Land buyers left out in real estate financing
After rushing to buy property for homesteads away from the city, buyers have been left with land they do not need, creating a gap in affordability, accessibility of land they prefer
Mark Edwin (not his real name) has always wanted to buy a piece of land in Nairobi. But he couldn’t afford it because of the high prices. For him to realise his dream, he had been saving about Sh10,000 every month towards this course.
Last year, he lost his job after the company he was working for closed its doors following the Covid-19 outbreak.
By that time, he had saved about Sh500,000. With his savings, he decided to buy land, but after visiting several areas he was eyeing, he couldn’t get any property because of the ever-skyrocketing prices.
According to Hass Land Index, in quarter two, land prices in Nairobi Metropolitan Area continue to appreciate with land prices in the satellite towns realising the highest capital appreciation as a result of the availability and affordability of land.
Left with no other option, Mark took an eighth of acre land at Kantafu, Machakos county since that is where he could afford a plot with the amount he had saved. However, ten months down the line, he wants to resell the land.
“I was looking for a convenient area to build my house but after securing another job, it is not convenient any more.
It is too far from Nairobi city and getting transportation from that place is another hassle. I believe I made the wrong decision buying that property,” he says.
Mark is not the only Kenyan who rushed to buy property in a rush, especially last year.
Andrew Ngaruiya, Chief Executive Officer, Ginn Land Housing Cooperative, says a good number of people rushed to buy properties with plots attracting the biggest number.
This is why the land selling sub-sector remained one of the most active sub-sectors in real estate, with companies selling affordable land, remaining in business despite the pandemic.
“Affordable plots of below Sh500,000 bracket have been selling like hotcake because Covid-19 taught people the importance of owning a home. How people are viewing the property market today is different on how they used to view it before,” Ngaruiya says.
He adds that since last year, sales for his company that sells affordable plots in different locations and is eyeing the housing sub-sector began growing.
But were people making the right decision when they rushed to buy land?
Ngaruiya reveals that despite people buying land with such haste, very few have developed those properties. Now, many are discovering the pitfalls of these hasty purchases.
Since most affordable projects are tucked away in places not fully development, few people are willing to relocate to such areas.
Thus, they have been forced to continue renting houses, despite having plans to build their homes immediately after buying land.
Apart from that, most of those projects are also tucked farther away from the major cities and in most cases, buyers are contemplating selling them to invest in something else since they are no longer beneficial.
Francis Kihanya, Manyatta Capital, Real Estate founder and managing director, says though those places are affordable, and with low prices, it is not wise to invest if you are looking to develop the property immediately.
Since there are no developments in the area, buyers are not sure of what they are buying.
“As a seasoned realtor, I discourage investment in these areas. It is unclear when you will recoup your investment.
It is also hard to offload the property; if you have an urgent need for money even it becomes a challenge to liquidate it even if you give buyers a huge discount,” says Kihanya.
He says the best time to purchase a property is when it is in its “adolescence” stage when a lot of infrastructure development are planned and ongoing for a foreseeable future.
At that stage there is a buzz of activity: people are buying and selling so disposing your property will be easy if need be.
Interesting examples include satellite towns like Naivasha, Nanyuki and Juja.
“The property market has a very clear cycle, just like the life of a human being.
There is infancy cycle, where property is in far flung areas and with no development; adolescence cycle, where most people are investing, and the maturity cycle, where development has already happened and one needs to be more sophisticated to buy property because any purchasing mistake would be difficult to recover from,” he says.
Poor due diligence
Ngaruiya says though buying a property is a huge commitment and one that has to be thorough, people were getting all crazy and the rush also led to some buyers snapping up plots without performing due diligence, something they are regretting now.
“I have seen people in Nairobi buy eighth of an acre land in Laikipia county since that is what they can afford.
I have also seen people reselling such property at a loss after realising that it doesn’t make any economic sense owning such property while still living in Nairobi.” he explains.
He says people made these mistakes because of inadequate capital. If financial institutions come with 100 per cent financing services for land buyers, they are willing to take them up to ensure they acquire properties in their preferred areas.
Currently, most financial institutions are not ready to finance land buyers yet ironically they have favourable solutions for the housing sector.
This is why many real estate companies highly depend on installment payment services, and are not cash-based.
“Financial institutions need to come up with accommodative and long–term solutions.
Currently, we have outdated solutions for land buying customers and if these institutions come up with fashionable solutions Kenyans are willing to buy land.