The concept of off-plan buying has gained traction in Kenya in recent years. The majority of investors are attracted to off-plan buying owing to the promise of property appreciation.
When buying off-plan, it means you’re purchasing a property that is not yet complete or started. Buying property on off-plan offers great investment opportunities as you get to purchase property below its actual market value when complete.
However, most Kenyans have lost money owing to developers not delivering as per the agreement owing to a shortage of finances or simply because they were shady.
Some of the questions to ask yourself before settling for off-plan buying are:
Yield – A yield is a return you expect to make from your investment. Most developers state that yield is 5% but this is not always true. No one can predict how much you will sell or rent your property on completion. A good yield for an off-plan property should be higher than 6.5% which is the average in Nairobi.
The yield in real estate in high-end areas like Runda is about 3% but this is compensated by the capital gains of the value of the property over time. The law of demand and supply determines this. There are fewer land parcels in Runda and as such, one will always have to pay a premium.
Location – When settling for off-plan buying, location is critical. You are more likely to make money from the wrong property in the right location. When considering off-plan buying to rent, think of rent as your primary income generation strategy. Ensure to make quality units and maximize the rental income as the rental income market is here to stay.
Some questions to ask your developer before committing to the project are:
1. Their track record
What track record do they have? The developer should have previous experience in the field. Check how long they have been in the industry and the number of completed projects. Look at the quality of the team and the projects they’ve completed both separately and as a team.
Talk to the owners and inquire how their journey was. Were they satisfied with the end product? What was the response of the developer when they raised issues about the home before and after the construction? A responsible and trustworthy developer will ensure to follow through even after handing over as the new home still needs some maintenance or adjustments.
2. Are they trustworthy?
Off-plan buying requires prolonged payments during the development stages of the property and the final balance paid upon completion. As such, the developer should have a trustworthy and professional team that shows the capability to secure your finances during the construction process and ensure the successful completion of the project from its initial stages.
3. Viability of the project
As an investor, ensure to investigate the location of the property and other surrounding properties as well. Focus on the location which you can always improve by repainting the property and doing other upgrades. For example, in Karen, property values are reduced because of insecurity which is out of the homeowners’ control. A good location is one with access to the market.
If you can’t stay in that property yourself, likely, you won’t get value appreciation on it over time. The properties along Mombasa Road were driven by the industries in that area which made it easier for people to walk to work.
If you build a home that’s 2km away from the main road and it’s not in a safe area, your rental yield will be lower than a property that’s not close to the road. Pay more attention to the yield than the capital gains.
4. Accountability and transparency
A credible developer should be willing to divulge information that would help their client know them more. This includes information on their projects and how money is managed throughout the development stages. They should also be willing to send monthly or quarterly updates on the progress of the house and the quality of work.
Also, the payment plan should have consistent payment options to the end. The plan should clearly state the initial deposit coupled with the dates of the consecutive payments.
Off-plan buying offers long-term investments you can bank on. Remember to pay more attention to the yield than the capital gains. Also, choose your location wisely as you are more likely to make money from the wrong property in the right location.
One of the factors to consider is that within the course of time, there will be more demand for rental units in comparison to stand-alone houses or gated communities as we know them now. Therefore, we will see a change in how off-plan development is done now where we have stand-alone houses looking similar to where we will see more multi-family units and more types of real estate emerging.
Questions developers and investors should answer is what are the alternative methods of construction we can apply to fit the emerging trends? Those researching alternative real estate models other than the ones we have now stand a chance to take off-plan buying to another tangent in the near future.
Do your homework before settling on the developer and making payments. Here’s a house that will get your investment juices flowing especially with its spacious backyard.
Some of the above information was derived from a podcast interview shared by Kevin Kanemba, who is a qualified real estate practitioner. He has had experience working in companies like Dyer and Blair as an investment advisor and Centum as a project manager for Two Rivers. He also runs his own company: Brownstone investment group.