Bargain-Hunting: 6 Keys To Buying Property Offplan

by | Aug 22, 2018 | Bargain-Hunting Series, Off-Plan Investing Series, Property Market Advisory Series, Real Estate Market Intelligence | 0 comments

For both home buyers and property investors, Buying Property Offplan is a great way to strike a bargain in the real estate market. The acquisition of a home is undoubtedly a momentous achievement for the vast majority, a pinnacle of financial success.

Buying Property Offplan is popular in Kenya, particularly with working-class families, self-employed individuals and business owners whose cashflows are not evenly spread out throughout the year. Because the Buying Property Offplan also provides investors with the opportunity for quick capital gains, it is also a preferred mode of acquisition of investment properties.

Bargain-Hunting: 6 Keys To Buying Property Offplan

It, therefore, follows that understanding off-plan property acquisitions is absolutely essential. In addition, home buyers and property investors alike need to be sufficiently knowledgeable about the market in order to make sound decisions both before and during the construction period.

Because the principal risks posed in Buying Property Offplan relate directly to the capabilities of the property developer, homebuyers and property investors should have some guidelines or criteria that help to assess property developers and determine the viability or opportunity presented by the project(s) before committing funds to the acquisition.

Buying Property Offplan: What Should a Homebuyer of Property Investor Do?

Become savvy. That’s the simplest answer. And if you couldn’t be bothered to, hire someone unbiased to do the work for you. Or, really, don’t get in unless you’re prepared for a world of hurt and crushed dreams.

  1. Get to know the property developer. Intimately.
  2. Get to understand both the benefits and risks of investing off-plan.
  3. Get to understand the process of Buying Property Off-Plan.

Buying Property Offplan: Overview of Property Development Industry in Kenya

The space of real estate development in Kenya, indeed even parts of the world, features a litany of challenges, not least of which are the many bogus and fraudulent players whose sole aim is to defraud buyers and investors alike of their hard-earned money.

Many are not suitably capable or experienced to deliver on the pledges they make, inevitably leaving in their wake disgruntled home buyers. Who can fail to recall the hundreds of millions that were swindled from prospective home buyers under the infamous tenant purchase schemes that were conjured up under the Simple Homes scam? Or the myriad schemes that overpromised on their deliverables but failed to deliver on their promises?  And without fail, new scams will continue to rear their ugly heads every so often. This trend is bound to continue unabated until more regulation and enforcement is introduced.

The systemic issues with Buying Property Offplan in the country are not new. But because they still remain largely unaddressed, home buyers and property investors should undertake their own due diligence and take sufficient precautions to protect their investments. The industry does have mechanisms for self-regulation so Buying Property Offplan is fraught with many risks. However, as I noted in a previous blog, self-initiated efforts at reining-in errant players or bringing sanity to an industry invariably start with the agenda of industrial networking and lobbying, commercialization agendas and perhaps, at best for the consumers, the introduction of industrial benchmarking. The much-touted Kenya Property Developers Association may do better in developing consumer education programs and lobbying for policy frameworks besides benchmarking in the industry. Membership is voluntary meaning that there is no universally applied gold-standard. Disciplinary action may be taken on errant members at best. However, while these measures may improve industrial compliance, there is little that the organization would be able to do in the way of enforcing compliance or indeed even dispute resolution.

#1. Establish the Property Developer’s Performance and Delivery Record

  1. Visit their website online to check the developer’s portfolio, its corporate associates, and affiliates and its history. If you can find online reviews from previous customers not necessarily published on the company’s website, they should give you some insight into its interactions
  2. Talk to any previous clients where possible
  3. Visit any current project sites to see their finished product, observing finishes, work quality and delivery of the complete project to the level of detail proposed at the time of sale.

The most important aspect to mitigating risks of Buying Property Offplan in any property development scheme is undoubtedly the property developer’s ability to deliver on their pledges. Performing a background check on the real estate developer helps you know their track record, past project performance, and delivery rate. Solicit as much information on them as possible – right from their ownership status and directorships, their legal and financial partners to all the teams of professionals that they work with be they architects, realtors, surveyors, building contractors, engineers and so on. The teams of professionals that a property developer puts together, especially for the project you are considering buying into, are critical to measuring the performance and likely outcomes of the project.

You will want to know that the property developer is financially sound as this will affect the delivery of a high-quality project on schedule without the spectre of hidden costs and unforeseen, unplanned costs. If the property developer is not forthcoming on their financial health, is non-responsive to queries on their financial reports, financial partners such as their bankers and so on, you may want to flee the scene. If they have in the past worked under a consortium or joint venture, be sure to make queries into those projects to understand how they were involved and whether they were effective business partners.

Cautionary Note: If you find that price being offered for the scheme you are buying into is significantly lower than the current market values of similar properties in the market at the time you are considering the project, you should investigate why. Dramatically low prices are indicative of possible shady business practices – hidden costs, inferior materials, non-compliance with building code, substandard workmanship. Be keen to get a sense of any information on costs that are not disclosed or overt in the contract between yourself and the property developer.

Avoid developers notorious for either under-delivering on the development pledges they make and are known for a less-than-stellar reputation in the industry. You can do this by soliciting information from their professional interactions and perhaps using your networks to get the unfettered truth from previous home buyers or property investors who’ve had experience dealing with them.

#2. Seek Guidance from Industry Professionals

If you are a home buyer, get yourself a good lawyer to help you understand the nature of contracts and the solid disclosures you will require before signing on the dotted line. On the technical issues around design, find an architect who can help you create a mental picture of just what the property will look like and speak with construction experts to determine whether the property is what you have in mind. Speak to a property valuation expert to help you make an assessment of whether you are paying fair value for the property at the point of adoption into the project so that you can determine the cost-benefit of early adoption.

Work with professionals to determine whether the project you want to buy into is sound on the fundamental aspects. Get to know both the professional and ethical reputation of the property developer and solicit reasonable information on their background and history. While it is preferable to work with an established, well-known property developer, developers who have steadily come up the ranks taking on progressively larger or more prestigious projects but who may not have as wide a portfolio as the more established ones are well worth considering too. Investigate the financial health of the property developer to determine whether you would even want to consider doing business with them otherwise, you may commit and then lose your money.

#3. Get Your Research Right

Glean as much possible information as you can from any public and/or private sources you may have – it will amaze you just how much you can learn even within the public domain! Whereas property investors are more likely to solicit information that will point towards the potential capital gains, yields or property rentals in the area, the accrual of property ownership rights and so on, home buyers, on the other hand, are likely to be keener on the aesthetic details of the specific property (number of bedrooms, style of construction, property layout, property finishing and so on), and the lifestyle features packaged into the off-plan scheme. Property investors will be more interested in the intrinsic qualities of the development’s location (which will determine the market’s appetite for property in the development), the developments around the project (especially infrastructure and institutional developments) that add value to the project and any ongoing trends around the project (population, settlements, etc) and other upcoming features around the project. Whichever the case, you need to be fully aware of the implications of the transaction with the property developer. Demand any and all relevant information on the property.

#4. Understand the Process of Acquiring Property Off-Plan

Before Buying Property Offplan, you should satisfy yourself with all the elements of the off-plan scheme. If you are comfortable and feel that the benefits outweigh the risks and have made the decision to proceed, you would then contact the property developer and request to be provided with a reservation document in which you would indicate the specific unit you are interested in acquiring along with any other information relevant to the acquisition.

The reservation document will likely contain layout and plans for the property from which you can reserve a property. Upon returning the reservation form, the company will then send you a letter of offer.

It is advisable to engage legal counsel to read through the offer before Buying Property Offplan. The letter of offer will usually be prepared by the prospective subscriber’s lawyers with standard clauses substantiating the interest in acquiring the property, notably the price is accepted by the prospective subscriber.

The letter of offer may also take the form of a standard document sent out by the developer to any prospective subscriber and as such it will include the standard terms and conditions under which the offer is made.

The prospective subscriber can at this point decline the offer, or even negotiate and enter into discussion on varied terms as may be agreed to with the property developer. Thereafter, upon returning a signed copy of the letter of offer, the developer will then send to the lawyer of the prospective subscriber, a Sale Agreement under the terms and conditions as stipulated and agreed upon in the letter of offer.

#5. Perform Project Due Diligence

Prospective subscribers need to establish and secure full disclosure of the facts around the project before Buying Property Offplan. This includes physical verification of the site through site visits both prior to any agreement to invest in property within the development as well as throughout the development period. This will keep the home buyer/ investor updated on the status of the project on a regular basis. Keeping tabs on the project is very important because any significant problems are not likely to be reported by the property developer. As a buyer, you want to be able to track the development and exercise of your rights in a timely manner.  Additionally, the prospective subscriber should establish the following facts:

  1. Does the property developer have proper title to the property? It would be important to take note especially, of any charges, liens or encumbrances and whether these were disclosed early. Any follow-up questions arising should also be adequately addressed by the property developer
  2. Comparable Properties: These will help you determine whether you are overpaying for the project and therefore also whether there would be more attractive offerings in the market.
  3. Are the development plans approved? Prospective subscribers should only invest in the project off-plan if all approvals have been passed, including change of user approvals where necessary
  4. Who are the key partners on the project? Their capacities and capabilities should be looked into beforehand to assess whether they can deliver as promised.
  5. What is the property developer’s channel of communication? Who are the key personnel responsible for disseminating information to subscribers? Is there a scheduled, regular plan for updating subscribers about the progress on the development? If this is not planned for right at the outset, there is a strong likelihood that the property developer will not be transparent or accountable during the term of construction
  6. Are project timelines being maintained? Without the pressure to keep up with deliverables as and when they are disclosed to fall due, the project will inevitably fall behind schedule. Keep the property developer accountable!

#6. Make Contingency Plans

If you buy into an off-plan property with a timeline in mind and a delay occurs, you may have a significant problem on your hands because it may require that you finance the potential outcomes of such a delay.

As a home buyer for example, if you were expecting to move from a rented space to your own home purchased off-plan, a delay may require that you continue renting a living space and suffer the inconvenience of paying for a cost that would otherwise have been catered for. As a property investor, for example, if you intended to dispose the property upon its completion and had financed the acquisition(s) with investors’ funds, you may have to renegotiate for time or pay a premium on the capital which may significantly diminish or even wipe out your capital gains.

Even with the best-laid plans and armed with all the possible information you could gather, things may still go awry. Put in place contingency plans that would cover at least six months between which such additional costs may arise owing to delays on the developer’s part.  In addition, you can also counter the losses or inconvenience arising from delays by insisting on clauses that would mitigate their occurrence, for example, clauses that impose special terms or conditions (such as penalties) on the property developer when delays occur.

Conclusion

  • Buyers and property investors should understand that property developers in our market are really in it for what they can make out of it.
  • An investor mindset is critical.
  • Do the work.
  • Watch out for dramatic offers that seem unrealistic based on market conditions.
  • Ask yourself the hard questions and attempt to place yourself in the property developer’s shoes as they pitch to you so that you can see beyond the trappings that may be set before you.
  • Be wary of property developers who have mixed financing models for their different projects; especially where they apply short-term financing models for long-term projects.
  • Get to know and understand the commercial interests around the project and how they interact and would likely affect your investment before you buy into any project!

The market will continue to have unprofessional, unethical practitioners. However, there are still good apples even among the bad! Press forward and don’t let the potential for failure deter you from seeking your fortunes or dreams. Exercise prudent, thoughtful action and remember, fortune favours the bold!

The Risks and Benefits to Buying Property Off-Plan

by | Aug 15, 2018 | Off-Plan Investing Series, Property Market Advisory Series, Real Estate Market Intelligence | 0 comments

Buying Property Off-Plan allows home buyers and property investors to acquire property before the development is commenced. The property developer might be able to demonstrate access to vacant land on which the property will be built and has proposed architectural plans for the development. In addition, the property developer may also have approved development plans and built partnerships (consortium) towards executing the property development. The project is moot at the time the off-plan scheme is created – merely a conceptual or theoretical plan.

Risks and Benefits to Buying Property Off-Plan

In effect, subscribers to these schemes become the original or initial financiers of a project that needs to demonstrate its “bankability” in order for it to take off.

Depending on the size of the project and the capacity of the property developer, the initial off-plan sales allow the developer to demonstrate sufficient appetite (viability) for further open market sales and also demonstrate the bankability of the project. This, in turn, allows the developer to source any additional financing requirements to execute the project.

In the vast majority of instances, the full disclosure of all commercial interests in the project, or their actual nature, are rarely disclosed to prospective buyers. And therein lies one of the issues ailing the market for off-plan housing in Kenya.

Buying Property Off-Plan: Profitability is Key

Of course, while much of the off-plan scheme will have been developed with the market in mind, the other obvious determinant in developing the off-plan scheme will be its profitability to the developer. Developers are, after all, in the real estate business for the profits they can generate from the business and maximize the wealth of their shareholders/owners.

The uptake of the scheme will be determined by how well the developer has thought through it from conceptualization to implementation; and ultimately, how healthy the appetite is for the scheme proposed. To spur interest in their offering, developers will naturally engage in an intense marketing effort to sell the property, especially because the property is nonexistent and any potential subscribers to the scheme will likely have to be wooed without any physical, visual structures in place. This is where the plot is either won or lost.

Buying Property Off-Plan: Why Buy Into Something That Doesn’t Exist?

For the most part, because it meets a need or expectation that you have and ultimately because you believe (or are convinced?) that once it comes into existence, that need or expectation shall be met. The savviest of property developers will be able to titillate you into visualizing the experience of meeting that need or expectation. They will know just what to say to entice you into buying in and they achieve this through powerful visuals and a package of benefits you may find irresistible including:

  • Concessional prices for early adopters: The key benefit to buying off-plan property is the presumably low price. I say presumably because it is arguable considering that the developer offers lower-than-average prices based on current market values and not necessarily on the total cost of construction with a markup (the two values may be as distinct as chalk and cheese!). Nonetheless, it’s still a deal! At the offer price, a buyer can potentially shave off up to 35% off the value of a property when construction is complete. The savvy investor uses this concession in price along with a combination of other investment strategies to make massive profits on off-plan schemes, making them one of the most lucrative investment tools for real estate investors.
  • Myriad delightful features of the development: To attract especially home buyers, off-plan developments  come packaged with lifestyle goodies include sports, entertainment, shopping, health and fitness facilities  (gyms, swimming pools, clubhouses and so on), additional (non-standard) security features, special memberships and as many more as the developers creativity can accommodate.
  • Customized Touches: As a buyer/investor under an off-plan scheme, the developer will provide the option of small customized finishes, nuanced touches that will give homeowners an added layer of pride in owning the property. Because structural and design changes may have a significant bearing on the cost of construction, developers usually include this as a time-limited offer.
  • Attractive, flexible terms and payment plans including an early right to ownership privileges which real estate investors can apply to make profits from the off-plan schemes even before the development is completed.
  • A host of other generous inclusions including exclusive club memberships as well as discounted travel, home insurance, furnishing offers and so on.

Buying Property Off-Plan: Benefits of  Off-Plan Schemes.

Additionally, property investors who get in early are able to negotiate higher discounts, particularly where they are able to leverage the terms of the off-plan scheme so that they are able to reserve several units with deposits that are just sufficient to tide them over into the rights of ownership.

At the time of the launch when developers are seeking early adopters, the savvy investor can also negotiate for the right to sell the property at any time during construction having paid just the agreed deposit or some other agreed percentage of the price. This allows the cash-rich, savvy investor to strategically position themselves in the development and to clear strong capital gains even before the project is completed as the prices of unsold inventory keep going up.

For individuals who are self-employed or are business owners, buying off-plan makes financial sense because it allows for a “finance-free” option to beat mortgage lenders in the acquisition of the property. It allows this cadre of individuals the opportunity to acquire property by paying a deposit out of their savings and gradually pay off the balance through periodic lump sums.

Buying Property Off-Plan: Risks Associated With Off-Plan Schemes

Any astute property investor will tell you that, done right, buying property off-plan is a great investment strategy that can yield very high returns. They will also tell you that any investment that offers high returns also carries with it significant risk and as such should be well-analyzed before being entered into. Risks may be attributable to the property developer, market occurrences or even fundamental internal risks with the scheme itself. For both home buyers and property investors, the most common of these are:

  • Project delivery delays. A good way to mitigate this risk is to check with the property developer whether they have any financing options in place prior to commencing the project.
  • The delivered property falls below expectations. Usually as a result of structural defects or failures and invariably as a result of non-compliance with building codes or, simply, that they do not meet with the preferences and tastes of the buyer.
  • Complete failure of the project due to reasons outside of the control of the property developer, usually legal, political, environmental reasons.

For property investors, purchasing off-plan in a market with a high saturation of specific types of properties, especially commercial spaces, there will be exposure to significant market risks as the property may not be suited to the market and this may, in turn, lower returns on investments.

Arguably, in Kenya today, for instance, there are a high number of new office spaces that experience low occupancy rates owing to the unsustainable rental charges they command. This is uncommon where indicative property surveys have been properly conducted prior to the conception of the off-plan scheme and also because property values generally tend to increase even before the completion of the project.

Buying Property Off-Plan: Disclosure, Understanding Off-Plan Property Acquisition

Savvy property developers not only understand their proposition keenly but will also have a very intimate understanding of the market and of their potential subscribers. Often, they will limit disclosure while simultaneously embellishing their offering. Based entirely on the nature of the questions posed by prospective subscribers, a property developer can easily determine the elements of the project to underplay and those to sensationalize in order to elicit a sale.

They will understand how to navigate the conversations with prospective subscribers and will have anticipated questions from home buyers and investors well in advance as well as their responses. They will be able to distinguish between enquiries by prospective home buyers and those by property investors, and therefore how to manage each prospect with the aim of making a sale.

Knowing what you want to hear is great. Knowing what you need to hear may be even more important. By asking the relevant questions, demanding written disclosure and most importantly taking the time to understand off-plan acquisitions, home buyers and property investors can make informed decisions and determine if the off-plan scheme is a good fit for them. Possession of full and accurate information enhances the experience for both parties and ensures that both the developer and the buyer/investor are satisfied with the transaction.

Get The Six Keys To Buying Property Off-Plan

Buying Property Off-Plan: Get Advice to Manage Risk

Whether you are a home buyer or a prospective investor who cannot seem to arrive at a fair assessment of the off-plan scheme under consideration, it would be sound advice to always solicit the assistance of independent professionals to guide your decision making and screen out any potential false marketing.

Property developers will often create a rosy, blissful picture to obfuscate any shortcomings in their off-plan schemes in order to get your buy-in. Consider your decision outside of the emotional high that owning your dream would give you and instead focus on getting satisfactory answers to the hard questions.

Get all the information you require to make clear, incisive decisions. Often that information won’t necessarily be in plain sight. Or in plain language either. Hence the term “fine print”. Don’t be fooled though, it’s often a deliberate ploy. Get knowledgeable about the property development industry to understand the strategies they use to sell to you so that you can separate the wheat from the chaff and strike a good deal for yourself.

Buying Property Off-Plan: Conclusion

  • Off-plan schemes are a great way to acquire property. Only if they are executed well.
  • Developers are in the real estate business to make a profit. If in the process they offer you some convenience or financial benefit, understand that it is still motivated by the developer’s goal – to make a profit.
  • As a rule, if you plan to put down money into a real estate purchase, exercise diligence unwaveringly.
  • If you opt to acquire property through an off-plan scheme, understand that you are financing the development of property at zero cost to the property developer. This is why he will love you. In spite of the fact that you are not a bank to levy high fees and onerous conditions, you should drive as hard a bargain as you can and negotiate your way to the best deal possible on the acquisition.
  • Take your emotion out of the decision! We all love a bargain but look before you leap. Or at least get help to figure it out!
  • Aggressively Research the Market, get to know the developer intimately and understand the potential risks of the decision you need to make.
  • Read the Fine Print: Inform yourself on all the finer details of the off-plan scheme, in particular on your rights in the eventuality that project risks mature. This is particularly important when the project experiences failure.
  • Seek the assistance of professionals and people in your networks, who have had prior experience with off-plan schemes and, even better, with the developer you intend to work with, should be solicited. Nobody has absolute or perfect knowledge of all market conditions. But experts can help you make informed decisions, or steer you away from really bad ones!

Why Off‑Plan Schemes Still Reign Supreme in Kenya’s Property Market

by | Aug 8, 2018 | Off-Plan Investing Series, Property Market Advisory Series, Real Estate Market Intelligence | 0 comments

  • Understanding Off-Plan Schemes: A Path to Homeownership

  • Why Off-Plan Schemes Are Popular with Property Developers

  • A Deeper Look: Do Buyers Truly Benefit from Off-Plan Schemes?

  • The Appeal of Off-Plan Schemes for Homebuyers and Investors

  • My Take: Why the Risks of Off-Plan Schemes Often Outweigh the Benefits for Retail Buyers

  • Unpopular Opinion: Off-Plan Schemes? Go with the Chinese

  • Navigating the Risks: What Buyers Should Know

  • Final Thoughts: Can Off-Plan Schemes Still Be Trusted?

Off-plan Schemes: A Developer’s Favourite Tune

Off-plan schemes are to property developers what music is to the soul! If you put any number of developers in a room to discuss off-plan real estate schemes, the consensus will be that they are the next best thing to sliced bread. And homebuyers and property investors are bound to concur.

Understanding Off-plan Schemes

Off-plan schemes are typically arrangements in which a property buyer or investor contracts a developer for the acquisition of a property that has yet to be constructed.

The buyer begins payment before and during construction, with the expectation that by the time construction is completed, the full purchase price will have been settled.

These schemes are often used for residential or commercial developments—estates, gated communities, or apartment blocks—where the properties are sold in phases.

Early adopters are rewarded with lower prices than later buyers, essentially receiving a discount for taking on the perceived higher risk of investing in a conceptual project.

The Risks and Benefits to Buying Property Off-Plan

Why Developers Love Off-plan Schemes

For developers, off-plan schemes are more than just a financing method—they’re a strategic play. They enable developers to demonstrate market interest to financiers and use buyer deposits to prove the project’s viability.

With enough buyers on board early, the project becomes “bankable.”

Executed well, an off-plan acquisition can yield immediate equity for the buyer on handover, higher than if the buyer had purchased at completion. But the success hinges entirely on the developer’s ability to deliver both quality and timeliness.

The Hidden Risks in Off-plan Schemes

While the upside appears enticing, buyers need to understand that off-plan schemes are essentially just unregulated financial tools that give developers access to cost-free, risk-free capital.

  • Unregulated: Developers aren’t required to float conventional financial instruments or comply with oversight that other capital-raising sectors are required to meet.

  • Cost-free: Deposits made by buyers are interest-free and the “discounts” are defined by the developer—not the market. When the project experiences an overrun on delivery, for example, the homebuyer will still have to finance their accommodation elsewhere.

  • Risk-free (to the developer): All financial risk rests with the buyer or lender, giving developers maximum upside with minimal exposure.

While developers argue that buyers earn their reward through discounts and equity, it is more accurate to say that the buyer is rewarded by the market, not the developer. The market acknowledges the buyer’s risk with capital gains, not the developer’s goodwill.

So, Why are Off-plan Schemes so Popular with Buyers

Off-plan schemes are also incredibly appealing to homebuyers and small-scale investors, especially those in the informal sector who struggle to qualify for mortgages. Compared to mortgage financing, off-plan schemes offer:

  • Flexible payment terms (bulk payments over time)

  • Easier access for self-employed individuals

  • Lower entry prices for early adopters

The alternative—mortgages—remains a complex, mistrusted option, plagued by high interest rates and tedious approval processes.

For many, off-plan is simply the more achievable route to homeownership.

My Take: Who Really Benefits?

Where the Real Power Lies

Despite their popularity, the reality is that retail buyers often shoulder the greatest risk in off-plan schemes. While these schemes appear inclusive, the true benefits accrue to wholesale buyers—institutional investors or high-net-worth individuals—who can negotiate for:

  • Better pricing (due to volume discounts)

  • Customised payment terms

  • Influence over project timelines and design elements

These buyers possess leverage. Retail buyers, by contrast, sign standardised contracts with limited negotiation room and little recourse if things go wrong.

In my view, developers benefit the most, followed by bulk buyers. Retail buyers are often enticed by the dream of early equity but bear the brunt of execution risk.

    Unpopular Opinion: Go With the Chinese

    This may be a controversial opinion, but I must confess a bias towards non-indigenous developers, particularly Chinese firms.

    On average, these developers have demonstrated exceptional project management discipline. In my observation, they tend to:

    • Deliver within the promised timeline
    • Offer more flexible terms with the ability to customize payment plans
    • Stay within budget
    • Maintain better structural and architectural standards

    I am in no way suggesting that all local developers are incapable or that all Chinese firms are perfect. But my observation is that these firms have “cracked a nut” and are far more reliable for the enterprise of off-plan schemes, with a history of timely completions in comparisson to local firms.

    Read into this what you will.

    That said, buyers must always conduct their due diligence, irrespective of the developer’s origin.

    Conclusion: Proceed with Caution, Not Fear

    Despite their flaws, off-plan schemes are here to stay. They fill a vital gap in Kenya’s property market, especially for buyers locked out of traditional financing. But they require caution.

    Before entering into any off-plan agreement:

    • Research the developer’s track record
    • Consult professionals (lawyers, architects, quantity surveyors)
    • Cross-check the reputation of the developer from their professional associations and the reputations of their leadership, in particular any past directorships in other property development firms.

    Regulation needs to catch up with the realities of off-plan financing. Until then, buyers must bear the burden of risk. But with insight and prudence, off-plan schemes can still be a viable path to homeownership, just not one to be walked blindly.

    4 Keys to Successful Real Estate Investing in Kenya

    by | Jul 30, 2018 | Property Market Advisory Series, Real Estate Market Intelligence | 0 comments

    • Successful Real Estate Investing: The Enduring Promise of Real Estate in Kenya

    • #1: Market Intelligence – Know the Terrain Before You Invest

    • #2: Strategy & Niching – Don’t Follow the Herd

    • #3: Planning & Execution – Stay Disciplined

    • #4: Avoiding Hype and Scams – Due Diligence is Non-Negotiable

    Successful real estate investing isn’t rocket science.

    It does require some diligence, resources, a mindset for success and market intelligence.

    To a committed investor, none of these is unattainable.

    Done right, real estate investing has the superior potential to create generational wealth and financial security for the diligent investor.

    Despite the hurdles that are rife – from the reintroduction of capital gains tax capped at 15% today, to the rampant nature of land fraud and the operation of cartels, an unpredictable interest regime and the daunting prospects for anyone seeking to finance real estate projects – opportunity still abounds.

    If you haven’t yet found success investing in real estate, I invite you to flip your lenses and consider a different perspective in what you’ve done, how you’ve done it and your motivations (your big “why”).

    The opportunity to acquire property assets and make deals that steadily generate both cash flows and capital gains abounds. Investing in real estate isn’t just about buying a plot on which you will build a home someday in future or sell at an appreciated value.

    No. It’s so much more.

    Keys To Successful Real Estate Investing in Kenya

    There are basically 4 Keys to Successful Real Estate Investing in Kenya. If you are willing to build market intelligence, create a winning strategy customised just for you, follow through on your strategy by planning and executing your custom blueprint, then you’re already as good as there!

    You will need to build investor intelligence (a winning mindset), which will not only give you the vision and resilience (stickability) to stay on course, but also the filters and ability to avoid market hype, hysteria and scams.

    While successful real estate investing seems to be the preserve of major financial institutions, SACCOs, property developers, land-buying companies and a few investment groups, it is attainable even by retail investors.

    At the retail level, most property owners accept grossly underperforming assets, settling for a fraction of what they could achieve despite the opportunity.

    Property Encumbrances: Cautions, Caveats & Restrictions And What You Need to Know About Them - PART 1

    Outlined below are the Keys to Successful Real Estate Investing – four basic tools to unlock vast wealth out of real estate:

    #1. Market Intelligence: Develop Your Knowledge and Understanding of the Market

    There is a famous real estate adage that reads thus “When you buy a home, you buy the neighbourhood“. It simply means that real estate doesn’t exist in a vacuum and that your success (and failure in equal measure), is intrinsically fated with that of the neighbourhood.

    Real estate market intelligence is simply the ability to read and understand neighbourhoods and how the different investment decisions you may make can be leveraged to the greatest effect, given the location of the property.

    If you were weighing an investment property, here are some questions you want ask yourself as part of building your market intelligence in the specific neighbourhood under consideration:

    • What can you immediately ascertain by observation about the property – the neighbourhood, the infrastructure, the residents and other property owners, amenities and facilities, security?
    • What are the observable economic trends around the neighbourhood?
    • Is the population growth and settlement around the neighbourhood expanding?
    • What can you observe about the likely levels of household income of the residents?
    • What are the primary developments in the neighbourhood? etc.
    • What are the market comparables?
    • What are other properties fetching in the same market and why?
    • If the property is for cashflow purposes, you will want to observe what the predominant “theme” of the property market in that neighbourhood is.
    • Is the area largely owner-occupied or tenant-occupied?
    • What is the nature of the neighbourhood – lower-income, middle-income, upper-income?
    • What is the nature of tenant-occupancy in the market – are rentals short-term, monthly?
    • What are the estimated yields for similar properties in the neighbourhood?
    • Between residential and commercial properties, can you assess which performs better by observing occupancy levels?
    • In your observation, is the property under your consideration visibly well-maintained, appearing structurally sound serviced?
    • Which are the dominant types of units being offered for accommodation in the neighbourhood? Are they single-family homes or multi-dwelling units?
    • What is the state of security in the neighbourhood?
    • Can you observe if there is availability of mains services (power, water, sewerage)?

    Assembling as much relevant information as you possibly can will not only help you make a reasonable analysis of what to expect should you acquire the property, but will also give you the advantage of local knowledge to guide any subsequent investments.

    Successful Real Estate Investing requires in-depth knowledge of the market, combined with analytical skills that will be honed with experience and over a period of time.

    The market is dynamic, and in due course, with active participation in it, investors can build up a comprehensive body of knowledge that will serve them well.

    #2. Find Your Niche and Develop Your Strategy

    There is no one-size-fits-all approach to real estate investing.

    To each his own!

    The” herd mentality” will, more often than not, work against you.

    Doing what everyone else is doing is an instinctive, non-rational response, driven more by the desire to belong and be accepted, mental laziness and the fear of missing out.

    It’s not what you want to hear, but investment goals between people living very different lives are very rarely congruent.

    It is also a counter-intuitive proposition that assumes all individuals harbour similar considerations for their investment requirements, have similar tastes or preferences, or even equal purchasing power or economic status.

    Successful Real Estate Investing requires that your strategy and acquisitions are aligned with your unique set of financial circumstances and goals, and that the same is reviewed over time to adapt to any variations to the overall plan.

    Your strategy should also incorporate the following:

    First, your preferred investment niche.

    Real estate investing is broad, and the opportunities are diverse. Decide early on the particular niches you want to engage in and to what end.

    This could be based on the principle of “low-hanging” fruit, your competencies and skills, the time-frame between entry and exit from the investment and even the purpose for which the investment was made (capital gains and/or cashflows).

    For example, a property acquired at public auction may fetch a significantly higher price on the open market than at auction and can be quickly disposed of to grow investment capital.

    Vacant land purchased in a rapidly-developing area, on the other hand, may take three to five years to achieve your desired rate of return and may only be disposed of at the term of your exit plan. The niches you choose should also be considered against the need to balance between the investor’s long-term and short-term requirements.

    Secondly, your required rate of return.

    Benchmarking returns on investments gives each investor firm criteria on which to take on investments.

    Before analysing any option, your investment goals, your cashflow considerations, and liquidity requirements over the lifetime of the investment should take precedence.

    To begin your analysis, the best place to start is to consider what the lowest-risk assets, like bonds, are offering and to initially eliminate any option that cannot offer a higher return.

    You will then want to establish what comparable properties are offering in return to assess the competitiveness of the investment property you are considering.

    Ultimately, the basis for evaluating whether or not an investment is satisfactory is whether the return it offers is competitive and represents the best value for your investment prospects.

    Other factors, such as risk and income diversification, may be considered if those factors take precedence over your required rate of return.

    #3. Planning & Execution: Make Your Plan and Stick With It

    Successful Real Estate Investing requires clear and thoughtful planning and execution based on market intelligence and guided by the input of professionals.

    Real estate investments are one of the building blocks within the context of your overall financial and wealth-creation plan, and success requires the operation of each of those blocks in tandem with your financial goals.

    Execute your plans and review as required over time. Discipline, commitment, and focus will deter the commission of costly mistakes. Some pointers:

    Seek professional guidance: Build a reliable team of trusted professionals whom you can consult with in the course of your real estate investment plans.

    Crunch the numbers: In determining the profitability of an investment portfolio, the costs incidental to their acquisition and, in the case of rental (income) properties, chargeable costs of operation should be factored.

    It is prudent to bear in mind the lifecycle of operable investments and adjust operational costs based on the age and general condition of the property.

    Avoid speculation: It is not uncommon to hear the phrase “good for speculation” about property offers in this marketplace. In her book Cracking the Intuition Code, Dr Gail Fergusson makes the argument that human beings are intuitive, possessing the ability to somehow attain direct knowledge of something without any evident rational thought.

    It is invariably referred to as “gut-feeling” or “sixth sense”. It may be arguable that many people would still somehow, even in the face of evidence to the contrary, bank on their futures based on sentiment and gut feelings.

    Resources for investing in real estate are often significant, and to fritter them away on speculation can be very costly.

    Does it add value: Develop criteria to guide all acquisitions rather than ad hoc, rushed or unplanned acquisitions.

    It is best to walk away from offers that don’t match your investment criteria or where information is scant or unavailable.

    Comparables and alternatives: Before settling on an acquisition, it would be good to establish whether the offer provides immediate equity based on the capital outlay.

    As a diversification measure, investors may also want to consider publicly traded securities such as REITs available on the local securities exchange market.

    Depending on the investor’s financial goals, time-share property developments may also be considered to further diversify real estate portfolios, enabling fractional ownership in private commercial developments without injecting such large capital investments.

    Always have an exit plan. This will inform you of the ideal time to offload an investment.

    The decision may be informed by an upcoming liquidity requirement that the investor may have, the need to diversify the portfolio or raise cash to expand into new opportunities.

    The benefit of an exit plan is that the investor can assess the market ahead of time to either explore new opportunities or simply plan ahead of time for new commitments/engagements that they may have.

    #4. Investor Intelligence and Mindset: Avoid the Blindside

    The market is often a place of drama and theatre. In Kenya, the scams and their perpetrators are rarely obvious. But you can develop an eye to spot them by building your own investment intelligence.

    The worst scams aren’t even the ones you know of – they’re the ones that get perpetratod on the most unsuspecting individuals who may never even realize that they acquired an over-priced asset years after they received their ttile deeds.

    Getting caught up in get-rich-quick schemes carefully orchestrated to manipulate naïve, unsuspecting buyers should never be your fate.

    But with limited familiarity or understanding of the mindset of a real estate investor, discerning between observable trends and facts on the one hand, and myths and hyperbole loosely couched in a semblance of truth on the other is nearly impossible.

    A cursory look back ten years into the real estate market in Kenya often reveals a litany of deceit and scams that have immobilised many retail property investors, from non-existent plots to fraudulent home ownership savings plans, off-plan schemes gone awry, overleveraged developers who failed to deliver projects financed, and get-rich-quick schemes abound.

    Think of any conceivable fraud imaginable, and it probably exists in this market, including frenzied “gold rush” projects which inflate returns on land to unimaginable values until, of course, the bubbles burst, leaving “investors” with egg on their face.

    Is it possible to escape the wiles of these fraudsters? Perhaps not entirely.

    But the savviest real estate investors play the game understanding that it is a marathon and not a sprint, schemes and wiles notwithstanding. 

    The greater concern for any real estate investor in this market should be on developing both the market and investor intelligence to make safe bets and optimise returns.

    Successful Real Estate Investing requires a resolute focus on your goals and a clear intent to interrogate decisions through the lens of proper due diligence. Not hype. Not “feel-good” feelings. Not smoke or innuendo or blurry lines.

    The longer you play the game at that level, the more success you will have in picking winning horses, putting you firmly on the path to successful real estate investing.

    Acquiring vs Investing in Real Estate: Is there any Difference?

    by | Jul 23, 2018 | Property Market Advisory Series, Real Estate Market Intelligence | 0 comments

    • Acquiring vs Investing in Real Estate: Is There Any Difference?

    • Is Your Home an Investment – Really?

    • Understanding the Buyer’s Motivations

    • The Analytical Approach of Real Estate Investors

    • Acquiring vs Investing in Real Estate: Why Speculation Isn’t a Bankable Strategy

    • Acquiring vs Investing in Real Estate: Motivation as the Key Differentiator

    Are there any subtle or discernible differences between merely acquiring real estate vs investing in real estate? Does active speculation in the property market constitute sound property investing? On the face of it, there doesn’t appear to be any difference and speculation, as an “investment strategy” is so widely practiced and accepted in this market.

    One could even argue that because the values of property in this market are perpetually on the rise, any acquisition in property is a qualified investment because the likelihood of capital gains is nearly guaranteed. Of course, those who may make that argument have not factored the opportunity cost of the acquisition or the likelihood of price stagnations in a depressed market as happened in the last quarter of 2017.

    Acquiring vs Investing in Real Estate: Is there any difference between the two?

    So perhaps this is a moot conversation.  However, it is obvious that without a guiding philosophy and approach, the acquisition of property is just that, a means to an end without the clear, targeted objective of wealth creation.

    It is the goal of wealth creation embedded in the philosophy and motivations of the buyer that makes the key difference. It goes without saying that any real estate investor will most likely have acquired real estate.

    Because you cannot invest without acquiring, in a real sense, except for the respective motivations behind the purchase; and the approaches applied, there is no difference between merely acquiring real estate and investing in real estate.  With that said, not everyone who acquires real estate is a real estate investor. And to demonstrate this, we shall consider the questions below:

    • Is your home an investment?
    • What are the real estate investors motivations?
    • Why isn’t speculation a bankable strategy?

    Are Permanent Homes Investments?

    By volume, next to vacant land, homes are the hottest ticket item on the property market in Kenya. Indeed, the acquisition of vacant land as a precursor to constructing a home is the most popular form of vacant land purchase. Naturally, then, the acquisition of homes is a good point from which to debate the similarities and dissimilarities of acquiring real estate vs investing in real estate

    Many property buyers contend that a permanent home is the best investment. Granted, securing a home is an endeavour well worth a hundred times the emotional security it provides. However, if you follow the classic meaning of the word “investment”, then the test is whether the property is generating a return or not. Insofar as homes don’t do that and are not principally acquired for that reason, then they don’t fall into the classic definition of the word “investment”. The reason why the value of one’s primary place of residence is excluded in calculating an individual’s worth is that:

    • Homes are deemed to be “permanent acquisitions” in their very nature, and;
    • Homes do not generate income.

    True, their value may increase over the years, resulting in capital gains down the road. Others will even proffer the argument that by saving on rents, homes “add” to cash flows (in truth, they don’t, but instead they merely reduce cash outflows, which may very well be consumed through other liabilities, lifestyle choices – just saying!).

    There are exceptions, though, so rather than end up in the weeds arguing this one out, let’s see a few. If a permanent home gets disposed of at a significantly higher price than what it was acquired for, then yes, it may qualify as an investment. Specifically, if the cost of acquiring a new permanent home is less than the value of the old one you currently live in, at the time it is sold, then the old home was indeed an investment.

    In the West, it is common to find duplex homes which allow the owner-occupier of the home to rent out a portion of the property to a tenant enjoying both the benefit of living in the property while earning an income out of it. Closer home, it is not uncommon to find owner-occupiers who construct what we typically call “extensions” in order to earn a rental income. In addition, it is also not uncommon to find owner-occupiers renting out rooms or the domestic servants quarters to tenants.

    For the other reason that there is no predetermined “exit strategy” to homeownership, and that homes ultimately have to be replaced in the event of their disposal – unlike other properties – homes, especially those held as their owner’s primary residence, by and large, are not considered as investments. 

    4 Keys to Successful Real Estate Investing in Kenya

    The Buyer’s Motivations in Acquiring the Property

    Despite the feather-ruffling arguments that may be elicited from these views on home-ownership, a deeper understanding of motivations in property acquisition may clarify the difference between property (home) buyers and real estate investors. The key distinction between the two lies in their motivations – one, the need to create wealth, and the other,r the need to meet the needs of emotional security.

    There is a convincing argument to be made about how meeting emotional security bolsters an individual’s ability to focus on wealth creation, and it cannot be gainsaid just how much achieving emotional security impacts the individual’s ability to plan and execute higher financial goals.

    The Analytical Approach of Real Estate Investors

    The other distinctions include:

    • Property buyers tend to make acquisitions of a more permanent nature, while investors make acquisitions with fixed timelines and delineated exit strategies.
    • Real estate investors follow a well-regimented, analytical approach to making their acquisitions with consideration of a wide array of observable market knowledge, trends, data, statistics and dynamics guiding their decisions while property buyers tend to acquire properties more along the lines of sentiment, tastes and preferences, lifestyle choices and other subjective (emotional) criteria.
    • Real estate investors consider a mix of properties that can generate both long-term capital gains as well as properties that generate periodic cash flows, while property buyers tend to focus more on properties for personal use. Real estate investors tend to consider a much broader and diversified portfolio of property investments, including multi-dweller residential properties, commercial developments, early adoption in off-plan schemes and subdivision of vacant land, institutional-use properties and the full array of other opportunities in the market. Property buyers largely consider residential or agricultural-use properties.

    The differences in knowledge of the marketplace between these two groups are as distinct as night and day, with investors very broadly informed about the property market, while property buyers have limited knowledge, which tends to be location-specific or centered on their key interests only

    Why Speculation Isn’t a Bankable Strategy?

    In many property advertisements in this corner of the world, you will often come across the phrase “good for speculation” as part of the property pitch. Speculation is synonymous with the words gossip, hearsay, gambling, conjecture, rumor, assumption, and guesswork. So while many people may have inadvertently made some gains off the speculation phenomenon, it is an approach driven by hope and not any applied knowledge of the market or any key investment considerations or sound tactics.

    Just like gambling, at best, continually relying on a speculative approach yields an aggregated zero-sum when gains and losses are factored against inflationary pressure and the opportunity cost of the property investments made.

    Acquiring vs Investing in Real Estate:

    Conclusion

    • Diligent property investors, as distinguished from mere property buyers, tend to be more analytical, calculating and singularly focused on the value of the transaction’s capability to generate capital gains and/or yields, and not just on the emotional satisfaction that owning the property would provide.  Their “why” is king!
    • The motivation behind acquisitions is the most fundamental aspect of real estate investing and is perhaps as important as how property ownership is secured, if not more. Motivation distinguishes the savvy investor from the mere property buyer.