The grand plan for many Kenyans is to have a home they can call their own. However, the road to that home is littered with lots of uncertainties and fraud. We at, HOME AND AWAY, keep you on the sane side of property transactions
Last November, the country witnessed what may go down in history as the most savage house demolitions in Kenya. Over 5,000 residents in Syokimau in Mavoko saw their entire savings reduced to rubble as bulldozers mercilessly brought down their palatial homes worth millions of shillings.
The pain was too much for some to bear that they broke down as their dream houses were turned into bad nightmares.
Speaking to The Standard shortly after the demolitions, Mohammed Swaleh said his new home had cost him over Sh30 million to build and had planned to move in the same week of the demolition.
“This is my life’s saving. They have killed me,” Swaleh said.
At the centre of the demolitions was the all too familiar line during such operations — that the said homes were in a disputed piece of land.
The Government claimed the parcel of land has been earmarked for the expansion of the airport. The developers, on the other hand, claimed to have acquired the land through legal means, even tabling documents said to have been issued by the Lands office.
Never before had so many players been involved in a matter involving private homes. The saga would suck in not only the homeowners but also the Lands and Transport ministries, Kenya Airports Authority, City Council of Nairobi, Mavoko Municipal Council, lending institutions and real estate agents.
In the din of buck-passing that ensued, the jury is still out there as to who was most reprehensible. One thing though is certain — Kenyans continue to lose millions of shillings in land deals gone sour.
Take the case of Annette. In an effort to make some long-term investment, she bought some piece of land before leaving the country. She forgot to fence the property that unknown to her, was later sold off to another individual. She came back to find a house standing on her piece of land.
The vendor promised to allocate her another piece of land. This illustrates the casual manner in which some land transactions are handled. It is not uncommon to see a parcel of land being sold to multiple individuals.
Pundits’ take
Experts say a number of these problems can be eliminated if prospective buyers go the extra mile in ensuring due diligence is carried out before money changes hands.
Daniel Rono, the Managing Director of Maestro Properties says that as more Kenyans desire to own some piece of land; cases of fraud can only increase.
According to Rono, no one wants to pay more for property, hence land offered by fraudsters always appears cheaper that current market values.
He recommends a raft of steps which, if followed, can alleviate suffering thereafter.
“After agreeing on the price, a prospective buyer should obtain a copy of the title from the seller and do a search at the land office where the piece of land is registered. If it is an allotment letter, go to the office that issued the original. This will tell you if the land ‘exists’ or not,” advises Rono.
There is more to follow once a person dispenses with the first step. As Rono says, it is equally important to buy a copy of the map showing the particular piece of land from the Survey of Kenya.
“This will verify if the said piece is the same as the one shown on the map. It will also show you any infrastructure such as roads, power lines, sewer lines or land set aside for special purposes,” he says.
Sadly, some fraudsters collude with Government officials to create parallel titles and identity cards in an effort to convince a buyer.
In the case of Syokimau, several maps resurfaced creating further confusion in the already volatile issue.
“At any rate, do not just go by the seller’s version of the map. It could be ‘doctored’ to create non-existent pieces of land. Do as much independent verification as is possible. After all, you will have to live with the consequences of your actions or lack of them,” says Rono.
Although it may appear old-fashioned, it would be good to talk to neighbours who can inform you how they got their land. For instance, they will tell you if they bought it from the same person selling to you, or has been subdivided by a Sacco.
Using registered legal advisers with a proven record will go a long way in avoiding heartache that comes from losing hard earned cash in botched transactions.
-By Peter Muiruri
Property selling simplified
The distance was simply putting a strain to their marriage. Something had to give. It was either giving up on their 14-year marriage or giving up the house they had called home for 11 years. This was the dilemma Grace Nyamai was faced with after her husband John was promoted and transferred from the Nairobi to Mombasa in 2004.
Seems a straightforward decision but not so much for Grace and John as the house was the couple’s most expensive joint project. Their three children had all been born in that house hence it had a lot of sentimental value.
As if making the decision to let go of the property wasn’t hard enough, the process of selling was to say the least a nightmare. This was after they had to endure, like many property sellers can attest, the numerous potholes on the road to a profitable sale.
The selling process
In theory, selling a property is a straightforward process. When the decision to sell is reached, an accurate valuation is the next logical step to ensure the best possible price in the shortest possible time.
With that complete, the selection of a suitable estate agent follows with emphasis being one who is registered and will ensure maximum exposure and pricing of the property. When one is identified, an agreement in the presence of a witness is reached between agent and seller who from this point on is referred to as the Principal.
In tandem, one should also engage a solicitor who will act as a custodian filing the nitty gritty of the entire process. After a suitable offer is received from a willing purchaser and the principal accepts, the exchange of contracts is conducted. The process reaches completion when all monies are transferred from the purchaser to the principal’s solicitor’s account.
Rogue Agents
In practice, however, this seemingly simple process commonly goes awry with the seller falling prey to underhand dealings. These under-hand dealings more often than not involve the parties charged with marketing the property; the agent.
Njoroge Koigi, a registered agent with Vera properties Limited, lays blame squarely on the shoulders of the numerous quacks masquerading as bona fide agents. He cautions would be sellers to only engage the services of registered agents as expressed in Section 13, Chapter 533 of The Estate Agents Act.
The Act clearly outlines the necessary educational, experience level, and moral requirements for one to qualify as a legal and registered estate agent. It further outlines the recommended remuneration for services rendered by an agent.
A dig deeper by Home & Away after talking to various sellers who have fallen prey to scams reveals that even some certified rogue agents driven by greed also engage in shady deals. Trouble brews when pressure from their employer or pure greed leads them to seek financial favours and kickbacks from the interested players.
Usually this is a complicated web comprising of property developers, lawyers, valuers, friends and even family members for pushing lucrative business their way. This, as expected is always at the expense of homebuyers and sellers. The fact that most sellers have extremely limited experience about the property market because they may only sell three or four times in their lives leaves them extraordinarily vulnerable to unscrupulous agents.
Agents’ selling techniques range from sales gimmicks through deliberate lies just to make sellers sign with them.
In order to encourage you to sell at below market value, the agent may withhold offers from genuine buyers or get friends to put in low offers to drive you towards a price-slash.
Avoid getting fleeced
The most basic advice to sellers is to be aware of two things. First, everyone involved in a property deal acts in their own interests, not yours, even if you could be footing the bills.
Secondly, if you are a seller who only moves home once every seven to ten years, then all the other players in the property game will have a lot more experience than you and will know a vast number of tricks and traps for getting their hands on your money.
If you are selling a home, you should get several valuations and insist on a short-term contract ranging four to six weeks with the agent so you can get rid of them if they are not performing. Ideally, you should agree on a sliding scale of fees where the agent’s commission is compromised if they sell below the asking price.
If your agent tries to get you to sign with them by saying that they have several buyers eagerly looking for a property just like yours, you should call their bluff by smiling sweetly and saying something like, “That is wonderful, I’m really pleased because, if you already have a buyer, you won’t need to do any marketing or much other work, so let’s agree on a three-week contract and a 0.5 per cent fee”.
You should also treat all the other services like suggestions of which lawyers or valuers to use and other supposed favours the agent offers with a more than healthy cynicism. Importantly, forget about any pretence agents may have about being independent professionals.
Finally, if things do go wrong and you do get fleeced, the only way you will get compensation from crooked, self-serving agents, lawyers, and valuers, is by suing them directly.
As soon as you suspect foul play, seek legal redress and once they discover they have been caught, most would rather settle the matter out of court.
— By Thorn Mulli
Pitfalls of off plan purchase
You are walking or driving along a busy road and there before you is a huge billboard with an artist’s impression of a nice house with the words ‘For Sale’.
You sigh because you have found what you have been looking for, run ahead and book the house only for it to be completed and you realise that it was neither worth the money nor the time you have sunk because it is a far cry from what the artist’s impression. Welcome to the world of off plan buying in real estate. Buying property off plan is not a casual affair as many might be tempted to believe.
Stephen Oundo, the chairperson of the Architectural Association of Kenya (AAK) says that when an architect designs a house, that is just but a design. The final product, he says, is the house.
He states that there are always differences, which may occur between the time of coming up with a plan and the real house.
Oundo states, “There are factors like ground conditions, emergence of better ideas that come up which might necessitate changes.”
Other factors that necessitate change are skyrocketing land prices, fluctuation in currency value and time lapses.
He points out that if the changes are positive and the developer makes the changes then the buyer can add on to the extra cost but only after an agreement with the developer. If no agreement is reached then the client cannot be forced to pay more.
Nevertheless, if the changes are negative like using substandard material than was indicated in the sale agreement, then the buyer can seek legal recourse or there can be a recalculation to ascertain what the buyer needs to pay less the original price.
As Lucas Kang’oli, an advocate of the High Court, points out, to buy property off plan needs to come with a legally binding agreement between the developer and the buyer.
He goes further to explain that the details are always finer and looks keenly at critical matters like quality, architectural and structural design. It has a list of what is expected to be fixed in the house once it is complete and all these must be present when the house is handed over to the buyer.
Kang’oli further enlightens that the standards shown must be upheld by all means. He also he states that there is always a need to have a show house of similar model, though this is not a compulsory requirement.
The advocate charges, “The punch line is that it must be detailed and the details must be followed to the letter such that what the developer gives you as the buyer conforms to the sale agreement.”
If there are any changes to be made, then the developer must inform the client in writing, explaining the reasons and the need for the alterations after which after which the buyer agrees before any such changes can be effected — if the buyer declines then he can opt out of the agreement.
However, if the developer makes the alterations without any consultations with the buyer then the contract has been breached.
—By Jeckonia Otieno
Mortgaged mathematics
Though buying a house may seem like a mammoth task, it has many benefits from ‘ feel good’ effects to increasing your net worth.
“Owning a home gives you longer term wealth, which appreciates in value, provides for retirement and leaves an inheritance for your children. The home also has capital gain and can give you borrowing power to secure a loan or obtain credit to start a business or buy another asset”, says property developer Sue Muraya.
First time homeowners may find the initial costs of deposits, legal and stamp duties overwhelming and intimidating but the end result will be worth all your effort. In any case, a first home usually leads to a second better home.
Once you kick start your mortgage payment, it may surprise some borrowers that their first years of repayments are mainly used up on interest. When J Otieno and his wife Pamela decided to build their home on Kiambu Road, they approached a leading bank and applied for a mortgage of Sh8 million. To their joy and relief, their application was processed and they saw their dream come true as their home was constructed. At the time, the bank offered the loan at a fixed rate of 13 per cent per annum with a monthly payment of Sh93, 726.06 which they faithfully paid. After the first year they were surprised that they had been mainly servicing the interest and very little was offsetting the principal sum. Below is a table indicating how their payments had been split up.
In order to reduce your principal at faster rate, Caroline Kariuki, CEO of The Mortgage Company offers the following suggestions:
1) When taking a mortgage opt for one with a shorter tenure like 15 years rather than 20 years. This will significantly reduce the total interest and save you some money.
2) You could also ask the bank to reschedule your repayments if you can handle higher monthly repayments.
3) Pay up your loan as quickly as possible with extra income that comes as bonuses or from side hassles. Interest is charged on reducing balance so the more you pay up the less the interest.
4) Buy an off plan house rather than a finished house. Off plan houses are usually discounted as opposed to finished houses, which are sold at the market price.
5) Save up for the deposit of your house rather than borrow the entire amount.
6) Shop around for a friendly mortgage or engage the services of a mortgage broker to help find you a suitable lender.
Basically the shorter the tenure the less interest you pay.
So, rather than give up on home ownership because of the fear of growing interest, it is better to repay smartly to reduce your interest and upgrade yourself to become a home owner.
— By Wangeci Kanyeki
Scrutinising the small print
Not many clients understand legal aspects of mortgages before appending signatures to acquire dream homes on loan.
A sizeable number of prospective homeowners avoid mortgages arguing the loans’ requirements; terms and conditions are shrouded in legal secrecy.
In most cases, the terms and conditions can only be read with the help of a microscope — they are written in miniature fonts that many overlook reading prior to signing up.
There are also several hidden charges that majority of applicants of the home loans never understand or are never revealed by commercial banks.
Reality and legal clauses that applicants overlook always haunt them down the line after defaulting and lenders calculate money owed to them.
For instance, acquiring a mortgage of Sh15 million to buy a dream home has many other legal charges that increase your debt.
The veiled charges are what commercial banks and mortgage firms ‘professionally’ refer to as closing costs.
For starters, majority of the ‘mysterious costs’ often shots up the final figure of the amount borrowed to averagely 10 per cent.
For instance, the lenders charge the borrowers to prepare a valuation report for the property, legal fees, stamp duty, insurance and negotiation fees.
Before signing a mortgage contract form, lenders often have stringent requirements that must be fulfilled.
A prospective homebuyer must first deposit with them between ten and 20 per cent of the price of the house before other charges creep in.
Often, the valuation fees are charged between 0.25 per cent to 0.5 per cent of the market value of the property.
Interestingly, some banks even levy mortgage applicants negotiation fees at one per cent of the loan, so a mortgage of Sh15 million attracts negotiation fees of Sh150,000!
Others are legal fees on transfer and charge each at between 0.5 to 1.5 per cent of the property value and loan value respectively.
Stamp duty is charged at four per cent of the value of the property, so a house valued at Sh15 million attracts revenue of Sh600,000!
Stamp duty on the charge is levied at 0.1 per cent of the loan and fire policy of 0.15 per cent of the insured amount.
Furthermore, mortgage protection covers are levied at between 0.3 and 0.6 per cent of the loan amount annually.
Consequently, applying for a mortgage to buy an Sh15 million house would drag in hidden charges of up to ten per cent — a cool Sh1.5 million. With this amount you can get a plot in a relatively middle class area in many towns in Kenya.
Legally, mortgage applicants who wholly rely on staff advisors of banks for advice and take it as gospel truth could be digging their financial graves.
As caution, it is prudent to engage your own lawyer to go through the mortgage application forms and contracts before appending your signature.
Others are a letter from your employer confirming employment status — terms and retirement age —and bank statements for the latest six months.
A photocopy of your national identity card or passport, three-passport size photos, sale agreement signed by the seller and buyer and witnessed by a lawyer.
A copy of Kenya Revenue Authority Pin, title deed of property being purchased and up to 75 per cent net disposable income considered for mortgage repayments.
In many cases, lenders penalise borrowers who finish payment of their home loans early arguing it amounts to breach of contract.
For instance, if you took a mortgage to repay within 25 years but pay within five years then you shall be penalised! Ostensibly, you have denied them income out of the interest rate that could have accrued had the repayment gone on for 25 years.
Defaulting on payment of monthly mortgage instalments as mutually agreed on contract also causes a nightmare to many homebuyers.
Currently, majority of law firms are handling cases whereby clients applied for mortgages but unfortunately lost their jobs via cost cutting by corporate firms.
Legally, remedies available to financial lenders for non-payment, accrued interest and breach of written agreement also increase mortgage apathy.
For instance, the basic remedy for a lender who intends to sue for the remainder of the debt or to foreclose is to obtain a court order to stop the right to complete payment.
The bank or financial institution may also auction the house under the statutory power of sale after a court order.
The power of sale arises as soon as the legal date for repayment of the loan has elapsed.
Legally, three months must elapse after notice to pay the outstanding debt, or interest is in arrears of two months or over a breach of a covenant in the mortgage deed.
The lender can also take possession of the property or appoint a receiver to receive all the income from the house.
— By Harold Ayodo, an advocate with the High Court of Kenya.
Your rights as a purchaser
When buying property or land, the law protects both the vendor and the purchaser. Most purchasers, however, do not understand their rights in these transactions, leaving the vendors to exploit them.
According to Mumbi Mionki, an Advocate of the High Court of Kenya practising Property Law /Conveyancing in Nairobi, one of the key things you should do as a purchaser is to make the necessary searches at the relevant authorities and ensure that the transfer of property is registered.
“For example, if a vendor fraudulently conveys property to a purchaser (for example, by selling to the bona fide purchaser (BFP) property that has already been conveyed to someone else), the BFP will take good title to the property,” says Mumbi.
According to Muthoni Wagenga, conveyance advocate, the Land Act provides that a certificate of title shall be held as conclusive evidence of proprietorship.
“However, there are exceptions to this like on the ground of fraud or misrepresentation to which the purchaser is proven to be a party or where the certificate of title has been acquired illegally, unprocedurally or through a corrupt scheme,” says Muthoni.
The purchaser is still protected even in the case of fraud because the parties with a claim to ownership in the property still have a cause of action against the party who made the fraudulent conveyance.
The purchaser has various avenues in case they feel short-changed. They can pull out of the sale agreement prior to its execution at any time and for any reason, with no legal obligation to the other.
Says Muthoni: “When signing the sales agreements, there is usually a clause that states that when you withdraw from the sale agreement, you will lose the ten per cent as the purchaser. You then can decide to forfeit this and pull out if you feel that your rights as a purchaser are not being protected.”
Unfortunately, there is no law that specifically requires the seller to give full disclosure in this country, which is why the need for searches and investigations into title cannot be overemphasised.
Says Mumbi: “If the issue is fraud, then the purchaser has a right to sue the vendor. It’s the only avenue they can take at this stage.”
When it comes to borrowing for the intention of purchasing land or property through mortgage, the borrower also has various rights as guaranteed for by the law.
Mumbi adds that where the charge provides for a variable interest, the borrower must be given at least 30 days notice in writing if the lender wants to increase or reduce the interest rate.
“The borrower has a right to discharge the charge upon payment of all money secured and the performance of all other conditions and obligations. If the borrower is in default and continues to be in default for a month, the lender is required, by law ,to give the borrower written notice to pay the sum due and owing or rectify the default,” points out Mumbi.
Mumbi adds that by law, such notice should state; the nature and extent of default; if default consists of non payment of money due under the charge, the amount that must be paid to rectify the default, and the time (being not less than three months) by the end of which the default must be rectified.
Where the lender is exercising its power of sale following default by the borrower, the lender owes a duty of care to the borrower to obtain the best price reasonably obtainable at the time of sale.
“The borrower has a right to make an application to court for relief against the lender’s exercise of any of its remedies, that is: Suit for money due and owing; appointment of a receiver over the income of the charged property; lease over the charged property; entering into possession of the charged property and sale of the charged property,” Mumbi concludes.
— By Allan Olingo
