BY OMONDI AKURE
Not many journalists pursued the chap who won the Sh30 million Sportpesa jackpot with as much doggedness as would have been expected. Perhaps journalists are losing their mettle. Or perhaps I just did not put my ears to the ground. Anyway, I am sure, whether they did pursue the guy or not, one of the most foremost questions that would have been asked would be: what are you going to do with all that money?
As to what his response would have been, your guess is as good as mine. He would most likely than not say he will invest the bounty in land, a plot or plots or some property.
And that is very Kenyan. Kenyans are property enthusiasts. They love land, plots, and will do almost anything for it. When the National Treasury rebased the economy, property market leapfrogged manufacturing to become the fourth largest contributor to the country’s gross domestic product (GDP).
Real estate’s contribution to GDP more than doubled to 10.6% from the previous 4.9%.
According to George Kamau, a real estate investment expert at ICEA Lion, although there is a lack of available data to accurately predict the size of the Kenyan real estate market, the rebasing showed that the sector is huge. Roughly, size of the Kenyan real estate market equals Sh420billion, according to Mr Kamau.
Analysts have predicted a shift in focus by Kenyan bankers from consumer lending to home loans and financing to purchase land and carry out constructions.
However, there is some development in the real estate sector. The last three reports by global property consultancy Knight Frank have shown that demand and supply for high end houses in Nairobi seem to have reached an equilibrium point- and it is like soon, supply will exceed demand.
Media reports have indicated that the trend is being manifest in the lower end housing market as well. Cases of houses going for months on end after completion without being occupied abound.
Nonetheless, Kenyans still believe that the surest bet for their hard-earned cash or even lottery is in property. People are still looking for best priced land to build. And as though nothing has changed, speculation is still where it was – at its peak – driving the prices of land and other properties through the roof.
Every other day, there is some land somewhere, some housing projects nicely described as ‘something-city’ coming up. And the ambiance of the project, though non-existent as yet-is like no other. And this is dramatized in some of the most popular radio shows.
“Speculation is primarily an expectation of a rise in value or price of property and as is the case in all other markets, this generally attracts other investors as they expect prices to go up. Speculation has played a big role in Kenya’s property market,” says Kamau.
People are buying land not because of its intrinsic market value, but because they have been told that the land will appreciate after a certain period of time.
“Speculation is what is driving the property market in Kenya that has led to the rush of land ownership hence the high cost of land, and property cost rising every day,” says Biwott Daniel of the Association of Estate Managers.
The best way to understand the magnitude of speculation is to look at it from the quail fiasco. There is nothing that was not said about quail’s eggs, chief among them their medicinal value. But not everything was factual. It was just to soup up the deal, and people fell for it.
A research done recently by the Standard Chartered Bank showed that Kenyans’ appetite for property is among the highest in the world. Seven in ten middle class Kenyans plan to own property in the next two to five years.
The survey on emerging affluence puts Kenyans ahead of emerging affluent people in seven countries, which include Hong Kong, Nigeria, China, and Indonesia. Emerging affluent Kenyans also have a higher appetite for own property than their counterparts in India and Singapore.
So much is our obsession in property, that even businesses that have no business investing in property, such as banks, are putting their billions into property. But is investing in land, plots and real estate the way to go?
According to Dr George Njenga, the deputy Vice Chancellor of Strathmore University, there is a need to reconsider the thinking that the best way they can invest is by ownership of land and buildings.
“Many people invest in pieces of land throughout their professional life or income generating life times with the idea that they will generate future returns on those plots of land. Unfortunately only very few know the real estate business and therefore end up loosing the opportunity of investing the funds better because they are tied in land and other physical assets,” he says.
Even worse is that most people do not appreciate the fact that returns on assets for most properties are relatively low when compared to other investment options.
The rule of the thumb in investment is that the higher the risk, the higher the returns and vice-versa. Investing in land is seemingly a low risk investment and thus a low-return investment.
When the going is getting tougher with some of these companies running into huge losses, they are rush to dispose of these properties.
Companies that have so far lined up their properties for sale include the cash-strapped Kenya Airways, Telkom Kenya and even National Bank. Experts agree that companies such as National Bank, for example, had no business owning bank branches.
Dr Njenga, borrowing from American billionaire Warren Buffet, says companies need to look at investments that have a return value of more than 20%. “He (Warren Buffet) gave instructions this year to his CEO’s to buy companies that are valued more that $75 million and have a return of 20% and above. This is difficult, but it is a sure way of telling his executives to invest significantly in emerging markets. Our business leaders, especially in companies that have a strong government presence are usually not long term in their approach,” he said.
Even worse is that our obsession with owning properties has come with other challenges, chief among them fraud; The long rains in April brought with it floods that wreaked havoc in most parts of the country, exposing the depth of greed and corruption that has come to characterise the real estate sector in Kenya.
Private developers were accused of erecting houses on wetlands not meant for construction.
There have also been cases of people grabbing public land, with some private developers going after schools – a development that has seen the term ‘private developer’ despised in the society.
Moreover, a number of houses are being brought up with little consideration to social amenities such as playing fields for children, proximity to schools or health facilities. But perhaps the most stubborn stain in the real estate sector is its infestation with fraud.
In an article in The Financial Times, one of Britain’s most prominent publications, the author paints a glossy picture of Nairobi’s prime housing market. He raps up Nairobi’s potential to offer expatriate middle class individuals a paradisiacal stay away from home. Unfortunately, with a single warning issued under the FT’s Buying Guide, the writer might have inadvertently rendered useless all these nice words about Nairobi’s real estate market. He warns readers: “Check the person selling has legitimate title to the land they are offering and verify with known land lawyer; forged titles are common.”
There have been attempts to draw parallels between Kenya’s booming housing market and the America’s pre-2008 housing sector. Just before the 2008 mortgage crisis that led to the financial crisis, the US housing market was in a bubble. And some people believe that what the current real estate market in Kenya is going through is a bubble. As such, we should expect a bust at some point in time.
But the real estate experts take issue with such comparison. Mr Kamau describes a bubble as “the consistent rise in property prices that are not supported by fundamentals such as a similar rise in rental income, demand and disposable income.”
He goes on to describe it as a situation that arises from unjustified speculation that leads to a rapid increase in the real estate valuations. According to Mr Kamau, a bubble coincides with three factors: increase in real (inflation adjusted) housing prices; increase in house hold debt (Mortgages); and a persistent rental income loss.
According to Mr Kamau and other housing market experts, such factors are not in Kenya.
“The mortgage penetration rate in Kenya is very low. Most buyers pay cash while just a handful go for the mortgage option. If money is easily available you can create artificial demand,” says Daniel.
Daniel notes that in Kenya, the demand for property is very high with a very small population owning their own homes while the rest are tenants. “Nairobi’s population is growing very fast so I don’t think there is a bubble. There may be some areas of oversupply, where rentals take a little bit longer or landlords have to bring down their rent. This happens mostly in the upper-end of the market,” he adds.
But, again, who knew that the Government might run out of cash?
