How To Secure Phenomenal Capital Growth In The Property Market

by | May 25, 2019 | Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

Ever wish you had one of those magical crystal balls that would help you see deep into the future? Or perhaps, like in one of those fast-motion camera sequences, a video that could magically transport you across a long timeline in just a matter of seconds revealing just how things will unravel, say ten to fifteen years into the future? I feel you! I wish I did too. I don’t know what you’d use yours for, perhaps find yourself that elusive knight in shining armour, or buy the winning numbers to secure a tidy windfall in a lottery or betting scheme. I’d probably use mine to do a little more. Like to anticipate markets so that I could create me some generational wealth! OK, I’m indulging in some wishful thinking here, but you get the point! Except for a magical crystal ball, how else can you actually foresee where the markets are going; where the opportunities are to actually secure phenomenal capital growth in the property market?

One of the fundamental premises of investing in real estate, indeed investing in any asset class, is obviously the opportunity to secure capital gains– the appreciation of capital that often happens over the time an asset is held. Sure there are other goals for which investments are made, like the emotional security they provide. However, it is important to understand that all other goals for investing derive from the financial security they create.

Secure Phenomenal Capital Growth in the Property Market

For almost thirty years (between 1985 and 2014), capital gains on real estate and other investments in Kenya were untaxed. This gave investors the opportunity to create substantial wealth from investments in real estate and such other qualifying investments. The overall bullish market trend over that period of time in both urban centres and emerging towns allowed many investors to profit handsomely from their real estate investments; securing generational wealth that they could comfortably retire on and even pass on to their families.

So how exactly did they do it? Were they merely speculative in their approach, or possibly just lucky? For those that did it with great success, were the methods they used replicable?

Is Capital Growth Assured?

It is generally considered in this market that capital growth is assured if you hold an asset long enough. But is it sufficient to simply acquire property, even speculatively, because of this presumption? That same presumption has ensured that the “plot” culture in this country is firmly rooted. Like the social pressure that everyone the unmarried over 25 who must be familiar with, every gainfully-employed or otherwise productive individual in Kenya is at some point expected, by the standards and norms of this nation, to at the very least own a plot (or even plots); at the bare minimum, that spit of land commonly referred to as an eighth (a.k.a. 50 by 100). Otherwise, you are just good for being ridiculed.

Aware of this, land sellers have capitalized on pushing plots at exorbitant prices to herding, lazy investors. And they’re all in on the game; the cooperative SACCOs we all faithful save up with, property developers and even the wildly popular “chamas“.

Even though most vacant land buyers might not be able to afford to build homes on their acquisitions, the tendency is to perpetually confine those acquisitions to their “rainy-day” funds because they are presumed to appreciate. The mere possibility of marginal growth and the security associated with those assets may not be sufficient.

Understandably, part of the vacant land culture is based on the valid, yet elusive dream of home ownership. But alas, the question is, how can you make phenomenal capital gains; not just good capital gains, but phenomenal gains?

Case Study: A Tale of Three Nairobi Suburbs

Sixteen years ago circa 2003, a friend offered to sell me a quarter acre of land in Kahawa Sukari, a suburb of Nairobi located in Kiambu County. Even though he was offering a substantial discount on the sale because he was a highly motivated seller, I passed on the opportunity because of some prejudicial thoughts I had at the time (my parents lived in the neighbourhood and I wasn’t inclined to live next door). The fair market value of the property at the time was actually KES 600,000. Today, that same parcel of land is selling at KES 12M. The market contrived to award those who made the investment with an X20+ growth.

Around the same time, a friend who was leaving the country to study abroad was faced with two investment prospects:

  1. Buy a new flat in the swanky Milimani neighbourhood of Riara by depositing KES 2M and taking a mortgage of KES 3M payable over 15 years; or
  2. Buy two 5-acre blocks of land at KES 1.8M in Syokimau, some nondescript place off Mombasa Road that was unknown at the time and then place the balance of her funds in some fixed deposit to earn interest or use the same balance to pay for the subdivision of the land into eighth-acre plots.

She made the seemingly less-popular of the two decisions electing to buy land in the “bundus”. Syokimau, a neighbourhood at the border between Nairobi and Machakos counties, was at the time just barren land with nothing notable to speak of on it. The property, as subdivided, would comfortably fetch a whopping KES 320M by 2019 market prices! That’s right. 320 million.

Comparing the three separate investors, these would have been the results:

Comparative analysis of land growth rates in three Nairobi suburbs.

Comparative analysis of land growth rates in three Nairobi suburbs.

In 2003, if you lived in Nairobi and wanted to live in a classy neighbourhood with all the cushy lifestyle trappings, Kahawa Sukari, would not have been on your radar. And certainly not Syokimau! They simply would not have made any apparent sense. None at all. Quite literally, Syokimau wasn’t even a neighbourhood at that time. Certainly not one on the minds of home buyers or property developers in the city. It was a desolate bush. Security would have been a concern. It was not the place to be. No roads. No shopping areas or malls. No schools. Nothing apparently progressive was happening yet.

Kahawa Sukari was just coming into its own. At least, it had some signs of development. It was rugged and coarse but there was some settlement. Between it and Syokimau (from a lifestyle perspective), Kahawa Sukari would have been preferable – several times over at least.

The Milimani suburbs on the other hand….now that was a happening place. New malls were sprouting (Prestige and The Junction had just come up around then). It had an extensive, well-maintained road network, all tarmacked. There were good schools, well-established homes. Hospitals within earshot. It was a mature neighbourhood even at the time. If you were looking for a superb address, there were already several here.

What takeaways can we then draw from this case study?

#1. The Safest “Investments” Aren’t Always the Most Lucrative

Of the three choices, while the decision to have acquired a flat in Kilimani may have made the most sense (especially to the “urbanites”) being that it carried the least risk, the result would have been the lowest capital gains (even if one could easily boast of owning property in one of Nairobi’s finest). And while the one that seemingly made the least sense and would have been viewed as the riskiest – Syokimau – was the only one that yielded incomparable gains, when pitted against the other two likely decisions.

Indeed, from this example, while the safest choices are “superficially” the most attractive; they are clearly the least financially attractive!

#2. Return on Investment Makes the World of Difference

A critical factor when comparing investment options is their trend of growth. It aids the investor to determine whether a neighbourhood is comparatively better to invest in than others. In this case, we will only compare the choice between Kahawa Sukari and Syokimau because they were relatively more comparable neighbourhoods at the time.

Compounded growth rate for two comparable suburbs of Nairobi.

Compounded growth rate for two comparable suburbs of Nairobi.

The sustained, annual growth for the period, while not markedly different (only 16%) produces a world of difference in the results. It is not applicable consistently over the initial years that an investment is held but can also be observed in the growth of development in the respective neighbourhoods. The annualized/compounded growth rate doesn’t follow a linear progression but instead follows a curved rate of growth.

#3. Diversification is Key To Managing Risk & Optimizing Results

Investors look to manage risk in such a way that maximizes returns. Another preferable approach may not necessarily be the maximization of returns but the optimization of results – diversifying investments to spread risk by seeking to secure the most optimal return on the full range of investment options available. Following this strategy, none of the three options above, taken exclusively on their own, is “the best”. The generally accepted rule for optimal returns is diversification which allows for aggregation of risk across investments with different rates of returns. Obviously, there is no way to know right at the point of investing which investments will perform well or poorly. The easiest way to explain this using the case study cited is as below:

Diversified portfolio with optimized investment results.

Diversified portfolio with optimized investment results.

This approach assumes that the investor has the capital or ability to invest in all the options available which would rarely be the case. Some investors also apply a weighted average method which puts higher volumes of capital to riskier classes of investments so that their average growth can be significantly higher. However, each individual investor has their own unique risk profile and it would be prudent to establish where your individual appetite for risk lies and match that to the specific investments you are willing to undertake.

In the case study, no investor lost money but their results were worlds apart. It cannot be discounted in the case study that some investors would be happy to merely own a home in an upmarket neighbourhood because of the security (low risk) it provides and will feel that an X4 growth is comfortable for them. It isn’t sufficient though. A good rule of thumb is to establish whether the rate of growth has allowed the investor to beat the cumulative growth in inflation over the period of time the investment has been held.

#4. Observing and Understanding the Market and Trends

The three neighbourhoods in the example above are fairly comparable. They’re all upper-middle-class neighbourhoods. All dominated by owner-occupied status (at least in 2003, Milimani was even though that seems to be changing now as more and more multi-dweller and commercial spaces are developed). They all had standards for controlled development. The trajectory of their growth is therefore bound to follow a similar path. For this reason, an investor could easily then observe similar markets and find opportunities in which the success of past investors is replicable.

The property values in these neighbourhoods grew to a large extent because of increased settlement (population growth), the expansion of road networks, public transport and other public infrastructure and services, improved access to mains services (water, electricity, sewerage), security and other basic amenities, improved access to public facilities and increased private investment (establishment of public administration offices, access to shopping areas, financial services, markets, health facilities, schools and so on).

While the growth is slow and only happens organically and is not always quickly discernible, investors with a keen eye will observe the trends and will see the opportunity portended in that growth. Over time, it is possible to discern patterns across different market segments, for instance between owner-occupied markets and renters markets; or between low-cost urban housing and upmarket housing. But it requires a disciplined level of commitment to follow the market and understand the trends through research.

#5. Create a Blueprint for Your Real Estate Investments

It’s OK to invest ad hoc. Investing works a lot better if you have an informed plan guiding your effort. There are ideas to be borrowed from the case study above. But it isn’t enough to attempt to replicate it.

Each individual might only be able to take up investments based on their own unique financial constraints, their incomes, expenditure and lifestyles; varying appetites for risk, emotional and situational needs, tastes and preferences.

These factors necessitate that investors’ map out their own investment blueprints with clear goals; an entry and exit plan. Gregarious strategies (herding) are great but they often fail because of a lack of congruence in individuals’ ideals, philosophy and expectations. Many of us plan around others in order to “keep up” or find acceptance in particular social circles. Maintaining focus on our goals is best achieved when they are documented and planned for so that even in the face of emotional turbulence and market uncertainty we don’t lose track. A blueprint is desirable in helping us identify our individual path to reaching our goals; achieving peace of mind and attaining financial freedom.

#6. Be Bold. Be an Outlier.

None but the brave deserve the fair. That may be an expression you’ve heard. It is nowhere more true that in the world of real estate investing. Conventional thinking will only get you so far. And calculated risk needn’t be overthought, just calculated. To get phenomenal, you’re going to have to make some bold moves and do some fringe thinking.

It is the outliers who make change happen. They go in early. Lead from the front. Swim against the tide. Reap big!

If you’re driven by the fear of missing out, you’re already going on convention and merely riding the crest of all the wrong emotions that should spur investment decisions. Discipline. Counsel. Research. These are the attitudes and practices of winners!

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Unpacking Property Scams & The Red Flags Around Them

by | Oct 25, 2018 | Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

Property Scams cause untold financial distress and economic turmoil. The memories of the experience don’t leave quickly and can haunt their victims. I’ve been down that road, I know. In 2016, one such scam which purportedly gave investors the fast-track to homeownership decimated hundreds of millions in investors savings and credit. With no discernible repertoire of property developments, one would imagine that the scam would have been unearthed quickly, or that victims would have shied away. Yet, despite the alarm bells sounded against this property scam, would-be investors still piled in on an unprecedented scale. This fraud wasn’t just an indictment on the state of investor awareness and culture in this market, but also on market regulation, consumer protection mechanisms and investor education.

If we could remove the property scam artists out of the equation for just a second, just what renders seemingly rational individuals to become predisposed to the wiles of scammers? Is it a strong desire to achieve their goals? Is it their naivety or perhaps a misguided belief in overnight wealth and success? Is it their readiness to believe in get-rich-quick schemes or their failure to understand how things actually work? Who wouldn’t embrace the possibility of financial freedom if presented with an opportunity to get rich overnight, however incredulous? What if that opportunity required negligible effort, who wouldn’t that appeal to? Faced with the prospects offered by the property scam artist, do victims know what questions they should ask?

What Do Property Scams Look Like?

Property scams, like ghosts, assume whatever form imaginable by those who conjure them. If only scammers warned their pawns ahead of time, right? Whatever form they assume, they all tend to have a common feature – there is usually something unbelievable or untenable about them, a red flag or a series of red flags. Of course, the very reason victims get sucked into scammers’ orbit is that those qualities are quite magical, even hypnotic. These red flags, or bait, are what the scammer uses to lure victims. Like green snakes in the grass, they are particularly insidious because they are hidden in plain sight and unless one knows what to look for, they’re not likely to be attentive enough to see them.

Even more daunting is that as they run their course, property scams often morph and mutate, becoming increasingly complex and agile in their nature so that by the time the trap is sprung, the scammer has had sufficient time to conceal their intent, erase their footprint and potentially vanish into thin air – all while their unsuspecting victims still believe that all is well.

It’s easier to fool people than to convince them that they’ve been fooled

Most scams go unreported because their victims invariably get embarrassed and don’t want to be shamed in public. Scams that attract the media spotlight usually only do so because of the creativity, flair and scale on which they are committed. Scams ordinarily present as legitimate market offers eventually mutating to fit in with their perpetrators’ goals so there is little in the way of preemptive measures to avoid them because they are invariably unearthed post-mortem. Scammers don’t operate with any deference to market regulation so it also unlikely that market protections would serve any purpose to preempt their perpetration.

Where Shall Help Come From?

So, if scammers are able to conceal their intent, and market protection mechanisms only kick in retroactively, is there a silver bullet or magic potion to inoculate would-be victims from the wiles of scammers who would happily steal their future in the property market? Sadly, there is neither one nor the other. However, you can get ahead of scammers by understanding how to identify the red flags around scams, the elements of your nature that they tend to exploit, and what those who conjure them into existence engineer into their traps.

Property Scams: The Scammers Guide

Have you ever observed a moth around a lit candle? If you have, you will understand, at least theoretically, how scams are built and pulled off. The candle emits a glow which offers warmth to the moth so that even the poor creature’s instincts are numbed to the allure of an open flame. In a near-cataleptic state, the moth begins to dance around the flame, repeatedly having his wings singed to the point where he loses the ability to fly. There is a lesson from the moth that needs to be learned. Bright, shiny things can bring death! Look away from the light! One would imagine that having been burnt once, or twice even, the darn thing would just flee the scene. But no. He keeps going in.

Hope Springs Eternal!

Hypnosis trumps instinct! Scammers know this. So they will build a mesmerizingly bright light into their “death traps” – it warms your spirit (gives you hope or fuels your greed?) and hypnotizes you. Just like the moth, you cannot flee; you surrender yourself to be courted.  

To different people the allure is different but it is invariably manifested in more money or prestige or by some other thing desired by the scammer’s victims – something for which you will give up all. Forget love, or sex, or drugs, this thing is much more potent! Once a scammer discovers that thing, he just needs to lie in wait.

Where Are Your Wits?

Of course, for you to realize that the game is afoot, you must keep your wits (instinct) about you. The moth loses his wings because the warmth from the candle renders him comatose, just as the investor loses his ability to analyze risk or make rational decisions immediately greed wins him over.

  1. Be Skeptical. You won’t see the red flags if you’re not looking for them.
  2. Market Savvy: You wouldn’t know what is unbelievable or unreasonable if you don’t know what is believable or reasonable. If something about what is being sold to you sounds unbelievable/ too-good-to-be-true (that light that’s about to clip your wings dear moth), test it, understand how it works, research, get professional help…do all you can to get to the truth before you jump in headlong and straight into the concrete.
  3. Do the math. Does it add up?
  4. Are you under pressure to sign up? You may want to step back and have another look.

In any market, investment opportunities that turn exceptional returns are classified “high-risk, high-return” ventures. The prospect of investing in such an opportunity should be met with a clear effort at analyzing and understanding risk, developing mitigation strategies and exit plans.

Property Scams: The Red Flags

Scammers will always incentivize their prospects with a variety of “good things”. Enticements may be couched in something that is seemingly free, or as a shortcut to achieving something desired –a panacea for all your troubles and ills. So what are the red flags?

#1. Shortcuts To Get You There Faster

You will be remiss to believe that investment processes can be circumvented. Perhaps there may be some more efficient ways to achieve tasks or goals but the process must be followed. Scammers use the promise of getting you there faster to lure you in. Who doesn’t want to get anywhere faster? Even better, who doesn’t want to get there faster than everyone else?

#2. So Easy To Do

Faced with a daunting task, we are inherently wired to take the lazy route and so the easiest way to get anyone to sign up for anything is to sell it as easy-to-do, easy-to-sign-up, no-work-required-on-your-part. Scammers know that we all want to get away with something for nothing if we can and they will use this against you!

#3. Secrets of the Rich & Famous

Ever seen the videos that offer to whisper the secrets of the rich and famous directly into your ear? The easiest way for a scammer to sear themselves into your heart and mind is to offer something highly desired but seemingly elusive. Most people won’t see through the promise except their belief in it.

#4. Get a Free Ride Here

If someone promised you a product that would deliver your dream of home ownership at zero-interest finance cost, in market conditions of a growing housing deficit and where the traditional lenders financing the same product at 15% were servicing fewer than 25000 customers, would you buy the product? There’s clearly an appeal (as pleasant perhaps as the warmth of an open flame to the moth) but does the product come across as tenable or even believable? This scam was pulled off successfully in our market fewer than two years ago. Even though there was no frame of reference to evaluate the opportunity, many of the victims were more willing to believe in the opportunity rather than in the incredulity of it.

#5. High-Pressure Sales Tactics

After a free lunch, you are more amenable to hear what your benefactor has to say. A quick, flashy presentation and thereafter all the stops are pulled out to get you to sign-up. Amazing offers (just for today). You will be cajoled, courted, prodded and every imaginable trick used to get you to sign on the dotted line. Representatives will be sent to smooth things over with you. Need a payment plan, there is one! The reason the property scam artists don’t want you mulling too long over the snake-oil they are peddling is that they know the voice of reason may prevail when you’re left to your thoughts.

#6. It’s All In-House

One clear sign that you’re about to swim down the river without a life-jacket is the promise that everything you need is under one roof. The allure is obviously the convenience that seems to come with the product you’re buying. For property scams, this may take the form of the scammer having in-house professionals rolled into the framework of the scam to include say property developers, legal and even financial experts. Because of the interests of the scammer and those of their pawns are at conflict, these experts are just a ruse. There is an unholy alliance here, one which will only rear its ugly head when the truth begins to out.

#7. We Do It, Even When We Don’t Do It

You need to ascertain the true nature of the business of anyone selling you a product in the property market. What would qualify a property seller, for instance, to guarantee you a return on an agribusiness venture? If you paused to think about it, none at all! You may realize that the property seller who includes greenhouses and the prospect of a return on the associated agri-business venture connected to the offer for land he is selling you, has just crafted an ingenious gimmick to move the property he is selling and has already priced the cost of the greenhouses into the cost of his product. This scam is still practiced in our market even today. But don’t take my word for it. Look for those who bought into these schemes and let them tell you their experiences.

#8. The Hysteria of the Masses:

Once a critical mass of people believes a scammer’s lie, it starts to breed as if by binary fission, like a single-celled creature infecting the market with its insidiousness. Think about this: If five people within your circle start to talk about five people within their respective circles doing something “life-changing” that’s trendy or new and has been presented as an amazing opportunity, aren’t you going to sit up and listen? The very human fear of missing out spurs interest so that soon enough, you’ll be the sixth person speaking to six other people who will do the same thing and before long the body of victims starts to pile on organically. The lie takes on a life of its own becoming an uncontrollable beast and sucking in more and more victims until the moment of truth arrives!

Property Scams: The Scammers Toolkit

#1. What Scammers Look Like

Property scam artists possess many intuitive qualities that situate them perfectly to exploit human capacity for greed. They are excellent at rapport-building and can make even strangers feel familiar and accepted. They are consummate actors, masters of detail, attentive listeners and often the most meticulous, well-researched individuals in the room. They endear themselves through an unrivaled understanding of the dreams and aspirations of their pawns, by displaying intense sensitivity and camaraderie. They can think on their feet, refining their plans on a whim all while building an aura of superiority and authority to consolidate the trust placed in them. They are well articulated, and both highly persuasive and deceptive in equal measure and apply any means necessary to propel their agenda.

# 2. Weaponizing Trust, Desperation, Greed and Ignorance

Property scam artists have the ability to weaponize human nature in furtherance of their goals. The right combination of trust, desperation, greed, ignorance and the fear of missing out is their hunting grounds because when we want to believe something to be true, we become susceptible to the suggestion that it can be. The desire to keep up with or outpace others in the race of life compounds the fear of missing out. The key to this recipe, however, is human capacity for greed!

#3. All Human Beings Are Good and Kind

We want to believe in the goodness and kindness of others because we may see ourselves that way and because doing good feels good. We falsely believe we can somehow spot malevolence and connivance in others.  These pseudo-beliefs build the scene for scammers to build our confidence. These beliefs are so strong that even presented with evidence or facts to the contrary, most victims’ default position will usually be that all is well.  We refuse to see what we don’t want to see, especially when it doesn’t fit well with the picture we’ve constructed in our minds. The rational thing we would ordinarily do before committing resources to investments is to objectively evaluate them and any alternative options. Blind trust and/or ignorance, greed and our desperation to believe in outrageous possibilities that a scammer may be peddling, even when questionable, often outstrip rational behaviour or response. So we abandon all investigation or the critical analysis that would help us see through the scammer’s deceit.

#4. Everyone is Fair Game

A scammer, well-versed in their “craft” understands that victims are easily found among individuals who have recently undergone some sort of profound change or experience. People who are vulnerable to scams are not necessarily desperate or ignorant (usually just greedy or well-meaning). Profound change can create instability whether positive or negative.  Hypothetically, an individual who just won millions in a lottery is just as susceptible (if not more) to being scammed as an individual who just lost his job. Both events, one seemingly positive and the other negative, create susceptibility that can be exploited.

Conclusion

Identifying scams isn’t a clear-cut task. But with a clearer idea of how they are presented, how property scam artists work, and importantly, the elements of human nature that make victims most susceptible to getting conned, you have the tools to avoid them. The heart may want what it wants and perhaps that’s why we have heads. Now you know. Don’t let them steal your dreams.

Vacant Land in Kenya: What You Should Know Before Buying

by | Sep 25, 2018 | Buying, Selling, Leasing & Rentals, Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

  • Why Vacant Land Remains a Popular Investment in Kenya

  • Understanding the Value Proposition of Vacant Land

  • The Role of Vacant Land in Wealth Creation Strategies

  • Investing in Vacant Land for Cashflow vs Capital Gains

  • New Investment Frontiers for Vacant Land in Kenya

  • Using Data to Guide Vacant Land Investment Decisions

  • Final Thoughts on Land Banking and Vacant Land Strategy

Understanding the Popularity of Vacant Land

Vacant land is more than just an empty plot—it is one of Kenya’s most popular property investment options. Beyond its traditional agricultural use, vacant land has emerged as a strategic asset for residential and commercial development.

In terms of market performance, vacant land consistently outpaces other real estate products, particularly due to its mass appeal and affordability.

SACCOs, Chamas, and pension schemes dominate the vacant land acquisition and sales market, often targeting employees and first-time investors.

Their bulk purchasing and subdivision strategies make vacant land accessible across economic classes.

But just why are vacant land sales so popular? Here are some reasons:

Divisibility and Affordability of Vacant Land

One major reason for the appeal of vacant land is its divisibility and affordability. Land selling companies often buy large parcels, subdivide them, and offer smaller, more affordable plots to the open market. From KES 20,000 to over KES 200 million, there’s an opportunity available for nearly every budget.

Cultural, Historical Significance and Social Pressure

Vacant land is culturally celebrated. From early adulthood, Kenyans are advised to acquire a plot, marking it as a rite of passage into maturity and financial responsibility. Social circles often equate land ownership with progress, and many feel pressure to join the ranks of landowners to gain respect and status.

Buying Property in Kenya: Transfer, Registration Process – PART 1

Why Vacant Land Appeals to Different Types of Investors

The Capital Gains Seeker

A major draw of vacant land is the potential for capital gains. With no need for post-acquisition improvement, investors simply buy and wait for the value to increase. Due to population growth and expanding settlements, this strategy often delivers solid returns.

The Cash Flow Investor

Some investors pursue cash flows by using vacant land for income-generating activities. Depending on location and size, options may include:

  • Agricultural ventures
  • Leasing for commercial use
  • Joint ventures for development
  • Multi-unit housing projects

The Saver-as-Investor Profile

Many investors buy into the opportunity not for development or cash flow, but to “store” their money. They may plan to develop it later or simply enjoy watching their asset appreciate. While not the most productive use, this passive strategy remains common.

Investing in Vacant Land: Key Considerations

Establishing Investment Objectives

Before acquiring vacant land, investors must clarify their goals. Is it for appreciation, cash flow, or a future personal project? Without defined objectives, buying land can become a misguided allocation of resources.

The Risk of Illiquidity

It is an illiquid asset. It can be challenging to resell quickly, especially in soft markets. Investors should assess how long they can wait before liquidating their assets and whether those assets fit within their broader financial strategy.

Without a clear underlying investment objective, the amassing of vacant land acquisitions can be misguided and may not be the best application of resources simply because land is an illiquid asset.

New Frontiers: Emerging Opportunities in Vacant Land

Factors Driving Land Value Growth

Kenya’s vacant land market is driven crucially by three key factors:

  • Population growth
  • Infrastructure development
  • Expansion of human settlements

Areas once considered rural are now hotspots for capital gains and settlement due to road expansions, new transport corridors, and devolution of government functions to the counties, alongside expanded infrastructure projects.

Using Data to Make Informed Decisions

To spot opportunities, investors should study historical performance, government development plans, and demographic trends. Resources like:

…offer invaluable insights into where land values may rise next.

Nairobi and Surrounding Counties: A Case in Point

Projects like the Nairobi Metropolitan Services Improvement Project and the Nairobi Integrated Urban Development Master Plan (NIUPLAN) will greatly influence the value of vacant land around Nairobi. These projects include:

  • Transport upgrades (urban roads, railway, airports)
  • Water and sanitation improvements
  • Solid waste management infrastructure

The County Government of Nairobi has since created the Nairobi City County Integrated Development Plan for 2023 -2027, which documents the development plans for Nairobi County of the five year period covered by the plan.

This County Development Plan shows the different development priority areas for a variety of infrastructure within the city and its surroundings in the areas of urban transport, energy, water supply, sewerage, telecommunication and solid waste management.

All these developments will impact the real estate market within the county and its environs.

In addition to these projects, there are massive undertakings at both the national and county levels, which are bound to create investment opportunities in the real estate market, both in the short and long term. The Affordable Housing Program, for example, while exclusively a government project, will expand housing, creating new commercial opportunities.

The expanded mandates for devolved government units at county level complemented by the rapid expansion of road networks, the adoption of new mass commuter transport systems and the ongoing development of new national transport corridors including LAPSSET, as well as other infrastructure projects all over the country will profoundly shape the country’s real estate market over the next few years.

Beyond Speculation: Smarter Approaches to Vacant Land

Avoiding the Land Banking Trap

While land banking can yield high returns, it’s often speculative and relies on the behaviour of other investors. The risk is amplified when the investor lacks direct control or legal ownership. Investing directly in vacant land provides greater autonomy and clearer legal safeguards.

Creating, Not Just Consuming, Opportunities

Instead of merely subscribing to land-banking schemes, investors should explore becoming vendors or initiating their own subdivision projects. This proactive approach can yield better returns and control over the investment outcome.

Final Thoughts on Vacant Land Investment in Kenya

The acquisition of small-holder plots will continue to be an attractive proposition in Kenya’s real estate market into the foreseeable future. In particular, selling plots to be acquired for “speculative investments” will not lose its appeal any time soon.

You can optimise investments of this nature if you are guided by clear goals, sound data, and an awareness of the market and the risks therein. This will allow you to tap into the potential of vacant land acquisitions to generate capital gains or even immediate cash flow. How you invest in vacant land will determine your ability to unlock this powerful wealth-building tool.

Bargain-Hunting FT 4: Investing in Distressed, Bank-Owned Property

by | Sep 5, 2018 | Bargain-Hunting Series, Property Market Advisory Series, Real Estate Market Intelligence | 0 comments

Investing in Distressed, Bank-Owned Property is a real estate investment strategy that can yield high returns. It is most ideal for capital growth (buying low and selling high) but can also be applied for income and equity growth strategies.

Repossession and Auction of Properties

When mortgage-borrowers default on their responsibility to make their monthly mortgage payments, the credit officers at the bank will attempt to seek advice from them. Eventually, if the default persists without remedy, the bank will follow due process to recover the balance on the defaulted loan. This process culminates in the repossession and auction of the property.

A mortgage-borrower may take legal steps through court orders and injunctions to prevent the process from proceeding if they can show cause or make good on the loan balance. However, once the process has been cleared by the court, the bank can take measures to repossess and dispose of the property to the highest bidder at public auction. Distressed Bank-Owned Property will be valued and a foreclosure value assigned. At public auction, the bank may indicate a reserve price, usually the bare minimum at which the bank is willing to dispose of the property.

Profiting From Distressed, Bank-Owned Property Sales

A simple example would be negotiating to acquire a property valued at KES 5M for say KES 3.5M and then disposing of it in the open market for say KES 4.8M or as close to its open market value as possible. The transaction above, after costs, can yield a net profit of KES 1M. Depending on the condition of the property, and if the investor is merely looking to make immediate capital gains on the property, he can even commence the sale of the property as quickly as is legally possible.

In both instances, the circumstances driving the sale is the pressure to meet with the financial obligations arising out of default on mortgage payments. The main distinction is that distressed sales are triggered by the borrower while the latter is triggered by the financier (bank). Both represent an opportunity for real estate investors to make massive profits.

Distressed Bank-Owned Property: Where is the bargain?

Properties that have come under the hammer are usually sold either at public auction or sale by private treaty. Lenders prefer public auction because they are deemed to be the faster route to disposing of property as opposed to open market sales.

Rather than getting involved in managing property – which is not their core business – mortgage financiers are inclined to offer substantial markdowns just to offload them from their books. This is what makes them great bargains. In addition, except in a sale by private treaty, the lender is not obligated to secure any of the defaulter’s interest in the property. This means that the price may be significantly lower than the market value of the property.  Defaulters ultimately lose their entire investment since there is no legal requirement on the lenders to recover any amounts from the sale of a collateralized property above the outstanding loan.

The best bargains rarely make it to public auction. These are usually referred to as short sales or sale by private treaty. On the initiative of either the property owner or the lender, when the borrower falls behind on their mortgage payments and the lender has commenced legal action to recover the property, the property may be sold. These properties are much more profitable because both the lender and the property owner are highly motivated to sell rather than bother with the cost, hustle or, risk necessitated by public auction.

Short sales are usually win-win for both the lender and borrower, which means both parties are looking to mitigate their losses and are willing to accept less than the full balance owed on the existing mortgage. They work especially well if the property condition is bad enough to reduce the current market value below the loan balance (usually dilapidated properties). At the bare minimum, short sales can guarantee the investor potential returns of up to 15% of market value on securing distressed property. The Land Act prescribes that land or property must be sold at a reserve price when sold under public auction.

Distressed Bank-Owned Property: Rehabilitation and Restoration

It is important for any investor to understand the process that leads to the auction of real estate properties. It may take an extended period of time between default and completion of the judicial process that approves the sale of a property by public auction, especially where the process is heavily contested by the borrower. This means that by the time of sale, some properties can be collected at much deeper discounts as they may require rehabilitation. Make sure to investigate the physical state of a property on offer. Properties that are occupied tend to be better maintained and would have lower costs of restoration compared to vacant unoccupied properties which tend to be rundown.

Conclusion

Being auctioned is an ignominy – just about one of the worst experiences you could face. It is an unpleasant experience. And auctioneers are possibly some of the most loathed individuals. It comes with the territory. Auctioneers conjure up terror and the disgrace of going into unmanageable debt is unfortunate. But as sure as the sun will rise in the east, it will happen. Setting aside the emotional conflict that may arise from leveraging these situations allows seasoned investors to create an opportunity for themselves. Public auctions in many parts of the world have a much more pleasant “whiff” about them because they are associated more with the voluntary disposal of fine things – homes, art, jewellery and even charitable causes. Not so in Kenya! In the lingua franca, being auctioned is referred to as “kuchotwa”, which loosely translates to “getting scalped”.

According to reports by the Central Bank of Kenya, The outstanding value of non-performing mortgages stood at KES. 22.0 billion in December 2016 with an average mortgage loan size of KES 9.1 million. While mortgages are not the preferred form of financing the acquisition of property, the same source cites that there were 24,085 mortgage loans in the market in December 2016, a decline of 1.5% from the year before with banks being forced to rein in their loaning practices through tighter credit measures.  With the relaxation of interest capping rules, the market will inevitably see growth beyond Q3 of 2018 after the market bounces back from the slump of 2017. The volume of premium bargains available in the market is deep. This is perhaps one of the most important tools the top 1% of successful real estate investor use to fast-track their capital growth. Time to jump in!

Find more deal-hunting opportunities?

Bargain-Hunting: How Soft Markets Create Massive Investor Profits

by | Aug 31, 2018 | Bargain-Hunting Series, Property Market Advisory Series, Real Estate Market Intelligence | 0 comments

Soft markets present investors with one of the most idyllic market conditions – an opportunity to reap massive profits from a disengaged market where demand is depressed because of a multitude of sellers chasing after very few buyers.

Also referred to as the buyers market, or a depressed market, a soft market is a down-trend in the market cycle characterized by a scarcity of buyers in the market followed by a glut or oversupply of particular types of properties.

It can occur in different market segments and in particular areas (locations) in the market. These market conditions adversely affect demand leading to a massive drop in prices. Soft Markets create an opportunity for massive investor profits to those savvy enough to realize the trend and how best it can be leveraged.

Soft Markets: Understanding Market Cycles

Cycles are normal and, without exception, all markets go through both cyclic and non-cyclic patterns which collectively form a trend or a path against which their growth or decline can be measured. In an open market, cycles are determined by demand and supply trends which are in turn determined by perceptions of the market and occurrences both within and extraneous to the market.

One of the cycles in the market is a downcycle; a sustained period of low demand and trading activity within the market. Downcycles, which occasion soft markets, are rarely ever universal (affecting the entire market), but instead, occur within “pockets” of the market.

Their impact on different property segments and categories are not necessarily even across the market, so some segments and categories of properties tend to experience the downtrend more profoundly than others. A downtrend is characterized by three key indicators:

  • Depressed demand (few buyers)
  • An influx of sellers creating a glut in supply with vastly more property offers than buyers in the market are willing/able to absorb, and;
  • Falling prices.

This cycle is also referred to as a soft market, or a buyers’ market – buyers’ market because they become the dominant determinant of price in the market. It follows naturally that with depressed demand, prices will fall as sellers become antsy to dispose of their holdings with very few takers in the market.

For as long as soft markets persist, investors can profit massively out this cycle by negotiating steep discounts out of sellers desperate to close on their property offers. The conditions give buyers the “ascendency” in the market, allowing them to snap up investment properties at solid bargains that will eventually fizzle away once there is an equilibrium between demand and supply and the downcycle comes to an end.

Soft Markets Create Massive Investor Profits

In Kenya, soft markets are most common during the end/beginning of the year when the incidence of sellers making sell decisions is at its peak – usually to finance some other acquisition or to meet the financial burden of some pressing needs. However, it is the period immediately before, during and after the cycle of political contest in this country that the conditions of soft markets reverberate through the industry. The election cycle slows down the market through the uncertainty it creates by scaring away buyers from the market.

With diminished demand, motivated sellers looking to cash out quick become more readily susceptible to terms and offers as determined by the few buyers braving the market. Indeed, to see just how much of an effect the prolonged election cycle of 2017, peek into the Q3 Hass Property Land Price Index which details clearly how profoundly the prolonged electioneering period stunted the growth of prices of land in Nairobi and its environs. Land prices, which were hitherto considered immune to political risk, took a beating as sales stagnated across the market.

Pockets of downtrend cycles also occur for particular property types because of exceptional events in the market which are perceived negatively by the sellers. For example, the introduction of dumpsites in close proximity to residential areas, the influx of undesirable elements in a particular residential neighbourhood, especially upmarket areas; land rezoning into commercial use in a hitherto residential area may cause a flurry of quick exits by sellers. It is important to note that the only significant beneficiaries in such scenarios are those who get in immediately at the onset of the scramble to exit. Rezoning from residential to commercial use invariably causes prices to sky-rocket in the long run and so it is important to invest early right at the onset of the exit by residential property owners.

Just as any corporate organization entering the market would perform a SWOT analysis covering both macro and micro factors that would affect their business, any real estate bargain-hunter would/should be inclined to assess the market to determine whether or not the deals (opportunities) they find in the market are premium quality offers.

So how do you identify a soft market and leverage the best deals around?

#1. Build Market Intelligence

You must be in touch with the market. You can’t see something unless you know that it is there. There is absolutely no way to know if a deal is good if you are unfamiliar with the market. You have to know the prevailing market conditions and prices for the type of property in the specific location in which an offer has been made, that way you can compare it with the offers you’re looking at in order to make the determination that you have a bargain.

#2. Find the Seller’s Motivations

It’s just as important to know the sellers’ motivations as it is to know the market. The seller’s motivations will provide insight into circumstances necessitating the sale and therefore the seller’s willingness to enter into a bargain through negotiations over terms and price favorable to a buyer. If you are looking for a good deal, knowing that the seller is highly motivated to enter into a deal will give you an edge in the negotiation allowing you to push for the very best terms and price.

#3. Research, Seek Professional Help

To this end, you can either consult with a property valuer, your realtor, or even a property investor who is more knowledgeable than you are. You can visit online realtor platforms and websites to get comparative information and do research on property price growth trends. A bargain is only a bargain if you create equity on the acquisition at the time of acquisition. Any gains made during your ownership of the property are incidental to the acquisition and cannot be part of the bargain. Additionally, if the acquisition is not in a growing market, the long-term returns may also be diminished.

#4. Hone Your Negotiation Skills

The reason it’s called a Buyers’ Market is that buyers rule! So, drive that bargain and drive it as hard as you possibly can for the maximum advantage. It’s not enough to assume that you know well enough about the market and the sellers desire to strike a bargain. Push for the price and terms that best suit you, within reason given the opportunity and circumstances. Leave nothing on the table!

#5. Have an Exit Plan Going in

Just because you can buy it doesn’t necessarily mean you should. And just because you got a bargain doesn’t mean you should hold onto it perpetually. The savvy investor will tell you that they determine when to get out at the time they get in. An exit strategy gives you an idea of when to offload the property and will be determined by the sort of returns you are considering when entering into the acquisition. Even a good bargain has a shelf-life – don’t ruin a good thing by overstaying unnecessarily.

Find more bargain-hunting opportunities.

2020 ADDENDUM: This postscript was added during the Covid 19 pandemic in 2020.

The Covid 19 pandemic has greatly eroded market activity in 2020 and it is likely that the real estate market will remain soft to mid-2025. Not all market segments have been affected but across the market, there is an endemic lethargy. What’s your outlook for 2021? We would love to hear from you in the comments section.

Bargain Hunting: 5 Keys to Find Great Property Deals

by | Aug 27, 2018 | Bargain-Hunting Series, Property Market Advisory Series, Real Estate Market Intelligence | 0 comments

Property is ubiquitous and the Keys to Find Great Property Deals are available to any committed property investor disciplined enough to set off after their goals unwaveringly. If you are at that point in life where it has dawned on you that your current financial resources may not be sufficient to keep up with the lifestyle you desire or to meet the growing financial needs of your family, then this is for you. And if you are simply looking to increase your income and work towards financial independence gradually, then read on.

Keys to Find Great Property Deals: Everyone Loves A Bargain

At least all investors do, and they realize that bargains equate to profits, plain and simple. The most prolific bargain-hunters are capable of fashioning some sort of a win out of calamities, whether theirs or those of others. In this series, we explore how seasoned real estate investors seek out bargains to grow their wealth through bare-knuckled, unabashed opportunism –  taking a regimented approach to achieving their goals.

Keys to Find Great Property Deals: The Story of The Vulture and The Hyena

In African anthology, certain animals are disparaged and vilified for their opportunistic nature. So to be compared to, say the Hyena, or the Vulture, is most disagreeable. Scavengers are tenacious and in the natural world, they possess some of the most unique and amazing qualities. They have guts, literally, comparable to none others in the animal kingdom. Hyenas organize socially in matriarchal societies and have the strongest jaws of any animal on the planet. Like vultures, they have an acute sense of smell. Vultures have eyesight only comparable to that of their higher-flying ornithological compatriot, the eagle.

Becoming a great real estate investor is in part a study of the amazing qualities these creatures possess. Much like the hyena and vulture, the success of bargain-hunters is achieved through tenacious effort, knowing where to rummage for opportunities and learning how to sniff them out. Their overall success is not built on overwhelming strength or dominance of the food chain, but rather on their opportunism, vision, and tenacity. Much as how these creatures are able to pick up the scent of a fresh kill miles away, real estate investors learn to hone-in on investment opportunities. Bargain-hunting, tenacity, and opportunism are synonymous, there can’t be one without the other.

Whether you are looking at meeting additional financial demands for the educational requirements of your children, or you are considering the resources you will require for your retirement or whether you simply want to have additional cash to spend on your lifestyle, learning how to invest will be critical. Real estate is a great avenue to pursue these goals.

Keys to Find Great Property Deals: What are your Objectives?

The goal of any investment strategy is profit. Setting out clear objectives of what you want to achieve gives your investment clarity and purpose. Your objectives will then determine the market segments you will be focused on. For each objective, you will be looking at properties in different market segments best suited to achieving the objective.

For long-term capital growth, for example, you may consider vacant land in a rapidly developing area that can provide capital gains (appreciation) within a reasonable period of time. While for income, you may consider rental property. Success will lie in aligning your acquisitions with your goals – the right property for the specific purpose

5 Keys to Find Great Property Deals

The intrinsic properties of real estate make it one of the best investment tools for wealth creation available in any investors toolkit.

Here are 5 tips on how you can find an investment property.

#1. Find the Motivated Seller

In the world of real estate, profit is made at the point of purchase and not the point of sale. Otherwise, as the investor, you will be obligated to hold the profit for an inordinately long period of time before you can cash out. The motivated seller represents the single best opportunity to strike a big bargain. When the seller is motivated, half the task of negotiating a great deal is already accomplished.

Wherever you see the phrase ‘quick sale’ or ‘distressed property’ right there is your motivated seller! This individual is hard-pressed for liquid resources (i.e. cash) to finance some other priority which itself has been triggered by the occurrence of some unprecedented/unexpected or unplanned event or circumstance.

  • Unplanned events: An individual may accrue additional financial costs associated with the relocation of family out of the country for reasons of employment or to meet the cost of additional financial burdens associated with, hospitalization or educational requirements for a family member and so on. This, in turn, may necessitate the disposal of assets within the shortest possible time to raise the funds to make this possible.

  • Calamity: this includes the loss of income, hospitalization and even loss of life. For instance, an individual who has lost their source of income is highly motivated to make a quick sale of a mortgaged property at a time of sharply spiking interest rates.

  • Sometimes, quick sales are driven by a combination of events; individual circumstances unique to a seller which are then aggravated by occurrences in the market. For example, an investor who purchased a property on a mortgage may want to sell the property before racking up stiff penalties and interest – and well before the auctioneers come calling – in the event that they have lost their income. A combination of events such as the loss of a job combined with a mortgaged property in a scenario of spiralling interest rates and growing family needs may necessitate the quick disposal of that property to enable the investor cope in deteriorating circumstances.

Striking a rapport with a motivated seller is a great way to establish a baseline for negotiation on price and other terms. It is equally important to establish the reasons for the sale as this will also provide you with more insight on how to negotiate the acquisition and possibly give you some more flexibility on the terms and conditions.

#2. Get Your “Ducks in a Row”

Develop and collate your sources of property information to create a list of potential properties that are aligned with your respective objectives. Your sources may include local real estate agents, online property portals, newspapers, real estate magazines, government websites, fliers, local events, your networks including investment clubs and SACCOs. Finding and identifying profitable deals takes a bit of experience so it is also strongly recommended that you drive around to actually visit the properties and to expand your information sources to include local agents who can identify motivated sellers.

Your local realtor will be able to identify investment opportunities and motivated sellers. They will be an integral source of information on comparable properties, accurate market valuations, providing you with networks to resource persons, undervalued opportunities and they will be an invaluable resource in helping achieve your objectives.

#3. Study the Market

To follow the money, you have to know where it is headed. You simply have to know where to look otherwise your search will fall short. Neighbourhoods with growing populations in close proximity to markets, trading centres, educational institutions, shopping centres, hospitals, and transportation hubs are ideal investment property locations for both income generation and capital appreciation.  In these locations, there is high demand for tenant-occupied properties and because the neighbourhood is developing, there is also increased settlement in the area which translates into higher demand for housing and therefore a faster rate of capital appreciation even for vacant land. If the location is a low-income neighbourhood, there will be a sustained high demand for rental properties because of the relatively transient nature of low-income earners translating as well into good returns on investments and relatively higher growth in rents (compared to middle-income and upmarket neighbourhoods).

Understanding the markets is also critical to an awareness of when to invest. Like all markets, the real estate market is not immune to cycles. Markets go soft for a variety of reasons. Importantly though, it places sellers at a great disadvantage because demand becomes highly depressed. In Kenya, the season of political contest invariably causes the market to go soft leading to an oversupply of particular types of properties. With so many sellers trying to cash out in a market with very few buyers, prices become depressed and great bargains abound.

#4. Leverage Your Networks

More Keys to Find Great Property Deals include leveraging your networks. In addition to your local agent, making connections with bank credit officers and other professionals closely linked to the financial services industry may offer great value in your search for investment properties.

The importance of networking cannot be overstated. To sell, you need to create and hold the trust of your buyers. So your networks become the most important asset you own because they already know you. These include professionals working within the same industry from realtors to property surveyors, tenants, contractors, lawyers, accountants, other investors like yourself, financial services practitioners and many more.

The effort to building and maintaining contact with your network will align with your success as an investor and pay off handsomely in time. The great advantage of networks is also that they give advance information on opportunities even before they hit the market allowing you to be first to market with the information.

#5. Investment Opportunities Hiding in Plain Sight

It is not always obvious to the undiscerning eye, but there are opportunities that rarely present themselves as such because they are often couched in unpleasant situations. Family disputes are a case in point. They can take many forms from family feuds to disagreements over inheritance, lawsuits and so on. In these circumstances, a property owner may seek to dispose of assets in order to re-establish themselves elsewhere or to settle the dispute at hand. Usually, individuals looking to settle disputes via the sale of assets are highly motivated to get rid of the property.

Another opportunity is dilapidated, incomplete or even unused structures. Properties may fall into disuse for a variety of reasons, for instance, age, ravages of weather, partial destruction by fire and so on. When they become rundown, such properties become opportune bargains which can be collected from the market a mere fraction of their rehabilitated value. Obviously, a seasoned investor would know to assemble a team of professionals who can provide them with costs for rehabilitation before acquiring such property. In this way, they can make a fair estimate of the actual value of the property in its current state and therefore the capital gains they stand to make should they choose to acquire such properties.

Keys to Find Great Property Deals: More Options You Can Explore

There are other approaches to finding great investment opportunities depending on the requirements of the particular investor. These take a less hands-on approach to property investment through structured financial securities such as investment clubs, fractional (commonly referred to as time-shares) and sectional properties (REITs). Off-plan property investing is also a great way to secure property bargains in the market.

Keys to Find Great Property Deals: Conclusion

  • If you fancy yourself a savvy investor, above all else, you will be looking to grow and get paid to do it. That, after all, is the game – untinged by the moral dilemma of taking advantage of the market or other peoples’ circumstances.
  • Find those perfectly scrupulous, legal and moral ways to strike bargains without distressing others or breaking any laws.
  • The places where bargains are to be found are not invisible; they’re in the marketplace and if you develop the eyes of a seasoned investor, you’ll notice them staring back at you.

Do you have any additional tips? Please share them in the comments section below!