The fast growth both in population and economy has made the real estate market to explode in the country. As a result, there are thousands of projects underway across the country to meet this rising demand. A key sign there is investor confidence in the real estate investment in Kenya.
As per the latest data, the growth in this sector averages between 10-15% annually making it a lucrative investment area.
Real estate exists both as residential and commercial. Both have different dynamics and hence the need to have a customized approach for each. Residential deals with investing in living spaces such as homes while commercial involves dealing in office space and business spaces.
Hence, it is your job to choose the one that works for you.
Advantages of Investing in real estate
High returns- As discussed earlier, real estate investment in the country averages 10-5% annually making it a highly attractive industry. The returns are competitive with other investment’s assets such as money market funds.
Asset value appreciation- Perhaps real estate is among the few investments that have an almost guarantee in value appreciation. This makes it a safe investment sector even with the ever-rising inflation.
Collateral – Real estate collateral is among the most sort after by financial institutions across the country. Hence, you can walk into any institution and get a credit facility.
Well-developed regulatory framework – Regulations are a key factor to consider as an investor as they can make or break your business. Due to the growth in this industry, the regulatory framework is well developed and adapted to the market.
Challenges of investing in real estate
Huge capital requirements – Investing in real estate is capital intensive considering the high costs of buying land and construction. It is even higher if you are investing in an urban area as opposed to a rural area. This makes it limiting to potential investors that lack big financial muscle.
Vulnerability to fraud – Although fraud is present in almost all industries, it is more rampant in the real estate industry. This calls you to do adequate due diligence before making any investments. Some of these include verifying ownership documents and using professionals to assist in complete transactions.
Oversupply- Oversupply is a product of overinvestment in one area or sector. As an example, consistent building of commercial and office space is resulting in a lot of property without sufficient demand to take it up. To the investor, this results in a loss of revenue.
The process of real estate investment in Kenya
Below are some of the key steps to take if you want to become a real estate investor in Kenya.
1. Conduct market research
This should be the starting point as an investor. Market research helps you to identify factors such as;
- Market opportunities
- Capital requirements
- Legal obligations
On the market opportunities, you should identify the best type of real estate investment that suits your ambitions. Whether it’s commercial or residential. These two are different and require a different strategy while investing.
Capital requirements entail identifying the cost implication of the investment approach such as buying land and construction. Land in prime areas will sell at a premium compared to land in less prime areas. With this information, it becomes easier to plan on factors such as financing methods.
Finally, there are legal obligations that you need to meet when investing in real estate. some of these include building permits and tax payments. Others include land zoning more so if you are investing in urban areas.
2. Acquiring land
The land is the basic element for real estate investment. However, buying land only applies to the investors who don’t have it already. You can read more here on the important factors to consider when buying land in Kenya.
Some of the key factors to consider when acquiring land are price and access to amenity services such as water and electricity. The type of real estate is also a key factor to consider because residential real estate is suited away from the city. However, commercial real estate such as offices should be in or near the city.
Others such as malls should be located in a highly dense area where the majority of people can access them.
Finally, you need thorough due diligence to ensure the land you are buying is genuine and legal. This is important to avoid falling prey to the many fraudsters who sell land illegally. One of the most common frauds is buying land that belongs to the government only for them to repossess it later.
3. Land development
Once you have the land, you should now embark on developing it as per the plans. To do this, you need a contractor who is responsible for the construction.
There are plenty of contractors in the country. It all depends on their pricing and experience. Doing a background check on a contractor helps to understand their ability. A good contractor should be qualified and have experience in undertaking such projects in the past.
You should also remain hands-on to ensure the final product is as per your requirement. In such jobs, payments are done in bits as per the work done. This motivates the contractors to work faster and do due diligence to earn more money.
Upon completion of your real estate development, you should embark on a marketing process to get customers. These are the tenants. There are various methods you can use to achieve this. Among the key ones is using an agent.
These are specialized businesses that deal with the management of real estate business. Some of their tasks include marketing the business, rent collections, and business management. However, they do this at a fee.
If you don’t have the time to manage your investment, it is better to get an agent to do it for you.
Another marketing approach is by putting posters in a strategic location. Finally, you can use online media such as real estate marketing websites and social media for marketing.
Some of these come free of charge while others require you to pay some commission. It all depends on what is suitable for you.
Conclusion on real estate investment in Kenya
The opportunities in the real estate sector in Kenya are immense. You only need to identify the best area that is suitable for you.
In case you don’t have all the information, you can engage a consultant for the best advice. However, this comes at a cost.
Dealing in land transactions requires a lot of due diligence. It is better to take your time than end up losing your investments. Some of the actions to minimize include engaging a professional in land transactions such as lawyers.
You should also do a thorough search from the ministry of Land. Don’t buy land without physically visiting it to verify its existence.
All the best on your real estate investment in Kenya.