineapple farming to wheat farming, pastoral farming to agroforestry, the cultivation of biogenic feedstock and horticultural farming, the leasing of agricultural land is widely practiced and accepted in sustaining food production across several agricultural value chains.

    Income Diversification & Food Security:
    Who Benefits from Leasing Agricultural Land?

    Leasing Agricultural Land is a common practice that allows farmers and landowners to enter into mutually beneficial and strategic agreements for the use of land for agricultural purposes. On the one hand, landowners collect an income through the rental charged (earning passive income), while farmers, on the other hand, who may not otherwise be able to afford to purchase the land, can work the land and earn an income from farming activities (an active form of income generation)

    Because Kenya is a nation of farmers (including “phone farmers” and “wanna-be farmers”), there is a widely held view that participating in the farming economy is the preserve of those who plant crops, rear animals and otherwise directly participate in farming as producers. This is a somewhat dim view because in this same nation, the producers, the ones who assume the greatest risk in the entire value chain, across almost all agricultural value chains, are the least rewarded for their effort.

    Leasing Agricultural Land, therefore, is a win-win proposition. It allows the farmer to reduce risk by guaranteeing the landowner who assumes some of that risk a decent return on their investment. The landowner doesn’t have to engage in production to benefit from owning the land. Simultaneously, the farmer can sink in their capital towards production with greater optimization and can therefore achieve greater results.

    Acquisition of Agricultural Land for Leasing:
    Why Has This Become Trendy with Investors?

    In recent times (this is 2023!), spurred by the profound economic disruption (job losses, closure of businesses and more) that resulted following the COVID-19 pandemic which has been further exacerbated by both the local and global economic downturn, there has been a growing trend among investors in Kenya who are increasingly looking for opportunities to diversify their income portfolios and improve their cash flows. Specifically, opportunities that can create passive income streams, even in real estate.

    As the effects of a cash crunch, skyrocketing inflation, depreciation of the local currency and a host of other adverse economic conditions begin to bite, many investors who erstwhile preferred to buy land speculatively, are increasingly acquiring agricultural land that can be leased out to generate an income without necessarily engaging in the laborious effort of producing food or rearing animals from the land. In any event, they are not individually or collectively farmers themselves. However, possessing neither the capacity, interest or preference to commit their time or resources in the pursuit of farming activities does not limit their ability to derive benefits from farming ecosystems – if not as farmers, then as investors. And, farmers do not always possess the capital to acquire land anyway!

    They are instead choosing to create or connect with farming communities and even corporate entities engaged in contract farming either in the area of horticulture or animal husbandry, to supply the land that is fit for those purposes on a contractual basis (through leasing).

    The Market:
    Who is Acquiring Agricultural Land for Leasing? Why?

    This opportunity is especially being pursued by foreigners from the Middle East, Asia Europe and Kenyans living in the diaspora. By finding land that is ideal for animal husbandry and horticultural production these investors are acquiring land that they can lease out for agricultural production and then working with farmers to earn an income and even produce food for export into their own economies.

    In some instances, rather than investing in the land for farming per se, they are instead choosing to invest in enhancing the agricultural production ecosystems where they lease land. They are also choosing to partner with contract farmers to produce food for export into their countries, controlling end-to-end the production hubs all while creating access to their own markets. On a larger scale, this investment and cooperation is also happening at the level of national governments.

    While the goal is primarily the pursuit of food security in their home countries (producing food for export to their home countries), they are also increasingly seeking opportunities in newer fields, especially in the production of crops for renewable energy.

    This is a double-pronged strategy that is also being aggressively pursued in light of climate change, which is adversely affecting food and energy supply chains globally. Africa, at large, is one of the region’s most at risk and most susceptible to the effects of climate change.

    Six Steps to Leverage the Acquisition of Agricultural Land for Leasing?

    Can one feasibly benefit from acquiring land that can be leased out for agricultural purposes? The answer is obviously yes. And that benefit can transcend even the benefit to the farmer if one takes the time to understand how to engage in the leasing business.

    It isn’t risk-free.

    But given the wildly popular alternative – acquiring land for the speculative consideration of its capital growth in the future – the productive use of land not only guarantees an income nonetheless. In other words, both income and capital gains can be realized if one invests strategically, and understands the needs of their target farmers well enough to provide solutions that they require in order to sustain the business. Leasing agricultural land provides both income and sustained capital growth, optimizing the value of the asset.

    Investing in agricultural land and leasing it out to farmers can be a rewarding venture, but it requires careful planning and consideration. Here are the steps to follow and considerations to keep in mind:

    Step 1: Set a Budget and Define Your Investment Goals:

    Start by making a decision on how much you’re willing to invest. Consider not only the cost of the land but also potential additional expenses like legal fees, taxes, utilities, and maintenance. Define your investment objectives clearly, such as the potential for long-term appreciation, lease income (return on investment), or a combination of both.

    Step 2: Research the Market and Engage a Real Estate Agent

    Identify regions or areas with a strong demand for agricultural land and the agronomic practices most common to these areas. This will help you identify prospective farmer groups to draw your lessees from. Factors to consider include availability of water, climate, soil quality, proximity to markets, and local farming practices. Thereafter, work with a real estate agent(s) who specializes in agricultural properties. They can help you find suitable land based on your criteria and negotiate the purchase.

    The research will also help you determine critical success factors, such as the demand for agricultural land for lease in an area, the potential volume of lessees (market size and depth), the competitiveness of leasing rates, potential risks and costs, the potential returns on investment, and prospective capital gains accruing from the appreciation in the value of the land. The goal of the market research is to ensure that the leasing business will be financially viable and sustainable.

    Step 3: Evaluate Land Quality and Gain an Understanding of Zoning and Regulations

    What is the land good for? This can be done through an assessment of soil quality, water availability, and land topography. These factors significantly affect the land’s agricultural productivity. Some agricultural land is better suited to activities such as animal husbandry, say due to the natural occurrence of vegetation and shrubland ideal for rearing animals. For long-term arrangements, would the purchase be ideal for the growth of say biogenic feedstock rather than horticultural production? Be aware of local zoning laws and regulations that might affect your ability to lease the land for farming. Some areas may have restrictions on land use. If the capital outlay on the land will be significant, it would be ideal to arrange for soil testing to determine its fertility and whether it’s suitable for the types of crops or livestock you intend to lease the land for. If there are no natural sources of water or even utility service providers, arrangements may be required for the provisioning of water. What are the nearest sources and can water be tapped from there? If not, what would it cost to, for example, sink a borehole?  A hydrogeological survey can uncover relevant information on this subject.

    Step 4: Infrastructure and Access to Market Considerations

    Evaluate the availability of infrastructure like roads, utilities, and access to markets. Adequate infrastructure can make the land more appealing to farmers.

    Step 5: Secure Financing, Negotiate and Purchase the Land

    Arrange for external financing if needed, either through a mortgage, bank loan, or other financing options. Ensure you have a sound financial plan then proceed to identify a suitable property, and negotiate the purchase price and terms with the seller. Work with a lawyer to ensure all legal aspects are in order.

    Step 6: Engage a Property Manager to Secure and Manage Your Leasing Business

    You could always choose to manage the property yourself, but a property manager will come with the advantage of ensuring consistent rentals and ensuring that the land is always under lease. A property management firm which specializes in leasing land, especially agricultural land, is more likely to have a steady source of potential clients within its networks so that there are no overlaps in time between the exit of one lessee and the subsequent ones. They will also take responsibility for ensuring that the lease agreements are airtight and function to the requirements of the landowner, their client.

    Conclusion

    Investing in agricultural land and leasing it to farmers can be a profitable and sustainable investment. It is essential to undertake thorough research, understand the local agricultural landscape, and establish transparent and mutually beneficial relationships with your tenant farmers.

    Consulting with agricultural experts or local agricultural extension offices can provide valuable insights into regional farming needs and practices.

    In summary, investing in land that is prime for leasing can be a valuable opportunity for investors. The market research should be designed to ensure that the investment is sustainable and will yield an acceptable return on investment over its lifetime.