Category: Real Estate News
Posted: August 25th, 2022
The recovery of the real estate sector continued to gain traction, with increased activity and stronger performance witnessed across all asset classes in the past five months to June 2022,driven mainly by increased business activities as a result of the post-pandemic reopening of the economy.
In May, the office sector witnessed increased traction, with local and international companies taking up space and/or setting up offices within the Nairobi Metropolitan Area. CCI Global, a Business process outsourcing firm, announced a partnership with Gateway Real Estate Africa Ltd (GREA) to develop CCI Global’s custom-designed new offices at Tatu City, set for completion in the fourth quarter of 2023. The development comprises a Grade A office building and two levels of underground parking to anchor Tatu Central, the business district of Tatu City.
This move comes only a few months after CCI took up six and a half floors of office space at the Garden City Business Park. Max International, a nutrition supplements distributor also took up space in the business park, demonstrating Nairobi’s status as the preferred destination for multinational companies in the region, and showcasing the resilience of Kenya’s office sector, attributed to growing demand from the finance and banking, co-working and technology, media, and telecom(TMT) sectors. Kenya’s position as a regional hub attracting multi-national companies(MNCs)has cushioned the office sector and driven performance, evidenced by the increased occupancy levels witnessed in H2 2021.
The announcement by CCI also demonstrates the rise of the build-to-suit concept as an alternative to traditional build-to-sale arrangements. Under built-to-suit arrangements, companies enjoy the benefits of custom-designed offices built to their specifications and to suit their business needs, while developers enjoy the benefits of guaranteed offtake and reduced tenancy risks.
Additionally, during the month,Jubilee Holdings announced the purchase of Coca-Cola East Africa’s former head office, a 116,350 square feet Grade A office with 130 parking bays, at a cost of Kshs1.1 billion. The move will see Jubilee’s headquarters, along with its fund management, life, and health businesses move to the 3.2-acre property based in Nairobi’s Upper Hill, which will enable the firm to lease parts of its headquarters on Wabera street. The acquisition of the property signifies the demand for Grade A offices and supports the viability of the asset class.
Despite the various challenges facing the commercial office space such as the sustained supply glut and a shift to remote working, Grade A offices recorded improved performance in H2’2021 after a period of stagnation. We expect this improvement to continue throughout 2022 as economic activities continue to pick up on the back of the reopening of the economy.
During the month, Kenyan Property development firm Heri Homes announced plans to construct 384 affordable apartments on a section of its 200-acre mixed-use development project known as Legacy Ridges in Ruiru. The development will also consist of commercial offices as well as bungalows and maisonettes, and a hotel. Satellite towns offering affordable housing units and easy access to the city continue to attract tenants, thus boosting their performance. Other possible drivers of growth include demand for land for affordable housing, relatively lower land prices and improved infrastructure such as the completion of the Ruiru main sewer project which has increased demand for land by developers.
Overall, we expect the residential sector performance to remain stable throughout 2022, supported by the projected favorable economic environment and containment measures which have reduced the uncertainty brought about by the pandemic and resulted in the stabilization of incomes as investment activities increase.
The recovery of the hospitality industry continued gradually in the month of May evidenced by the reopening of hospitality facilities such as Radisson Blu’sUpperhill hotel, after being shut down for 16 months. The 5-star 271-room hotel however reduced the number of staff by 30% in the wake of reduced demand, which is yet to get back to post-pandemic levels. This development follows the opening of The Norfolk in April 2022 following a 21-month closure arising from financial constraints brought about by the Covid 19 pandemic.
Despite the gradual recovery of the hospitality industry, players continue to struggle evidenced by the announcement by Hilton Hotel to shut down its iconic Nairobi CBD hotel, which has been in operation for more than 50 years.
CONCLUSION
Overall, we expect the real estate sector to remain resilient in 2022 as the economy continues to improve following the containment measures put in place to control the pandemic which has resulted in resumption of investment activities.
Grade A offices performance is expected to remain stable driven by demand from MNCs and local companies, leaving older stock with higher vacancy rates. Occupancy rates are however expected to fall upon completion of stock currently in the pipeline. The residential sector is expected to remainstable with focus on affordable housing as the government and key stakeholders continue the push for universal housing. In the retail sector, aggressive expansion by retailers in acquiring new units as well as taking up spaces previously occupied by troubled retailers such as Tuskysis expected to cushion the sector.
Despite this, the real estate sector continues to be constrained by several factors such as the struggling economy and high cost of living which could mean less to spend on housing. The incoming electionsare also expected to affect performance as developers and buyers adopt a wait-and-see approach. Other factors include the high cost of development land in urban areas and insufficient trunk infrastructure especially in satellite towns.
Category: Investment
Posted: August 30th, 2022
Thinking of buying land in Kenya? This article is composed for you land purchaser so you may not succumb to conman out to dupe you of your richly deserved cash.
Here in Kenya claiming a land parcel is an indication of wealth.
Land is such an important resource because of how quickly it appreciates and the high cost of initial purchase.
Stories have been recounted of individuals being offered land or property that is enlisted under another person’s name.
•Search and Inspection of the land-You will be expected to introduce a duplicate of the Title deed to the Lands office, This search shows you the original owner of the land, the history of the land, and whether caution has been placed on the land. The land is usually cautioned in case there is a dispute going on about the parcel of land.
•Offers and cost dealings once the lawyers and surveyors affirm the authenticity of the land and its rightful ownership, the purchaser ought to now make a proposition denoting the start of the discussion interaction. It is prudent to include a valuer who will give a suitable assessment of the land cost.
•Actual visit-as a purchaser you need to guarantee that you get what you pay for. Go investigate your property diligently. Conveying your attorney and surveyor is necessary.
•Get Survey Maps-Bring a land surveyor on board to check the right boundary of limits. In a perfect world, this step ought to be finished prior to consenting to the arrangement so you guarantee what you see is what you get. Beacons are recognized to keep away from future land disputes.
•Drafting of the Sale Agreement-The lawyer/advocate will draft an understanding of the exchange occurring between the vendor and purchaser of the property. Down payment can be made and a pledge to clear the balance is plainly expressed in the deal understanding.
•Installment of land rates-prior to moving responsibility for, landowners should clear any forthcoming rates to the City Council.
•Land move before the last exchange of the Title Deed the purchaser needs to have finished the excess measure of cash as well as lawful expenses.
•Stamp obligation – charge paid on all land transactions will be paid to the public authority. Seller signs sale agreement which is then taken with identification photographs, lands search and deal arrangement, and the title deed is moved to the land buyer.
Documents you will need during the whole transaction process:
•Legitimate Title Deed
•The sale Agreement
•Pertinent assents eg spousal consent
•KRA Pin certificates of the two contractors-buyer and seller
•Land and rates payment receipts
Category: Uncategorized
Posted: August 25th, 2022
June marked the end of a strong quarter for the real estate sector that saw improved performance across the industry.
Demand for office space in the Nairobi Metropolitan Area continued to rise, with a high-level analysis of the key nodes of Westlands, Kilimani, and the CBD by NW Realite showing a return to almost pre-pandemic occupancy levels. This has seen an increase in investor confidence in the office sector, resulting in the resumption of investment activities. In June, property developer, Purple Dot International commenced construction of a 14-floor commercial building along Mombasa Road. Comprising 11 floors of office space, the development is expected to be constructed in approximately 28 months. It is designed with environmentally sustainable features including energy and water-saving measures such as solar photovoltaics, energy-saving lighting, and flow faucets.
Business process outsourcing firmCCI Global also commenced the construction of its new office complex in Tatu City which will host a 4000-seater contact center, the largest such facility in the country. As covered in our May issue, CCI has contracted real estate firm Gateway Real Estate Africa (GREA) to undertake the development to CCI’s specifications. GREA also announced plans to build a second office and retail center in Tatu City that is expected to host its regional headquarters once complete.
In the residential sector, increased activity was witnessed in the affordable housing segment as firms move to bridge the demand for affordable housing units, estimated at 2 million units. In the month of June, Safaricom Investment Co-operative kickstarted construction of Miran Residence, a low-cost mixed-use development project sitting on a 3-acre parcel of land in Ruaka, Kiambu County. The project is expected to be completed in June 2024 and will add 450 low-cost housing units in the market comprising studio units going for Kshs. 2.75 mn, studio lofts at Kshs. 3.9mn,1-bedroom apartments at Kshs. 4.45mm and and 2-bedroom apartments at Ksh. 5.90mn. In the same vein, the Nairobi Metropolitan services announced that it was in the final stages of identifying potential partners for the redevelopment of county-owned estates under the affordable housing initiative.
The upturn in the hospitality industry also continued to gather pace and is attracting international interest, with a report by hospitality advisory indicating that twenty-four global hotel brands are constructing or planning to construct new luxury hotels in the country. This comes as the industry continues to recover on the back of the easing of travel restrictions. The new facilities will add an estimated 3,155 hotel rooms to the market and put Kenya among the top seven countries hosting luxury hotels under development in Africa, alongside Egypt, Morocco, Nigeria, Ethiopia, Cape Verde, and Algeria.
SUMMARY & OUTLOOK
We expect the improved performance witnessed in Q1 and Q2 2022 to continue into Q3, resulting in increased building and construction activities. According to the Central Bank of Kenya’s(CBK)Quarterly Economic Review Q1 2022 report, gross loans advanced to the building and construction sector increased from Ksh. 128 bn in Q4 2021 to Ksh. 138 bn in Q1 2022, signifying the increased investment activities in the sector.
We expect to see further investment activities in the office sector with a focus on Grade A offices in master-planned developments such as Tatu City as investors seek to take advantage of well-planned controlled environments, shared amenities that reduce development costs, and a ready market from residents and businesses in the master-planned developments. In the residential sector, the affordable housing segment is expected to continue witnessing increased activities from private developers as well as government-backed initiatives. An upsurge in MICE(meetings, incentives, conferences, and exhibitions) activities is expected to cushion the hospitality industry and drive performance improvements. In addition, the sector can benefit from increased activities that boost tourism, such as the World Rally Championship event which saw hotels and serviced apartments in Naivasha record full occupancies for the duration of the event.
Despite these positive trends in performance, the sector continues to grapple with a myriad of challenges occasioned by the harsh operating environment, inflation and high costs of living that have lowered disposable incomes and reduced consumers’ purchasing power. This is partly evidenced by the 5.6%-increase in gross non-performing loans in the real estate sector to ksh. 78.5bn, according to the CBK’sQ1 2022 Quarterly Economic Review.
Category: Investment
Posted: July 12th, 2021
Stamp duty is an amount of money charged on several transactions such leases, transfer of properties, and securities.
Below are the rates for stamp duties according to the stamp duty act Kenya.
Transfer of real estate/landed property in urban areas costs 4% while transfer in the rural areas will have a 2% rate. When creating or increasing the share of the capital, the duty calculator Kenya charges a person 1% When registering a company with a nominal share capital, the amount is 0%.
According to stamp duty Kenya, when transferring marketable securities and unquoted shares one pays the rate of 1% An exemption for stamp duty charges is put on the transfer of quoted shares, and marketable securities. When participating in registration of mortgage or debenture, for collateral security, you will be charged 0.05%, while for extra protection it will amount to KSHs.20 per counterpart. Individuals who want to carry out a lease will part with at least 1% for the annual rents for three years, while for a period over three years, they will part with 2% of the yearly rent.
KRA stamp duty forms
All forms are completed from the Ministry of Lands and Housing. The quadruplicate is received upon the presentation of documents, which attract a stamp duty. The quadruplicate is handled by an agent, duty payer or advocate who takes it to either National Bank or Kenya Commercial Bank for payment. Bank charges are minimal and bared by the person paying for the duty. The money for the duty and amount for the bank is paid through either a banker’s cheque or cash.
After payment, the original copy of the payment form is retained by the person paying for presentation. The distribution of the document is such that :-
The quadruplicate, which is yellow in color, remains in the bank.
The triplicate, which is green in color, is forwarded to the registrar of titles and lands for record keeping.
The duplicate is blue in color and it is forwarded to the Commissioner of Domestic Taxes by the bank.
Finally, the original white copy remains with the duty payer.
Stamp duty act in Kenya
According to the stamp duty act Kenya, anytime you purchase a property, it is mandatory to pay revenue to the Government. Therefore, one needs to determine the the stamp duty of the property they are purchasing. Having a professional to advise is very critical in this exercise. Its a required that within 30 days of acquisition, all documents need to be stamped to avoid any penalties.
On the other hand, registered land acts and the land acts state that legal transactions involving mortgages, charges, transfers, and leases are not acceptable unless they have been duly charged. Revenue that is paid to the Commissioner of Domestic Taxes goes to the Government, hence failing to pay the amount is a criminal offense. As a citizen in this country, you need to know how to pay stamp duty Kenya. In cases where the paid amount exceeds the expected amount, application to get a refund should be made within one year. It is advisable to stamp all official documents since they can be used in a court of law in case there is fraud.
As stated above the amount of revenue being paid varies depending on the location and jurisdiction where a person resides. For instance, rural land attracts two (2%) percent of the value, while properties within urban areas attract a duty of four (4%) percent. The act for stamp duty in Kenya is clear that revenue for a mortgage is pegged on the secured amount. However, the legal land rates stand at two shillings for every KSHs. 1,000. Hence for instance, a mortgage going for KSHs five million attracts stamp duty of SHs 10,000. For leased property, the stamp duty is based on the payable rent every year. Currently, it is not possible to conclude a land transactions within 24 hours. Property valuation has to be done before a stamp duty collector endorses the property.
When there are issues of doubt in value of property,the stamp duty collector is at liberty to ask for valuation.
Category: Uncategorized
Posted: July 12th, 2021
Latest figures from the Kenya National Bureau of Statistics, covering July to September 2018, indicate that the property sector posted a growth of 5.8 per cent – its slowest rate since the 5.4 per cent recorded in the last quarter of 2014. During this quarter, sluggish demand forced some builders to offer huge promotions to entice buyers, including freebies and lower down payments. Interestingly, some developers slashed prices as much as 20 per cent, angering earlier buyers who paid higher prices.
Market pundits blame the slowdown on low access to credit, uncertainties in building approval laws, and a weakening purchasing power among potential buyers. “Demand is both constrained by oversupply in some segments and also due to would-be-buyers experiencing very limited access to credit,” Johnson Denge, whose company is undertaking real estate developments countrywide, said the market is experiencing an oversupply in the high end market segment, adding that developers must now look at new pockets of value to survive. “We have seen oversupply in areas such as office space, upper-limit residentials in select markets and also in retail space… Demand has slowed down and developers will have to look for new pockets of value, especially in the lower end of the market.”
Mr Ndege’s sentiments concur to those of Jared Osoro, the director of research and policy at Kenya Bankers Association, who says subdued demand for housing among the middle-and high income earners has made it difficult for investors to repay their bank loans. “The situation reflects subdued demand on the back of continued investments in the housing market, which remained skewed in favour of the middle and high-income bracket,” Mr Osoro said in a recent interview.
The Central Bank of Kenya’s Quarterly Economic Review released last month shows that real estate recorded the highest growth in non-performing loans in three months ended June, a situation that has seen a spike in the asset seizures by aggressive lenders. Non-performing loans in the sector rose by Sh6.1 billion, or 15.8 percent in April-June to Sh44.4 billion compared to the previous quarter as developers outpaced manufacturers (11.7 percent) and traders (7.3 percent) in growth of default on loans, the CBK said. This means that 11.3 percent of the Sh392.7 billion gross loans extended to investors in land and houses by commercial banks over the years were not being serviced as at the end of June.
A loan is considered non-performing if it remains unserviced for more than three months. As a result of financial difficulties, many investors have lost their properties to creditors – leading to an increase in number of repossessed homes that are being sold off cheaply across the country. The slowdown has negatively impacted the local construction industry where cement consumption for the 10 months to October 2018 declined 6.4 per cent to 4.129 million metric tonnes compared to a similar period in 2017.
Category: Investment
Posted: July 12th, 2021
“You cannot go wrong with Real Estate” is just a fictitious statement based on mere perception.
We have all heard real estate success stories, especially in a booming market, but investing in property isn’t always a foolproof strategy. There are dodgy investments and when you make one, it can end up costing you hundreds of thousands or millions. Benson learnt this the hard way when he rushed into investing in property thinking it could never possibly go wrong.
He purchased an apartment for Kshs 6,000,000 thinking he was setting himself up by getting into the market as soon as possible. “I noticed the average home or apartment units prices were increasing rapidly. So I did the numbers and just thought I needed to get ahead of the market. Pretty much every day that I wasn’t in the market I thought it was going to get further and further away from me. So I rushed into the property market out of fear of missing out. I didn’t have saving so I went to a bank and asked about borrowing 100 per cent of the loan. What I ended up doing was getting a Kshs. 6,000,000 personal loan which was guaranteed by my parents and used that money as a deposit for the unit.”
He purchased the apartment and began renting it out only to realize the monthly market rent he was receiving was less than monthly mortgage repayments. Then he was also hit by extra money needed to maintain the property. He held the property for just over five years, eventually selling it. Investing in property isn’t always safe as perceived.
“I just looked at the numbers in the property market and thought it would work for me but I didn’t look at the cash flow and how I could expand my portfolio beyond that. “There’s that ‘rule of thumb’ that says property prices double every 10 years and I figured that if I was in there for the long term I would probably ride out short terms falls in the market … I obviously just wasn’t educated enough.” The apartment did, luckily, go up in value as he sold it for Kshs. 8,500,000, a Kshs. 2,500,000 profit from the purchase price — but that was after spending in paying the rent shortfall not considering accumulated interests on loan. It was learning a critical lesson in the hard way.
“Cash flow is everything. You can almost get into as much debt as you want as long as the cash flow is good,” Mr Benson says.”As long as someone else is paying for my debt, it is good debt.”
NEVER ASSUME
Experience as proved that assumption, that capital growth is the most important factor when investing, and then choosing a property based on expected or projected capital growth, is one of the biggest mistakes many flopped investors have made. If you’re buying an investment property, you need to be able to sustain that property. If the property is going to cost you money — when the mortgage exceeds the rent — you need to have sufficient money to pay for that loss. If you don’t, don’t buy it, because you are just putting yourself under mortgage stress.
You have to ask yourself, can you actually afford the investment property, rather than just buying it and relying on capital growth? If you can’t afford the loan then you should look at a property where the rent does exceed the mortgage repayments. Even the assumption that every property is going to go up in value is naive and based on mere perception. It is a big assumption that once you buy any property it will go up in value with time. I’ve got case study properties where property values haven’t gone up. Again, the assumption that any type of property is a good investment could also land you in trouble and unable to grow your portfolio.
Murigu had an investment property and that property had gone up in value but the issue he had was because it was a small property the bank saw it as a high risk and they weren’t allowing him to use the equity to purchase any more properties. I advised him to sell the property because though we could not foresee huge growth in capital, due to its location he was going to fetch good money. And by him selling it, it allowed him to purchase three more properties in areas that have now far outgrown the value than if he had just held that one property.” It is advisable to consult with property players and experts in matters of property. I would highly advise to have a professional consultant to help you in making critical decisions. The assumption that real estate will always grow in value, and that capital growth is the most important factor, is a big mistake.
“Selling that first apartment was a little bit like heartbreak. It felt uncomfortable because I had gotten too emotionally attached to it even though it was really not doing me any favours. I think understanding that you need to remove all emotion from it, and just look at the numbers, is the most important lesson” Murigu
Category: Investment
Posted: July 12th, 2021
My experience in real estate and interaction with various players mostly investors has necessitated writing of this article on difference on residential and commercial properties’ valuation. Like I always say, failure in real estate investments is not because of mathematical errors but due to lack of adequate, reliable and factual information when making these investment decisions.
According to most people, buying and selling a property is what makes the real estate world one of the most high-flying and busy investment sections. Nonetheless, a real estate asset can be of different kinds, and they have different intentions. Depending on the asset’s location, type, other aspects and demand, the value of the asset may vary. Thus, it’s paramount that you go for a detailed property valuation prior to buying or selling it.
Residential Real Estate
I define residential properties as single-family homes, which are normally bought as home/residence by their owners to dwell in. Normally, prices for residential properties are gotten using a few different comparable sale methods. These comparable sale methods are performed using cost per square foot, floor plans or construction cost. These valuation methods are also considered for a variety of residential homes including duplexes, villas, bungalows etc.
For example: Assume a home sells in your area for kshs.8,500,000 having two bedrooms each with a bathroom attached. And it is identical to your home in space and style. Now, when you go to sell your home, the selling agent will most likely tell you that it is worth Kshs.8,500,000 after looking at the comparable sale price. Henceforward, residential property valuation is clear-cut and comparatively effortless to perform. Take a brief note of the identical homes and at what prices they were sold thereafter adjust for any disparity and you can speedily unearth the value.
Commercial properties
On the other hand commercial real estate properties generate income. They contain apartment complexes of units or offices, retail or industrial properties. These properties are owned by investors by and large for rental income. These investors don’t reside there, but they rent out these spaces to tenants who pay them rent every month for their space. Noteworthy, the value of a commercial real estate is calculated on the basis of the income it makes.
To calculate the income, you need to consider the income from the rented space and deduct the operating expenses. Here, income taxes and loan payments aren’t considered. The amount that remains is known as Net Operating Income. It is important to know how to calculate the Net Operating Income if you want to invest in a commercial real estate. Commercial property’s value is decided on the basis of how much an investor is ready to pay for the Net Operating Income. The investor utilises their investment funds for the property’s income. And the rate at which the income pays back to the investor for their investment is known as Return-On-Investment (ROI).
Value = Net Operating Income/Desired Return
Let’s look at an example to understand better;
Suppose, an investor is looking to buy a retail property that has a Net Operating Income of Kshs.9,000,000. Assuming in that region, investors are willing to purchase properties like this for a 10% return-on-investment.
The property value would be worth kshs.90,000,000. The value is calculated by taking the Net Operating Income and dividing it by the desired ROI (Kshs.9,000,000/10%= kshs.90,0000,000) for investors in your surrounding area. This means, if an investor were to invest kshs.90,000,000, then he would anticipate receiving a 10% return on his investment amounting to kshs.9,000,000 year after year.
It is as simple as that, now you know.
Important to note, always use commercial property valuation method prior to buying or selling a commercial property as it provides an accurate property value.
Category: Real Estate News
Posted: July 12th, 2021
Why Property Valuation?
Well, although you may not be looking to sell your property yet, getting your property evaluated will help you gain important information about your property. In fact, a property valuation can be helpful in knowing the actual worth of your principal asset.
Planning for a Renovation:
When you want to consider a renovation project for your home such as adding a new pool or backyard area or home interiors, a property valuation becomes imperative. Property renovation process can get costly and it is essential to keep an eye over the budget so that you don’t overcapitalise (for instance, it’s not a wise decision to add a modern swimming pool to a house property that is having a low resale value). You can get your property valued from a reliable property valuer and ascertain the accurate value of your property.
Buying a Second Property for Investment:
If you want to buy a second property just for investment purpose then your equity in your primary property can act as the collateral for the purchase. Generally, banks will lend over eighty percent of the purchase price of an investment property when you use your property as collateral. A property valuation will let you know how much equity you possess in your property, and accordingly how much loan you will be able to acquire for buying your second property.
Refinancing Your Primary Loan:
If your home property is mortgaged and your original loan term is ending or you’re looking to switch products or lenders, a property valuation becomes crucial. Depending on the lender and your own preference, a property valuation can be performed either through a property valuer of your lender’s choice or a third party. You may want to switch to a loan product that provides a lower rate of interest that could result in significant savings eventually, change an interest-only product for a principal and interest arrangement. Property valuation will give you grounds to discuss better terms with financing institutions.
Oftentimes, real estate market experiences a notable growth, which means likelihood your home/property may have accumulated value. In case, your home/property hasn’t accrued value, once you know your its value, you’re in a better position to make financial decisions moving forward. In addition, a valuation will facilitate you to make a will that hands-out your property as per your wishes.
You can opt to have an informal or formal property valuation depending on the purpose of the valuation. If you just want an estimate to know your property’s net worth or find out whether selling would benefit you financially, a real estate agent can normally provide you with decent approximation about your home property’s value on the open market, for more accurate estimate and advisory contact a valuer. If financial institutions need to perform a mortgage or refinance, they will organise valuations.
Finally and importantly, you can also hire an independent, qualified property valuer for evaluating your property.