Saving for your dream home

One of your aspirations in the New Year could be to have your own home. But getting onto the homeownership ladder is usually a daunting task that comes with a lot of sacrifices. PETER MUIRURI brings you an inspiring story of how one couple realised their long-cherished dream of owning a home

As excitement about the New Year reached fever-pitch last week, one lady could not hide her joy. She was not only happy to have seen 2014; she had great dreams for her life as well.

Asked what she intends to achieve this year, she said she hoped to live in her own home before the end of the year. Like most of us, she has been renting.

Although she did not indicate how she plans to buy her dream home, it can be assumed that, having talked of owning a house by the end of the year, she will most likely be a cash buyer. Only cash purchases can take such a short period of time.

It is also possible that she has a plot somewhere on which she plans to build a house. However, if she has not yet purchased a piece of land on which to build within the year, chances are that she would opt for a mortgage pegged on her current earnings.

While owning a home is the dream of every Kenyan, a good number of people do not believe they can actually save from their meagre earnings and build their own home.

A few years ago, these were the feelings of Duncan and Agnes Mwangi, a young couple who now lives in their own house in Lang’ata. When they got married ten years ago, their monthly rent was Sh10,000. A decade later, the rent had only increased by Sh1,000.

But they were determined to have their own home. As their story illustrates, strict discipline in saving money is the first step in the long and winding road of home ownership.

“Our goal from the onset was to have a home of our own. However, our finances could not enable us buy a completed home. The only option was to save and hopefully buy a piece of land on which to build a family house. Despite our other financial obligations, my wife and I committed 30 per cent of our earnings to the savings,” says Duncan.

LAND IN KASARANI

Through their Sacco savings, the couple managed to buy a small piece of land in Kasarani, Nairobi, where they hoped to put up a home someday. However, they chose to put up a few rental houses with the hope that these would generate some income that would add up to their future home construction savings.

In the meantime, the couple acquired two other small pieces of property on Mombasa Road and in Embakasi with Sacco dividends. Although the plots were not in their desired locations for a permanent home, their goal of building one was nonetheless inching closer.

Their big break came in 2008 when they learnt of the sale of several pieces of property in Lang’ata, one of the ideal locations that they had wished to move to. Again, thanks to their savings, the couple was able to raise the Sh2.7 million required for the plot.

Then came the arduous task of raising funds for construction.

“We had to make the painful decision of liquidating our small pieces of property that we had acquired through the Sacco. We also got a Sacco loan that was to be repaid in three years at an affordable rate. We also had to dispose of some shares and bonds we had purchased years earlier so as to spread our financial risks. Thankfully, the funds were enough to cover most of the construction costs,” says Duncan.

The couple purchased construction materials in bulk, enabling them to save on transport expenses. In addition, this enabled them to finish the construction within one year. In December 2010, Duncan and Agnes moved to their four-bedroom house. 

While their journey to home ownership may appear smooth, it is a route that required a high level of commitment at a time when many other interests were competing for the same cash. The lessons they learnt may be of help to anyone who is scared at the daunting task of saving to own a home.

STAY FOCUSED

First, Duncan advises any aspiring homeowner to stay focused and avoid the many distractions along the way. For example, he says they had a choice to move from the rented two-bedroom house to a bigger one, but opted not to, since such a move would have gone against their self-imposed goal to build up enough savings.

Having liquidated most of their assets, Duncan adds, they thought of selling their old car and buy a new one. Once again, he says, this would have meant sinking a further Sh500,000 on top of the sale price to get a new car. However, they reasoned — and rightly so — that a car was a fast depreciating asset that could not compare to real estate property. The idea was shelved.

According to Duncan, family cooperation is vital for any meaningful saving to take place. On his part, he is thankful that his wife agreed to live in a small house for a long time and also commit some of her cash to the project.

But the biggest test that required total concentration was making a decision to either buy a house through a mortgage or keep saving to build one from scratch. While a mortgage afforded them the opportunity to move in a new house almost immediately, Duncan and Agnes were not sure they would still have some steady income before completing the instalments.

“We had an opportunity to buy a house built by a pension fund for Sh6.5 million with an initial deposit of Sh1 million. Charged at 15 per cent, this would have required that we repay a monthly instalment of Sh77,000 for 15 years to finally own the house. We were not sure we would still have our jobs for those years. In any case, a mortgaged house could not really be called ours until we paid the last coin. Defaulting could sometimes mean losing both the house and any premiums paid thus far,” he says.

Supposing their combined salary was Sh100,000 per month, this would have meant working non-stop for the next 15 years to repay at least Sh14.8 million besides administrative costs of the mortgage. This was more than twice the initial cost of the house — and that without factoring in other family and personal financial obligations.

BEST ROUTE

According to Daniel Rono of Maestro Properties, saving to buy a property may take quite long, but is always the best route to eventual home ownership.

“You see, property always appreciates in value after some time and one can always sell it when the time is ripe. And depending on one’s relationship with the seller, it is also possible to pay for land in instalments over several months if one is not ready with the entire capital required,” says Rono.

As the year progresses, we can only hope that the lady mentioned at the beginning of this story — and many others — will realise their dreams of becoming homeowners.