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: 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: 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.