Real estate in one of the best investments you can make among other investments for a well-diversified portfolio of assets. In Kenya, the sector is a boom giving high yield, and high returns on Investment as the demand for property is high.  ( Related Investing in Shares at NSE)

An overview

In Kenya, land, and houses are the commonly traded assets in the real estate sector. There are many companies registered to offer land and plots for sale as well as houses for sale.

In this post, we are going to major mostly on houses within the real estate properties. Housing is one of the Big Four agenda for the Jubilee government as it seeks to develop affordable housing units. The demand for housing in Kenya is high as people look forward to acquiring houses for a living and even for let.

Performance of the housing prices is tracked using the Housing Price Index that is a quarterly index released by the Kenya Bankers Association. The index tracks housing sector dynamics, price movements, and the drivers of house prices.

Acquiring a  House

Most people in Kenya, especially in the urban areas, live in rented houses with only a few percentage owning homes in the town’s suburb. These are the clientele that property developers target for apartments, estates, and bungalows they build for sale. Also, almost all business are hosted on rented building with very few having developed their own property for office occupancy as well as letting out.

Getting a mortgage is one of the options traditionally preferred to acquire or build a house. Mind you; a mortgage is costly in terms of the high-interest rates charged and other costs that accompany the mortgage. Building a residential home is capital intensive; you buy a plot then have a building budget to finance. For this, amongst other reasons, property developers offer an alternative where they sell ready to occupy houses.

Imagine getting a ready house where all the hustle of building the house, doing the finishing and all the paperwork has been done for you, and you have the final product to acquire? It may sound an excellent option, but there is a better option – off plan property.

Off Plan Property

An off plan property is a property sold even before the structure has been constructed.  In the Off Plan model of acquiring houses, you buy the house before they are built but at a lower price. An off-plan project has flexible payment plans where you pay the developer in installments to build the house as you wait for its completion and handover once it is ready.

Advantages of Off Plan Properties include;

• Relatively Cheap

Compared to acquiring a completely furnished house, an off plan is relatively cheaper as the margins are lower.

• High return on Investment

At the completion of an Off Plan project, the value of the house will have defiantly gone up depending on the market dynamics.  You will, therefore, have a completely furnished house that’s is of a higher value than you acquired it at the off plan stage.

This is the catch for the off-plan projects, rational investors acquire than at launch stage and sell them at completion time at a high price.

• Amenities

The amenities provided for off plans are customized to meet the specifications of the pioneer investor in an off-plan project. They are, therefore developed with the client in mind.  

• Flexible Payment plans

Off-plan projects have a flexible payment plan, unlike mortgage that will charge interest at a floating rate- meaning the interest is not fixed. Off plans do not charge interest and if they do they are fixed, thus they do not constrain your budget.

Off plans also have some pitfalls where in some cases  developers fail to deliver. You should, therefore, do a due diligence before investing your money.

Investing for rentals

Not all acquire houses for residential purpose. You can also purchase a house to let for rental income e.g., renting out as office premises. This income gives you regular and constant cashflows as long as the property is occupied. 

Where you are acquiring a property with an intention to let, you can do a comparison of expected rental income and the installment you pay for its development to see if it’s worth investing. Where you are acquiring property on a mortgage for let, you can make a comparison of the rentals and the interest payable.

Taxation of Rental Property

The taxman will also claim a share inform of tax within the real estate sector.

For transfer of property, capital gain tax is charged at a rate of 12.5% ( an increase from 5%) as was proposed by the Treasury CS when delivering the 2019/2020 budget.

Documentation for agreements and sale contracts will also be subject to Stamp Duty Tax that is payable to the  Commissioner for Domestic Taxes at KRA.

 For commercial property that is let out, it is subject to rental income tax at a rate of 10% of monthly rentals. VAT is also chargeable on a commercial property where the Landlord is registered or has meet the requirement for VAT obligation.  

Wrap Up

Real estate is one of the sectors that gives constant cashflows, especially where its property for let. Developers have now been offering projects hat off plan stage, which gives you a chance to acquire property at a relatively lower rate other than acquiring one on a mortgage.

The government has also pulled in through Boma Yangu project with the aim of developing affordable housing units under the Affordable housing agenda pillar.  You can register under the program for free and start contributing as an individual, and developers can also register as partners in the project. More information is available on Boma Yangu website  

You can comment for questions on real estate investment or any inquiries on investment tips in the reals estate in Kenya.