Land is one of the most sought-after assets in Kenya. The appetite to own a piece of land keeps growing by the day. Let us be honest, we all want to own land someday. For those that already have some, they now want more. Hence, below are some of the important factors to consider when buying land in Kenya.
The reason for this appetite is due to several factors such as financial and cultural prestige.
However, this increasing demand is also attracting fraudsters in the industry whose intention is to con naïve buyers. Most of the buyers especially the first-timers don’t understand the process of buying land in Kenya making them vulnerable to these fraudsters.
What is clear is that demand for land will continue to attract interest as long as the below needs remain.
- Real estate development
- Price appreciation.
As a key factor of production, the land is among the few assets that rarely depreciate. In the Kenyan set up, if you control land, you will have control of the production process.
There are various critical factors to consider before choosing the type of land to buy. Overlooking these considerations makes your investment potentially risky or wasteful.
1. Use of the Land
The use of the land answers the reasons why you need to buy it. Different people buy land for different purposes. Some of these reasons include;
- Building a home
- Real estate development
Speculators are mainly investors who purchase land intending to dispose of its appreciation. To purchase land for speculation, you need to look at the high-growth areas. These include areas with
- Good Infrastructure
- Near or at urban centers
The reason is that land in these areas appreciates the highest and fastest. The Has land index.
- Land for building
There are those buyers who purchase land for home building while others for commercial building. Homes are mainly located in serene and outskirts environments while most commercial buildings should be in towns and cities.
Commercial builders should also factor in the type of customers they are targeting.
- Farming land
If you are buying land for farming purposes, then you need to consider factors like climate and access to water. This is guided by what you intend to farm.
Various crops and animals require different weather for optimal production. Take an example of both tea and mangoes. They are both plants but require different weather and location to farm. Tea needs wet weather while mangoes require hot weather to perform optimally.
All these considerations are key when deciding the use of the land.
When targeting to buy a farming land, it is critical to consider the size of the land. For commercial purposes, you need a bigger size than for subsistence purposes.
2. Price of the Land
Land pricing is dependent on various factors such as location and size. Land that is strategically located tends to be more expensive and in demand. This is the reason why land in Nairobi is likely to be more expensive than in other cities and towns.
Based on your budget, you should always look for the land that offers value for the money.
The price will also inform the Size of land to buy. Hence, always seek to understand the price so that you to determine if you can afford it.
3. Location of the Land
Locations are key as it determines to a bigger extent the use of the land. As a buyer, you should always strive to get land that is in a strategic location.
Let’s take an example of an investor purchasing land to put up a petrol station. Generally, petrol stations target motorists and are best located along the highways. There would be no need to buy land located in the interior to put up a petrol station.
Another example is buying land for speculation in an insecure area. There is a chance you will have a challenge getting a buyer for that piece of land. The land could also depreciate instead of appreciating.
In the long run, you will be stuck with a piece of land that you can’t use ad no one wants to buy.
The location of the land should be determined by its intended use.
4. Conducting Search with the Ministry of Lands
The last thing any buyer wants is to purchase land that is not genuine. Hence, this created a need to search to determine the status of the land of interest.
Searching is a critical process that helps in determining some of the below facts;
- The real owner of the land
- If it has any caveat of charge
- The actual size of the land
- Land history
This is just like doing a background check to ensure everything is in order before concluding the transaction.
Identifying the real owner of the land is a critical element that mitigates transacting with fraudsters.
Searching also helps identify if there is any charge or caveat attached to it. This should be an area of interest to avoid buying land with disputes.
For such land, you should seek to understand the nature of caveats or charges. In case there is no clarity, take that as a red flag and proceed with caution,
It is important to highlight that it costs 500 shillings to search and the takes an average of three days to get the report.
5. Leasehold/ Freehold Land
Most land in Kenya exists either as a leasehold or freehold. Understanding this helps the buyer to prepare for the conditions that come with each type.
- Freehold Land
This is the land where the owner has absolute ownership without any time specifications. The owner has the right to use the land of any use they deem suitable as long as it is legal.
This is the type of land mainly found in rural areas. Ownership is normally passed on down generations in a process called succession.
- Leasehold Land
This is the most common type of land found in urban areas. Leasehold land is usually owned by the government but given to private individuals to develop it. Normally, the maximum lease duration in Kenya is 99 years upon which you can apply for renewal.
In a simpler explanation, you don’t fully own the leasehold land. You only possess it for a given duration. It also comes with conditions such as its use.
For example, if you lease a farming land, you can only use it for that purpose. Any deviation could result in the owner repossessing it.
In the past, we have had scenarios of the government threatening to repossess undeveloped leasehold lands.
Understanding whether the land is on free or lease helps you to understand its legal obligations. After the expiry of the 99 years for the leasehold land, the owner has the right to renew or not.
5. Land Rates
This is a tax charged by county governments for the lands within their jurisdiction. It caters to the service provided by the government such as roads, power, and water.
Land rates are annual and must be paid fully. Failure to do so attracts penalties and prevents transactions with the land in default.
The reason why it is important to determine the status of land rates is to ensure you are not left with unpaid arrears incurred by the previous owner. In case there are any pending payments, you should ensure the seller has cleared the bills before completing the transaction.
Naturally, it will be very difficult to follow up on the owner after the transaction has happened.
Understanding the rates also helps in understanding the obligations that come with owning the piece of land. You will be expected to make yearly payments as well once you assume ownership.
As per the law, land rates should be reviewed every 10 years. Hence, you should expect them to change regularly.
6. Access to Utilities
Utilities are critical when deciding to buy land. These include elements such as water, electricity, and the Internet. The type of utilities to consider should be based on the reason for the purchase.
A suitable example is buying land to build a home. This requires several utilities such as water and electricity to run smoothly. These utilities should be already in place or near the land so that you don’t struggle both in time and resources to have them in place.
For a farming venture, some of the factors to consider are accessibility to reliable and efficient transportation networks and water. This is because farm produce requires fast access to the market.
Failure to factor in the elements could lead to venture failure.
In recent days, the internet has also become a critical utility to consider. This is because most services such as education and work are moving online making it a critical must-have utility.
7. Stamp Duty
This is a tax charged on land transfer in Kenya. It is usually at the rate of 4% for the land in urban areas and 2% for the land in rural areas.
Stamp duty is an additional cost to the buying price. Let’s take an example of a piece of land costing 1 million shillings in an urban area. Once you include the stamp duty of 4%, the cost rises by 40,000 shillings.
Understanding about it helps you in planning in case you want to buy a piece of land.
Stamp duty is a mandatory payment and failure to do so amounts to a criminal offense.
8. Sale Agreement
This is a legal document that indicates the willingness of the seller to sell the land and the buyer to buy it. It should come after doing the background check and you are comfortable the transaction is safe. A complete sale agreement should have the signatures of both the seller and the buyer plus a witness.
Because this is a legal document, it is advisable to engage the services of a professional(lawyer) when drafting the sale agreement.
9. Title Deed
This is a document that shows the owner of a specific piece of land. It also indicates the actual size, location, and whether it is on a freehold or leasehold. To obtain a title deed, you need to have the below documents;
- Land rates clearance from the local county government.
- The search certificate for the land
- Transfer approval by the National land commission
- Valuation report with the stamp duty payment receipt
A title deed comes last after all the processes have been completed. To apply for a title deed, the below documents are needed for an individual
- Identity card
- Kenya Revenue Authority Pin
- 2 passport size photos
For a company, you require
- Registrations certificate/ Certificate of incorporation
- Kenya Revenue Authority Pin
- 2 passport size photos for the directors
Once you submit these documents, only then you can receive the title deed.
Advantages of Buying land in Kenya
As a fixed asset, there are various benefits you can enjoy as a landowner. These include;
1. Appreciation in Value
The land is one of the few assets that keep appreciating. This forms one of the major reasons why most people buy land in Kenya. Over time, land appreciation has maintained growth averaging 10%. This is more in urban areas where the demand is high.
Land speculators normally target buying land at a lower price than selling it at a profit.
2. Use it as a Collateral
The nature of land makes it a suitable asset to use as collateral. It is among the most used collateral in exchange for financial services.
Various financial institutions accept land in exchange for loans. These include Saccos and Banks.
The land is the most widely used collateral in the country.
In our culture, most people consider land as the ultimate succession asset. It is easily divisible and ensures family continuity. More so on the freehold land. Because land is indestructible, land succession can go on for thousands of years.
4. Low Maintenance Costs
The land is naturally occurring and requires little maintenance compared to other investment assets such as a car. Once you buy a piece of land, you can leave it as-is for many years. A car on the other hand requires regular maintenance, insurance, and fueling.
Other than the regular land rates and maybe fencing, there are no other costs that you need to maintain your land.
The land will continue to be attractive in the future as the population increases and demand rises. As a buyer, always follow the process to avoid falling into fraudsters.
Do not rush to buy land without conducting adequate due diligence. Only buy land based on your need and preference.
Finally, prices are never fixed. You should always negotiate to get the best deal possible when buying land in Kenya.
All the best!