What is happening in our property market? Why is it easy, or so it seems, for people to con or be conned.
Our property industry, I bet you will all agree, looks to be at a crossroads. It is now obvious that the property boom witnessed a decade or so ago has dwindled.
The returns, though still attractive, are no longer as lucrative as before. Some property analyst novices have recently been even talking about a looming bubble. Of course, that is far a fetched imagination.
But the reality of a struggling property sales is here with us. Perhaps our creation? Maybe. Frequent building collapses in the last five years have been an inerasable watermark of this industry.
Government demolitions that begun in the last quarter of 2018 are still fresh in the minds of most Kenyans. Consciously or not, its perceived damage to the construction sector will take some hard work to undo. But indisputable is the now near normal conning of property home buyers that we must expeditiously put to ice.
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Spurious property developers have been ahead in their lie ingenuity. Their unabated success has seemingly lured even once astute developers to the altar of greed. Results; the ever weeping property buyers in our industry.
What is going on? The dwindled return on investment the real estate industry is facing, I posit, is the focal reason for this increasing greed. Many developers are still reluctant to accept the reality that the era of high return property boom of supernormal profits is by the wind. This is no longer the industry of a decade ago where everyone rushed to quickly cash in. We are in the dawn of making reasonable normal returns.
Since the old dog seemingly will not bend to learning new genuine tricks to survive, we must force it for the sake of public good. I have urged, several times before, that this property industry is ripe for new regulation to strengthen it.
Caution to public
Isn’t it evident that off-plan property sales or even property advertisement need some regulation to caution the public? Dubai has a wonderful model regulation we can borrow from.
But even more, the recent public spat between Sunset Boulevard residents and I&M Bank also brought to fore an area that government need to properly tighten through regulation.
There is a growing trend where developers, either through collusion or wit, over borrow money form financial institutions to finance projects. Is that even possible? Yes it is. I have lived to witness this first-hand. Project feasibilities are twisted to satisfy this greed and the never ending lackluster approach by financial institutions to project finance has been the icing for such developers. They borrow money that is impossible to settle even through house sales, and since the houses are normally included as security for the acquired facility, home owners have ended up bearing the brunt when banks seek to recover their money.
For instance, when a developer over borrows on a project by asking for Sh100 million, the onus is on the developer to settle this through other sources outside the project returns.
In most cases they are unable to since even the entire project returns falls short of the expected money to the bank. There are growing number of cases where buyers have fully paid for their houses only to be hit by the reality of pending developer’s loan with a bank.
In some cases, the pending amount from the buyers at time of project completion cannot adequately settle the borrowed amount. To cure this menace, it’s time we made it mandatory for developers to disclose to the buyer the loan amount they have acquired to finance the property they are buying in the case of off-plan sales. This will ensure that developers are moderate in their borrowing, knowing it would determine their sales by providing a buyer an interrogation platform.
No country has done away with the real estate industry. Amidst its challenges, they have innovated ways through regulations to strengthen the gaps for the economy’s sake.
A collapsing property market is bad for the country. Let’s wake up to this realisation-pronto. We must not let other people’s sweat easily fund others’ luxury life. At the moment it is. Way too easily.
- The writer is chairman of Association of Construction Managers of Kenya. [email protected]