Real estate is the most preferred investment vehicle in Kenya today and it is for a good reason. While investment companies are slowly selling to Kenyans the idea of paper wealth in the form of stocks, T-Bills and Bonds, Kenyan’s still want property. And this makes a lot of sense, the tangible nature of property makes an owner feel a sense of security. Moreover, you have much more control over your asset compared to things like stocks.
If you own rentals for instance, you could decide to renovate them, improving their desirability and end up collecting more rent. This would be difficult to achieve with stocks as you are majorly at the mercy of the markets. While real estate is a darling investment to many Kenyans, making money is often based on your strategy and sadly most Kenyans have none. I see most people “buy and hope” which has led to tears, regret and apathy towards real estate investment. That is why I have decided to prepare a guide on how you can spot high return investments in Kenya and take advantage of them.
Let’s dive in!
What to check in A real estate project in Kenya
1. Invest where the Government is Investing
While most real estate agents will tell you Location! Location! Location! Very few of them go into the substance of this rule. What you want to do is invest where the government is investing. If you see gazetted roads or proposed developments, pay close attention to the areas they are touching as this typically unlocks a lot of value in property.
The government brings in developments like roads, sewerage systems & power which increase the desirability of a place. Moreover, the government brings in an element of trust & security for investors. A good example is Syokimau where prices of property have risen at between 20% – 49% after the Nairobi Expressway was constructed. Places like Ruiru and Juja have also seen a spike in prices, either rents or sales due to the Thika Super Highway.
2. Focus on the numbers
Majority of real estate marketers just sell you hype. You will notice that numbers are only mentioned scantily while they display beautiful renders of the property. People often say “sell the vacation, they will buy the ticket.” However, for you to get the most out of your hard earned money, you need to get the calculator and begin crunching in the numbers. The metrics that you want to look out for include:
Metrics to check
- Rental yield – this is the percentage return you will get from the property in the form of rents. Anything above 8% is good but excellent return are from 10%.
- Occupancy rates – if you are buying or building a rental property, demand is your single most important metric. Without it, your property may sit vacant for long periods of time and end up losing you money. Always get information about occupancy rates in neighboring properties.
- Demographics – this includes aspects like urbanization rates and the growth in the population. Just like occupancy rates, this numbers will indicate demand but it also goes a step further in showing if demand is likely to be sustained in the long term. A city like Nairobi with a 2% urbanization rate and population growth rate of 3.5% has better chances than a place with dwindling demographics.
- Market rents – always confirm that the marketed property rents reflect the actual rent in the area. Most developers will sell you a 1-bedroom for example at 4.5 million and tell you that it will rent for KES 45,000/Mo. This might look attractive but when you buy the property and find out that you would be lucky to get even KES 30,000/Mo, your returns are already affected.
- Appreciation – a good property will give you decent rents but a great property will grow your money through appreciation. This is how fast property prices are rising which is great if you ever decide to sell. For this, do a market study of neighboring properties and see how fast home prices have grown overtime.
If all this sounds quite complex, the good thing is that you don’t have to walk alone in your investment journey. Just reach out to us and we will prepare for you a comprehensive market analysis of the chosen property and give you expert advice.
3. Legal due-diligence
A real estate would be obsolete if it turns out that you were conned. So one way for you to get a high-returning investment is to make sure that the property checks out legally. This includes verifying the following;
- Owner details
- Statutory approvals
- Land rates payments
- Taxes associated
Make sure that the property is flawless before you invest even a coin to it. Many Kenyans have lost millions because they decided not to cross examine the investment. Moreover, a property with clean documents attracts a lot of buyers due to the lowered risk and as a result ends up yielding more.
4. Focus on the unit economics
Unit economics or the price per square meter is a very important metric in property buying yet it is the most ignored. Knowing this will help you know how much you are paying per square meter and you can compare it to other developments to see which project gives you the highest value for money. Moreover, it helps you know the quality you are getting in terms of finishes and you are less likely to over spend.
The cost of a luxury apartment is about KES 100,000 – KES 150,000 per square meter. If you are buying a property at KES 110,000 per square meter but the finishes are average at best, chances are the investment wont yield you much. Renters always know what luxury is and if you paid for luxury and got mid-end, they will expect you to rent it out at mid-end prices.
5. What are the Market Trends?
Always pay close attention to the market trends within the country. Currently, everyone is speaking of affordable housing. If you can buy into a development or build units that ride this trend, you will set yourself up for high-returns. In real estate, where attention goes, money flows, what you need to do is be a good student of the market and learn what it is asking.
If you buy land in a place and notice that most people there are young and want low-cost housing, building bedsitters will be more profitable than trying to put up some 2-bedroom units. In Kenya, we call this “kuskiza ground,” don’t just invest blindly, do your homework.
6. Attend Expos & Exhibitions
For you to get wind of the best and high-yielding properties before other know about them, you have to do your footwork. Many cities like Nairobi, Kisumu or Mombasa often host real estate expos and exhibitions. Developers will often attend to showcase their upcoming properties and attending gives you an early advantage.
One way to make money in off-plan developments as a buyer for example is buying into the development at the earliest stage. Before ground breaking, where the risk is highest, you can buy a 1-bedroom unit for KES 4 million and immediately the project is completed you sell it for KES 6 million. For you to access such opportunities, you need to attend these expos. You can join our FREE WhatsApp channel where we update you on the same.
