The success or failure of your off-plan project squarely lies with the developer you choose. This means that while selecting a project with strong market fundamentals is important, getting a good developer is equally important. I have done a guide on how to know if you are dealing with a good developer, you can click the link to learn more. Many Kenyans have burnt their fingers in many of these off-plan projects just because they failed to ask the right questions.
At times I am shocked about how casual buyers tend to be when buying property. Some will wire funds from the diaspora without even getting tangible proof of the development. Whether you get conned or not depends on the questions you ask. Remember that the developer is in business and in many times they have their own interests ahead of yours. In this guide, I have provided a list of questions you need to ask to ensure you get clarity as to where you are investing your money. If you can get all the answers from the developer, then your chances of losing your money go down.
Questions to ask your developer
1. Do you have all requisite approvals for the development?
The first question you need to answer is whether your developer has the required approvals and permits. Construction in Kenya is regulated and this means anyone doing any development must have permission from various authorities. This includes;
- National Construction Authority (NCA) – approvals for the contractor
- WARMA if the project is next to a water body
- NEEMA – if you are doing a large development
- Environmental Impact Assessment (EIA) – for projects that have the potential to affect the environment
- County approvals – done for the architectural and structural drawings
Having the needed permits safeguards the development from future legal actions that might lead to demolitions. Imagine you buy an apartment in a development next to riparian land and then in future the development is sued and demolished. Approvals also means that your developer is working within the confines of the law which is always a green flag. AVOID any development without the needed approvals, ask yourself, if the developer can cut corners in approvals, what else will they cut corners on?
2. Are the involved professionals licensed?
After validating that the developer has the required approvals, the next question should be about his project team. This includes the architect, engineer, quantity surveyor and project manager. The success of the entire project is carried by the project team and if any of them is not registered or is a quack, this might affect the quality of the apartment you buy.
You can check their names or those of their companies online and see what pops up about them. Are the professionals used to such a caliber of projects? Are they in good standing with their regulatory bodies? Moreover, reputable professionals often do their research before undertaking a project so if the project is in the hands of these reputable team, then chances are the project is worth buying into.
3. What is the financing structure behind the development?
While some details of the projects financing are confidential to the developer, you should ask about their capital stack. Most projects are financed using a mix of debt and equity. Debt includes things such as loans while equity is what the developers are contributing. Developments are also financed using pre-sales which are units sold before ground breaking.
If your developer is only relying on pre-sales to do the project, then there is a high risk that they might not deliver on time or at all. A healthy capital stack should be like 50% – debt, 30% – presales and 20% – equity. For a development with a total cost of KES 100,000,000, this would look like;
- KES 50,000,000 – DEBT from banks or saccos
- KES 30,000,000 – PRESALES from prospective buyers
- KES 20,000,000 – EQUITY from the developer
Such a project has a higher likelihood of getting completed compared to where the developer is only reliant on one source.
4. Have you done projects of this scale before?
This question is aimed at assessing the developer’s track record. By seeing how they have done on previous projects, you get an idea of what to expect from them. If this is their first project, at least you understand the risk you are getting into beforehand. You can even visit completed developments where possible and speak to previous buyers about the developer’s quality of work, adherence to timelines, and after-sales service.
5. How are the payment milestones structured?
One major issue that I have seen bring disputes in off-plan projects is normally tied to the payment of installments. Always make sure that the payments you make are tied to defined milestones and not dates like end of the month. An example of a milestone includes; casting of the floor slab. When you pay for this, you are sure that your money is going towards the progress of the project rather than just being told to make a payment at the end of every month.
6. What is the expected completion date?
Inquire about realistic completion timelines and when you can expect to receive your completed apartment. Also make sure that the sale agreement provides you with a clear legal recourse in the event of project delays. Some important questions in this section include;
- What happens in the case of a delay ___________________?
- Is there any compensation tied to it __________________?
Always go over the contract or agreement and more so the FORCE MAJUERE clause which is often used by some developers as an escape route. Make sure there is no clause that is unfair to you as the buyer or that gives the developer an unfair advantage over you.
7. Who owns the land & is it free from encumbrances?
Knowing the owner of the land on which the property is getting built on is another very important detail. Make sure that you ask for the land parcel number so that you can complete your independent search on the property. Inquire about things such as disputes, caveats or charges like loans against the property.
I recall a developer who had once taken a loan against the piece of land which he had already built some apartments and sold them. When he defaulted on the loan, the bank came and auctioned the whole property including the already sold apartments. Buyers money was lost as the courts gave priority to the bank in recovering debt.
8. What specifications & finishes are included
Some developers have the inclination of promising luxury and then under-delivering on it. During marketing, they will tell you how they intend to use marble and wood finishes but they end up doing regular tiles. What most buyers don’t know is that properties tends to be priced according to the level of finishes.
We have Basic, Mid-Tier and Luxury finishes. So if you are paying for luxury finishes and the developer ends up doing mid-tier, they have short changed you. To avoid this always ask for the finishes schedule and confirm if the marble or wood they promised is included.
9. What warranties are provided?
This alludes to the developer’s obligation to correct any defects and handle maintenance issues. It is typically provided for in the defects liability period (DLP), often six months after handover. Think of it as a warranty in case anything breaks during this period. It is meant to shield you from any poor quality work or fixtures used by the developer. The DLP is often tied to the issuing of the certificate of occupancy.
Some developers will however get it earlier and this means by the time you get into the unit, you only have about 3-months of the DLP remaining. This is not ideal and you want to avoid this.
10. Who manages the property after completion?
Property management is the most under-rated way of making a property either do well or flop after handover. A poorly managed property won’t appeal to tenants and as a result the units might stay vacant for long loosing you as the investor money. Many developers prefer to self-manage once they are done with the project so inquire more about this arrangement.
- What is the projected service charge _________________?
- How much is the management fees ______________?
- Will they establish an owner’s association _______________?
11. What happens when the project is delayed or suspended?
In the unforeseeable event that the project is delayed or fails to get completed, seek clarity about their refund policies. Many off plan projects have gone south in Kenya due to greed and poor planning which has led to many investors losing their hard earned money. A project with strong fundamentals has a less likelihood of not getting completed but always make sure you understand how the contract protects you as a buyer.
12. Can I receive regular progress updates?
Confirm how often the developer will provide you with updates of the construction progress as well as whether site visits are allowed during the construction phase. A genuine developer won’t have any issue with you accessing the site upon giving them a notice.
