Seven Tips from My Wild Misadventures House-Hunting in Nairobi

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

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

Unlock Your Dream Home with Exclusive Buyer Representation!

Home Ownership Made Easy: We Can Help You Find Your Dream Home!
Book ConsultationLearn More

House-Hunting in Nairobi Requires Patience & Courage

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

House-Hunting in Nairobi Requires “Measured Expectations”

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

The First Viewing: Reality Strikes

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

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

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

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

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

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

Clarity Wins When House-Hunting in Nairobi

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

Infer What You Will From The Language of Listings

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

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

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

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

The Happy Ending (With a Twist)

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

    Lessons Learned: My Tips for House-Hunting in Nairobi

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

    Manage Expectations

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

    Know the Lingo

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

    Less is Often More

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

    Persistence Wins in the End!

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

    Patience and A Good Sense of Humour are Key

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

    Align Your Budget With the Reality of the Market.

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

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

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

    Prepare to Compromise

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

    Conclusion

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

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

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

    • An Introduction to Private Settlements?

    • What Are Private Settlements?

    • Benefits of Private Settlements

    • Scenarios Where Private Settlements Excel

    • What Makes Private Settlements Attractive?

    • Potential Drawbacks of Private Settlements

    • Conclusion

    An Introduction to Private Settlements?

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

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

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

    What Are Private Settlements?

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

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

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

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

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

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

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

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

    BOOK A CONSULTATION

    Benefits of Private Settlements

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

    Scenarios Where Private Settlements Excel

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

    What Makes Private Settlements Attractive?

    • Personalized Negotiations: Direct communication between buyer and seller allows for more personalized and flexible deals.
    • Cost Savings: Avoiding real estate agent fees and marketing costs makes the transaction more cost-effective, freeing up money for other needs.
    • Legal Flexibility: Private settlements allow for tailored legal agreements that meet the unique needs of both parties.
    [et_bloom_inline optin_id="optin_7"]

    Potential Drawbacks of Private Settlements

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

    Conclusion

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

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

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

    Introduction

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    It isn’t risk-free.

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

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

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

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

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

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

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

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

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

    Step 4: Infrastructure and Access to Market Considerations

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

    Step 5: Secure Financing, Negotiate and Purchase the Land

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

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

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

    Conclusion

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

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

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

    Capital Gains Tax Skyrockets to 15% From January 1′ 2023- Investors Brace for Impact!

    by | Dec 27, 2022 | Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

    Capital gains tax hike sparks outrage among property investors and realtors! Secretly, I have heard the plausible argument, steeped in political sentiment, that the threefold hike is targeted at weakening the political clout of a particular community.

    What is Capital Gains Tax?

    Capital gains tax is a tax that is levied on the profit made from the sale of certain types of assets, such as real estate or stocks.

    Commencing January 1st 2023, capital gains tax, which had previously been levied at 5% on the gain made will henceforth be levied at 15%.

    It is important to note that there are some exemptions that apply in the levying of capital gains tax.

    Capital Gains Tax, often referred to as just CGT, is levied when a property is transferred.

    In real estate transactions, CGT is levied on the vendor or transferor of the property against the capital gain that the vendor makes.

    As the name suggests, the tax is levied on the capital gain that the vendor has made at the time of sale.

    History of Capital Gains Tax in Kenya

    Capitals gain tax was reintroduced in Kenya via the Finance Act of 2014. The tax came into effect on January 1’ 2015 following a 30-year hiatus since 1985. The tax has been levied at 5% since its reintroduction.

    The operationalization of the tax came with some hitches between 2016 and 2019 as it transitioned between manual and electronic payment modes

    Notably, a legal challenge between the Kenya Bankers Association and Kenya Revenue Authority when the latter twinned the payment of capital gains tax with the payment of Stamp Duty.

    Outlook 2022: Making Money in Real Estate in Kenya in 2022 & Beyond

    “Understand the emerging trends, discover where the opportunities will be, and learn how you can position yourself to profit from the marketplace in 2022 and beyond ….”

    [et_bloom_inline optin_id="optin_8"]

    Newly Introduced Change in Capital Gains Tax Rate

    Commencing January 1’ 2023, CGT will be levied at 15% as amended by the Finance Act of 2022 (Finance Act), which will see the rate of capital gains tax (CGT) levied increase from 5% per cent to 15%.

    Calculation of Capital Gains Tax

    By way of a formula, CGT could be expressed thus:

    CGT                                               =                 5% (Net Transfer Value – Adjusted Cost of Property)

    Where the
    Net Transfer Value                     =                Transfer Value – Any Incidental Costs (that the vendor incurs on the sale)

    Adjusted Cost of Property        =                Cost of acquisition + Enhancement Expenditure (including the cost of defending title over property and incidental costs of acquiring property)

    Some Notable Exemptions to CGT in Kenya

    Not all property transactions are subject to CGT.

    For example, a property whose ownership is transferred to a beneficiary of an inheritance is exempt.

    Similarly, the vendor of a residential property who has been the owner-occupier of that property for a period of at least three years immediately preceding its disposal is also exempt.

    The Finance Act also describes what qualifies to be termed as a transfer of property for the purpose of levying CGT.

    Here are some other real estate transactions where a property being transferred is exempted from the levying of capital gains tax:

        • Land transferred by an individual whose transfer value is Kshs. 3 million or less.
        • Where land has been compulsorily acquired by the government for infrastructure development.
        • Agricultural property situated outside a municipality that is smaller than 50 acres in size.
        • Property transferred/sold to administer the estate of a deceased person within two years of the death of the deceased/court decision.
        • Land that is vested in a liquidator or receiver
        • Property transferred between spouses or former spouses or their immediate family.
        • Transfer of property for securing a debt/loan
        • Where deemed by Treasury to be in the public interest, transactions of exchange of property that occur when companies are restructured.

    Documents to be Submitted as Proof of Payment of CGT

    Property vendors are required to submit an acknowledgement slip for the payment of capital gains tax.

    Alternatively, where an exemption applies, then an exemption slip should be submitted for the transfer to be registered.

    Why Has Capital Gains Tax Been Increased

    It’s simple. The government needs to raise taxes in an economy that has been hit by multiple shocks.

    Drastically reduced activity in the real estate sector would account for lower volumes of sales/transfers and correspondingly lower collections of tax on these types of transactions.

    It is no secret that real estate transaction volumes have taken a particularly heavy hit since 2020, causing jitters to many property investors in both commercial and residential property markets in the country.

    Kenya, like many other countries globally, has been hard hit by the economic uncertainty that followed the unprecedented ravages of the Covid 19 pandemic.

    Exacerbated by the looming global economic recession, high inflation rates, high cost of living, the rising cost of credit, an over-leveraged economy and a generally sour economic mood, the government will continue to seek out fiscal measures that will raise taxes.

    By offering very high returns on public borrowing at a time of correspondingly high inflation, especially on infrastructure bonds, the government has stifled capital inflows in the property transfer market by draining out all the liquidity that could be directed at private investing.

    In any event, very few attractive property investments can match the 14% ROI being offered on say public infrastructure bonds at this time.

    At these rates, even traditional lenders would be more inclined to consider lower-risk assets (read here, government paper) than assets that have higher risk and take longer to realize.

    Given the economic climate, raising CGT at this time makes sense. It is “low-hanging” fruit. Also, Kenya has had one of the lower rates for CGT on the continent. Perhaps this too may also provide justification for the hike..

    Secretly, I have also heard the plausible arguments, albeit steeped in political innuendo, that the tripling of the tax overnight is targeted at weakening the political clout of a particular community. Of course, that could be dismissed as conspiratorial. However, in the current dispensation, it is clear that nothing is what it has been sold as. Or, even that what something is, and what it is touted to be are not necessarily the same thing.

    A three-fold increase overnight does seem rather overstated, especially given the government’s stated goal to increase homeownership. The move is regressive, to say the least!

    Likely Impact of Increase of CGT on Property Market

    It would be unexpected that the rise in the cost of taxes would result in diminished sales. Not in the current economic climate. Fiscal policy planners would have anticipated this and would be fairly certain that investors’ need to liquidate real assets in favour of cash to either refinance their operations or adjust to the current inflationary pressures would far outweigh their desire to hold on to their property – especially if those properties are not currently generating any income.

    Conclusion:

    While capital gains tax is based on self-assessment, individuals transacting property that meet the thresholds for the levy of capital gains tax should ideally maintain proper records of their transactions, in particular for any improvements that they may undertake during the tenure of their ownership of the property. These will be crucial in the accurate calculation of any capital gains tax liability.

    The increase in CGT will adversely affect investor perceptions but this will more than likely be short-lived in the grand design of things.

    Why Pension-Backed Mortgages in Kenya Are Unlikely to Return in The Near Future

    by | Dec 27, 2022 | Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

    To state it simpler, pension-backed mortgages are secured against the savings a contributor in a mortgage scheme has amassed.

    Pension-Backed Mortgages: What Are They?

    Pension-backed mortgages are mortgages that can be accessed by contributors to retirement benefit schemes which allow the contributor(s) to leverage their savings in pension schemes to access financing.

    To state it simpler, pension-backed mortgages are secured against the savings a contributor in a mortgage scheme has amassed.

    Naturally, no fiscally-responsible government would allow a contributor to access 100% of their pension contributions to meet their housing requirements since the very essence of those contributions is to create a nest egg for the contributor’s retirement.

    Inevitably, therefore, the assets against which the loan (mortgage) is secured, are partially against the contributor’s savings in the pension scheme and partially against the asset (house) against which it was borrowed.

    Synopsis of Enactment of Pension-Backed Mortgage Regulations

    In April 2020, the Government of Kenya, through the then Treasury Cabinet Secretary, published the Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020. The amendments were made by the Tax Laws (Amendment) Act, 2020 to Section 38(1A) of The Retirement Benefits Act, No.3 of 1997.

    Intended Purpose of Pension-Backed Mortgage Regulations

    By allowing members of retirement benefits schemes to leverage their amassed contributions in their respective pension schemes, the goal was to unlock financing that could be targeted at home ownership, thereby accelerating the country’s homeownership goals that were a critical pillar of the Government’s Big 4 affordable housing agenda.

    Legal Challenge to Pension-Backed Mortgage Regulations

    In May 2020, civic-activist-turned-politician, Okiya Omtatah, with the backing of the Association of Retirement Benefits Schemes and the Association of Pension Trustees and Administrators filed an application in the High Court of Kenya challenging the legality of the regulations.

    Enactment of Pension-Backed Mortgage Regulations

    Thereafter, in September 2020, the legislature approved, vide Legal Notice Mortgage Regulations LN 192 Retirement Benefits (Mortgage Loans) (Amendment) Regulations, 2020 – an amendment to the Retirement Benefits Act. The regulations were published on September 14, 2020.

    Operationalization of Pension-Backed Mortgage Regulations

    As per the regulations, it would fall within the purview of the individual pension schemes to determine the procedure by which their members would apply to access their contributions into the scheme for the purpose of applying for a pension-backed mortgage. The regulations required individual members to make their application through the trustees of the scheme. Trustees from the different pension schemes would consider applications relating to the utilization of the benefits by members and review their consistency with the retirement act and scheme rules.

    Pension schemes would be given a year until September 14, 2021, in which they would “operationalize” the issuance of pension-backed mortgages, allowing their members to access their savings to acquire homes.

    Ruling on the Legal Challenge to Pension-Backed Mortgage Regulations

    Subsequently, on 23rd November 2022, the judge hearing the Judicial Review Application 095 of 2020, Republic v National Assembly & 2 others – the petition filed by Mr Omtatah – issued a judgement quashing the regulations that brought pension-backed mortgages to life in Kenya, citing a flawed process in their enactment due to lack of public participation.

    Outlook 2022: Making Money in Real Estate in Kenya in 2022 & Beyond

    “Understand the emerging trends, discover where the opportunities will be, and learn how you can position yourself to profit from the marketplace in 2022 and beyond ….”

    [et_bloom_inline optin_id="optin_8"]

    Why were the Pension-Backed Mortgage Regulations deemed unconstitutional?

    Because lawmakers did not allow for stakeholder engagement or robust public participation in the legislative process, Parliament, in passing the regulations that birthed pension-backed mortgages, had failed to meet the thresholds required by Article 118 (1) of the Constitution.

    Major Proposals by the Pension-Backed Mortgage Regulations

    As per the regulations, in a defined contribution scheme, an amount not exceeding 40 per cent of the member’s accrued benefits shall be available to a member for the purchase of a residential house, provided that such sum shall not exceed seven million shillings.

    The residential houses that would have been eligible for purchase under these regulations would have to have been certified for occupation before the intended purchase – precluding the possibility that the funds could be used to either develop property on vacant land, or even secure houses being sold under off-plan schemes. Eligible homes for purchase would include those developed under government initiatives, such as the AHP, and those being offered for sale by private developers, SACCOs, insurers and entities running tenant purchase arrangements.

    Pension fund trustees would have been allowed to offer members the option to deploy the mortgage funds as either a guarantee to access a mortgage or utilize their benefits for the purchase, but not both.

    Further, scheme members would only be allowed to access the benefit as a one-off, locking out members who were already receiving their pension earnings and those who had already attained retirement age.

    Reception towards Pension-Backed Mortgages?

    The idea of pension-backed mortgages in Kenya is not new. It was initially touted more than a decade ago. Not until 2020 were there any hard and fast regulations to facilitate the realization of homeownership via pension-backed mortgages.

    Now that there have been missteps with this initial substantive effort, it seems less likely that pension-backed mortgages will become a reality.

    The new regulations caused a stir when they were first announced with a very warm reception to the idea that pensions, traditionally deferred resources, could be used to access homeownership. On the other hand, uptake did not reflect the original enthusiasm.

    The market has had several challenges that muted interest in pension contributors, not least of which have been the lean economic times following the Covid-19 pandemic and a looming recession as we enter 2023.

    Nonetheless, the new regulations were perceived as a positive step in the right direction. While they were well within their rights to do so, it is telling that the new regulations were fundamentally opposed by industry stakeholders.

    Which Way Forward for Pension-Backed Mortgages?

    On the face of it, the opposition of the industry stakeholders via their constituent bodies, the Association of Retirement Benefits Schemes and the Association of Pension Trustees and Administrators, is obviously merited on the grounds that industry stakeholders were not involved in the formulation of the new regulations.

    However, it is also indicative of an industry that isn’t particularly interested in actively seeking approaches to meeting the needs of its membership – the actual contributors to the pension schemes.

    Indeed, it would be interesting to see if these same industry bodies will actively spearhead initiatives that could eventually make pension-backed mortgages a reality. They could do so by either proposing amendments to the regulations that had been proposed or even actively lobbying Parliament to relook at those regulations and championing the establishment of a workable framework of solutions that would make pension savings accessible to prospective homeowners.

    Conclusion

    The pension industry in Kenya controls over KES 1.5 trillion in assets with under 20% penetration of the formal labour market in the country. There is a glaring opportunity here not just to spur homeownership, but also to grow the industry.

    Pension-backed mortgages would be an effective tool to deepen the conversation between finance and growing access to homeownership. Stakeholders will need to partner on initiatives like this if the goals of homeownership are to be achieved.

    Top 7 Tips To Take The Headache Out of Selling Property in Lean Economic Times

    by | Dec 20, 2022 | Buying, Selling, Leasing & Rentals, Property Market Advisory Series, Real Estate Market Intelligence, Writer's Commentaries | 0 comments

    Selling your property at any time is challenging. Much more so during an economic downturn. If it were easy, there would never have been any need for property agents. In a recession, markets go soft and depressed. Therein lies the rub.

    As we look to 2023 and beyond, it is evident that, at both a national and global level, an economic recession is looming. There has been a multiplicity of factors that have made selling property, particularly, very challenging during the last 3 years. And the onslaught seems unabated.

    Traits of an Economic Recession

    Typically, these traits would serve as a good indication that a recession is nigh:

    • Multiple external and internal economic shocks (Covid-19 pandemic, Ukraine War, Elections, massive external debt repayments due)
    • Massive job losses and diminishing sources of income
    • Stock market decline
    • Rising inflation and her torturous twin sisters rising unemployment and increased cost of living
    • Decline in value of the currency (KES has lost more than 20% of its value against the USD between 2019 and 2022).
    • Massive external and internal borrowing by the government and high borrowing and lending interest rates (IFB issues by GoK on November 2021 recorded 13.93%!)

    Certainly, in December 2022, how many of you would say that these traits seem at all unfamiliar about Kenya today?

    The Challenge of Selling During a Recession

    The challenge ceases, initially, to be about selling and it becomes all about the generation and qualification of leads. Positioning your offer so that you can get it in front of the right eyeballs and understanding what the market is likely to respond to is the trick.

    When selling property during a recession, the principles remain the same as with any other time in any market. But conventional approaches are unlikely to hold up to the test. The condition of the market is erratic and unpredictable so what needs to change, and what is more determinable is your strategy and approach.

    Seasoned property agents will also be a lot more astute about the clients they opt to work with.

    Outlook 2022: Making Money in Real Estate in Kenya in 2022 & Beyond

    “Understand the emerging trends, discover where the opportunities will be, and learn how you can position yourself to profit from the marketplace in 2022 and beyond ….”

    [et_bloom_inline optin_id="optin_8"]

    Tip #1: Make Your Offer Stand Out

    This isn’t just about a good script for your offer or an amazing set of property photos and videos. No. It’s the full package. You can’t just list on every property listing platform either, or select ten different agents to work with.

    No. You’ll need to go the extra mile. Attract prospects by ensuring your property is looking its swankiest whenever it is shown. A dirty, forlorn-looking property that is visually flat and unkempt won’t cut it. Trim the lawns, cut the bushes – go all out to impress.

    Declutter the property. It Is an unattractive proposition for any agent to show a house that is brimming with junk lying all over and makes selling property needlessly difficult.

    A clutter-free space is warm and inviting and gives a mental feeling of being habitable. Clutter is a big put-off. If you can afford it, pay for professional staging and ensure your photos carry the professional polish to make prospects look twice in your direction.

    Get in on the act – put together a presentable social media kit and choose strategically which agent(s) to work with.

    Again, consider seriously putting some money into the marketing of your offer. Ads are a great way to diversify away from just property agents. You can work with an experienced agent on this, or choose to go it alone – up to you.

    Tip #2: Familiarize yourself with the market and strategize around this knowledge

    Decisions around pricing can accelerate the speed with which you can exit from the market. But how would you know where to establish an ideal price point if you are uninformed about the market in which your offer subsists?

    How will you price effectively if you have no idea of who is offering what and where those offers outdo yours? If you are selling your property, do you know what other similar properties are selling for? How about how much they are renting for?

    If you met a prospect and didn’t have this information and perhaps that prospect was considering the property as an income investment, what will you offer them to estimate their returns? You would have nothing to say. Selling property is aided where comprehensive information is available.

    Despite the gloomy outlook of the market, there is almost always a prospect who may be considering exactly what you have to offer – but you have to position your offer to connect with them. You cannot do this if you are completely clueless about the market.

    Tip #3: PRICE IS CRITICAL – Price right and qualify your leads

    During a recession, the few buyers in the market tend to be more informed than the average buyer. They smell blood in the water they will only pursue a bargain. However, this shouldn’t be confused with advice to price at the bottom of the market.

    As the number of distressed homeowners rises with rising loss of livelihoods and increased inflation, distress will often culminate in the loss of homes. Selling property in these conditions can be fraught with lots of anxiety. As a seller, you want to get ahead of that curve – the worst of all possible outcomes.

    The right price point, at least one that invites offers, is advisable. Of all the decisions that you need to consider when selling property in a recession, the pricing decision is the most critical. You need to decide what your most comfortable exit point is – not your ideal. You want to communicate that price to the market in such a way that allows you to call attention to your offer but still exit without underselling.

    Research comparable offers and make sure to qualify only those leads that present as serious prospects from the offers they present.  Qualified leads tend to understand the market and will ask questions they can confirm from available market information. They will rarely make offers that are well outside of the range of market availability unless they sense very high levels of desperation in the seller. Sure, they will want to strike a bargain. But if they are committed, they will also want to ensure that their offer sounds reasonable in order to get to a close.

    Tip #4: Upgrading your property

    If you are on a shoestring budget, as most sellers in a recession may be, then you want to direct any money you spend on making the property sellable to just the most critical factors.

    First, any upgrades that would distinguish your offer from others within earshot are welcome only if you can afford them. What you want to make sure of is that your property meets all standards of health, safety, security and environment (HSSE).

    No uncollected hazardous litter, no vermin and pests lurking in overgrown bushes, and no structural faults that could cause electrocution or personal injury. The most basic of these should be attended to first. Thereafter, go ahead and spoil your prospects with upgrades of the more elaborate kind if you can afford them – especially if they add value that exceeds their cost.

    Selling property that is well-maintained is definitely more appealing.

    Tip #5: Manage your expectations as you work towards the goal

    Many sellers get very frustrated with the process of engaging with prospects in this kind of market. Understand that there will be very few prospects and a lot more tentativeness even among the few you will find.

    Prospects are likely to be spoilt for choice given the desperation in the market. Access to credit facilities is a lot more muted in a recession too which can lead to prolonged timelines for closing even when a prospect turns into a buyer.

    Within reason, sellers can navigate the market much better if they have a keener understanding of these issues as expectations.

    Tip #6: Get trusted help – and be sure to take it if you ask for it.

    Get the assistance of people more experienced with handling the market than you may be. There is no point in seeking help though if you are unwilling to take it.

    If you are working with property agents, listen keenly for the things said and the ones unspoken. They can offer you a clear window to see the market vividly and advise you on your next moves.

    Perhaps seek more to pick up the cues they will offer, rather than to merely instructing them on what to do or what your expectations are. Selling property by collaborating closely with your agents will be .

    Tip #7: Don’t Miss The Exit Ramp  

    It’s easy to get enamoured with the possibility that you could do better. After all, you could never go wrong with real estate, right? Capital gains were assured, they told you, right?

    And, you possibly could. Don’t get me wrong.

    What truly begs an answer in these market conditions isn’t whether you could do better or not, but whether you see a path to exit gracefully, even if the option before you does not present the most ideal off-ramp.

    More so if you desperately need to unshackle yourself from a transaction that is weighing you down.

    To illustrate, here is an experience I had in 2020/2021. I was approached by a seller who gave instructions to dispose of an apartment she owned. Four months into marketing the property we secured her an offer which she promptly rejected on price, even though it was a cash sale.

    The offeror had offered a price that was slightly higher than the Forced Sale Value (FSV) price of a similar apartment in the same complex, but, naturally, significantly lower than the property’s valuation. In Kenya, the Forced Sale Value is 75% of the property’s valuation.

    Let me clarify. Say a property is valued at 10 million, then its FSV would be 7.5 million – the lowest price demanded for the property at auction. In this scenario, my seller, who was already in default on her mortgage, was offered the equivalent of 87.5% on the valuation. Obviously not ideal until you consider the alternative.

    The prospective buyer was market-savvy. He had elicited information that helped him determine that there were at least 3 other units in the same building that were already in foreclosure. He was willing to negotiate a higher price for my seller’s unit based on the information he had because he preferred it.

    My seller flatly disengaged only to revert 4 months later with the intent of re-engaging the prospect on the terms he offered when the gravity of market conditions finally dawned on her. However, the prospect had since moved on and two years on the unit eventually went into foreclosure.

    Conclusion

    There is little going on in the market that can be described as normal during a recession. The idea that your capital gains are assured can quickly become the stuff of myth.

    If you can hold out for a lot longer, more power to you. But if you need to, find the nearest exit for a graceful retreat at the earliest opportunity.