1.     Real estate Highlight

The real estate industry in Kenya has experienced significant growth in recent years, driven by a number of factors including a growing population, urbanization, and a rising middle class. In 2017, the industry was dominated by the residential sector, which accounted for the majority of real estate activity. The demand for residential properties was driven by a growing population and an increase in urbanization, as more people moved from rural areas to cities in search of better job opportunities and a higher standard of living. The commercial sector was also strong in 2017, with demand for office space, retail space, and industrial space remaining high. The hospitality sector, which includes hotels, resorts, and other accommodation options, also saw steady growth in 2017.

2.     Engaging in the real estate industry

 Urban sprawl has led to locals and expatriates aspiring to stake a share in Kenya’s property for either their commercial or non-commercial needs. As a result, there has been a craze of people acquiring property with one thought in mind ‘I need to buy land (shamba) so that it can be my future investment. ’Well even though this is a good way of looking at it. There are so many factors and questions one needs to ask themselves before committing to property investment. 

a)   The first question to ask oneself is; what am I looking for?

This is a very crucial question as it will determine what form of real estate investment will satisfy your requirement. For example:

Are you looking to settle down in a place you can call home?

 In such a case you are looking for a residential property.

Are you are looking to invest in buying or renting out spaces for business?

 Then you’re into commercial rentals. Currently the most profitable and sort after form of investment in Kenya Vacation rentals. This is where investors buy or rent residential spaces, furnish them and rent them out at higher rates for a short-term basis to recoup profits through apps like Airbnb and VRBO. 

b)    Do you have the funds to invest and to what limits?

You must set a range of the property on the maximum and the minimum price that you are willing to purchase, rent or sell.

You may not have the funds to buy property but you can buy shares in publicly traded companies that own and operate income-producing real estate property. This form of property investment is called Real Estate Investment Trust. You may also want to pool resources with others and invest in larger commercial and residential properties. This form of investment is known as crowdfunding. Alternatively, this formed group of investors can also become one entity and partner with another group of investors in order to form Private Equity Funds. 

c)    What is your preferred location?

After identifying the type of real estate investment, look for the best possible location for the investment.

Factors to consider include:

a)    Utilities: such as water, gas and electricity.

b)    Disposal of waste such as a sewer line.

c)    Exercise facilities such as: gym, swimming pools and children’s playground.  Closeness to markets, transport hubs, schools and hospitals.

d)    Neighborhood type whether quiet or noisy

e)    Security of the area for example closeness to police stations and organized neighbourhood security services.

f)     Geographical features and terrain of the property. Areas having deep clay soil can lead to increased costs during construction and also cause problems with accessibility, especially during rainy season. On the contrary you may have beautiful scenery and landscape making the location very ideal.

g)    The current and future value of the property will be affected by the neighbourhood status. If you are looking into gaining profits on investment over a period of time when the property appreciates in value then neighbour status is very critical in determining the location. All these factors mentioned above can equally be applied in the location selection of a residential property. 

d)    After identifying the location, the next question in mind should be what is the expected condition of the property?

Regardless of whether the property is residential or commercial, the condition of the property plays a major role in investment selection. Taking for example a buyer who is looking to own a house so he/she opts to invest in an old house with the aim of remodelling. This can help the buyer get a property at a cheaper price in the market. The buyer can then renovate the house and resale the house at a better price in the long run. However, from a seller’s point of view, it can be very difficult to find clients to buy old houses. This is because most people prefer the aesthetical feel of the newly built property and also can help in avoiding hidden issues such as structural problems, and outdated electrical and plumbing systems. The condition of a property can also affect the appraisal value of the property. When valuers and clients visit a property the condition whether new or old can led to the property either being overvalued or undervalued. Hence, having an impact on the amount of financing available for purchase. In the example above, having poor conditions can result in having more contingencies in the purchase contract such as home inspection or repair contingencies which can cause delay or complication in the closing process of an investment purchase. 

e)    The next question to ask yourself before investing is what is the current market conditions?

It's important to check on market conditions before investing in real estate because the state of the market can have a significant impact on the potential return on investment. Some reasons why you should check market conditions include: Price trends, knowing whether the market is trending up or down can help you make informed decisions about when to buy or sell a property. For example, buying during a market downturn can help you get a better price while selling during a market upturn can result in a higher sales price.

Understanding the demand for properties in a particular area can help you identify areas where you're more likely to find renters or buyers. For example, if there is a high demand for rental properties in an area, it may be a good investment opportunity.

The third is Inventory. Knowing the level of inventory in an area can help you understand the competition you'll face when trying to buy or sell a property. A low inventory can indicate a seller's market, where prices are likely to be higher, while a high inventory can indicate a buyer's market, where prices may be lower.

Economic conditions such as unemployment rates, GDP growth, and interest rates can have a significant impact on the real estate market. For example, a strong economy and low unemployment rates may lead to increased demand for housing and higher prices, while a weak economy may lead to a decrease in demand and lower prices. financing conditions: Knowing the financing conditions of the market, like the interest rates and the availability of credit can help you understand the buying power of potential buyers and renters and can also affect the potential return on investment. By understanding market conditions, you can make more informed decisions about when and where to invest in real estate, which can help you achieve a better return on investment.

f)      Another question one needs to ask is what is the financial implication when purchasing or renting?

The financial implication when purchasing or renting is very important. The cost of financing can have a significant impact on the overall cost of purchasing a property. It's important to understand the different financing options available and choose the one that will provide the best return on investment. Aspects such as down payment differences, and delayed principal payments are crucial and can make one either opt to buy or rent a property. For example, for a family home, you will be required to make a down payment between 1-10% while when buying an investment property, you will be required to pay a 15-20% payment.

Secondly, cash flow can have a significant impact on the purchasing of property, as it can affect an investor's ability to finance the purchase and maintain the property over time. Positive cash flow can make it easier for an investor to obtain financing for a property purchase, as lenders may view the investment as less risky. Negative cash flow, on the other hand, can make it more difficult to obtain financing, as lenders may be less likely to approve a loan for a property that is not generating enough income to cover its expenses. Positive cash flow can make it more affordable for an investor to purchase a property, as the income generated by the investment can help to cover the costs of the purchase and any ongoing expenses. Negative cash flow, on the other hand, can make it less affordable, as the investor may have to use their own funds to cover the expenses of the property. A positive cash flow property can generate more income than the holding cost, allowing the investor to save or invest the surplus. On the other hand, a negative cash flow property can be a burden on the investor's finance, as they would have to cover the deficit from their own pockets. Positive cash flow can lead to a higher return on investment, as it can provide a steady stream of income and potentially lead to long-term appreciation in property value. Negative cash flow can lead to a lower return on investment, as the investor may have to continue to inject cash into the investment in order to keep it afloat.

g)    What is the tax implication on the property?

Last but not least consider the tax implications on the property when investing. One needs to be aware of taxes related to each type of property. Rental income from a property is considered taxable income and must be reported on the investor's national income tax returns. In addition, any expenses related to the rental property, such as mortgage interest, property taxes, repairs and maintenance, can be deducted from the rental income to lower the investor's tax liability.

Having an understanding of Capital Gains Tax will enable a seller set a price range for his/her property. If an investor sells a property for more than they paid for it, they will have to pay capital gains tax on the profit. The amount of tax owed will depend on a number of factors, including the investor's tax bracket and how long they held the property. It's important to note that the tax implications of real estate investing can be complex, and investors should consult with a tax professional to understand their specific tax situation and the best way to minimize their tax liability.

After answering and reaching a conclusion to all the following queries now you can have the go-ahead in searching for an ideal property that suits your needs.  

 

 

 

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