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Where to put your money

By Kevin Oguoko | September 3rd 2015

Real estate has been hailed for a number of reasons for being an ideal investment option. Real estate investment has also come of age in its demographic.

It is no longer a preserve of the well-to-do above 35 years of age. Women and youth have continually been a target of real estate investment options with affordable options on the table.

Today, Home & Away looks at the various categories of real estate investment options available on the market, what to do and what not to do taking into consideration your budget.

Luxury apartments

“Buyers do not want the extra cost and time it takes to maintain standalone units especially one with gardens. So demand has also contributed in the rise of apartment developments,” said Raif Sharif, residential sales and letting manager at Pam Golding, a real estate agency in a recent interview.

European fittings tend to last longer. Which is a big factor for an investor who does not want to worry about costly repairs a couple of years down the line after they have bought the unit.

Many luxury apartment buyers buy more than one unit betting on the future rental income flow from the units. Investing in eight Sh14million apartments instead of five Sh20million apartments in the same neighbourhood could seem as a wise investment decision at the time considering the higher rental income.

However, rental stagnation because of the compromise in quality could prove to be a huge blow for the investor in the future. For instance, residents in older, almost-run down apartments in Kileleshwa and Kilimani pay lower rents compared to the neighbourhood units.

“Apart from the décor, the quality of fittings cannot be seen by the naked eye. That’s where most developers are compromising, which is a real problem,” says Sharif.

Planned estates

Buying land in a controlled area is becoming more popular by the day pertaining to urban land investments.

And land buying for speculation has been popular with Kenya’s middle-class for decades.

Planned and controlled land buying makes sure that one does not wake up to find a skyscraper, a factory or other huge development in the next plot.

It also ensures that the land’s value is maintained over the years for that particular market segment.

Some planned estates not only provide by-laws to guide what you can and can’t construct on your plot, but also provide water and power.

Second homes, mostly targeted at Kenyan families who already have a first home, are normally situated around exciting lifestyle recreational facilities such as golf resort estates, beaches and historic sites such as the view of Mombasa’s old town from the English Point Marina.

Second homes

But second homes are a fairly a new concept across sub-Saharan Africa. Many are yet to grasp the idea of flying down to the coast or a resort for a weekend to stay in your Sh60million house, that is otherwise unoccupied for the rest of the week.

“I’m concerned about the viability of golf courses in the future. I don’t see the market prospects of Kenyans buying second homes in these estates,” said Ben Woodhams, managing director of Knight Frank Kenya in a past interview.

It was around the time mega landscape-focused projects were in the news awaiting completion.

Seemingly, the market is yet to prove the experts wrong. The fact that there are still several marketing campaigns to sell the units, shows that all is not well several years down the line.

“It is no secret that the golf estates concept did not do so well in South Africa. How it will work considering it is being overdone in Kenya from many fronts; only time will tell,” says Robert Kariuki, principal land architect at Lariak Landscapes Limited.

One should decide from the onset whether they are investors or home-buyers. The latter should be concerned about whether the unit meets their day-to-day lifestyle expectations while the former should look at the long-time appreciation of the unit and whether or not the developer’s ‘exclusive agent’ is not overselling it.

Real expenses

The truth is developers are businessmen. Unless they construct developments for rent or leasing purposes, many can’t wait to move off the site and  on to another more exciting project; and more profits.

Before a developer proposes a large-scale mixed development, they should provide proof that they have previous years of experience managing such a capital-intensive endeavour.

Even trivial issues such as a defective swimming pool can make a unit a hard sell, which will reduce its value over time when compared to its projected value increase.

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