Friday, 30 May 2014

The best time to invest in Real estate business in Kenya

It is a beehive of activity as heavy earth movers and a group of builders assemble brick and
mortar for a lavish property development taking shape on an expansive piece of land situated on the eight-lane Thika superhighway. When completed, 32-acre Garden City, financed by a UK-based private equity firm, will comprise a 50,000-square meter retail mall (expected to be the largest in East Africa), modern commercial premises, 500 homes and a four-acre central park that will house an outdoor house arena for staging shows and concerts. “Kenya’s property market has potential for higher rates of return compared to other jurisdictions. It is also relatively easy for foreign investors to enter Kenya’s real estate sector. While the last four to five years has seen turbulence in developed property markets around the world, Kenya’s situation has remained relatively stable,” says Nathan Luesby, the Managing Director of Jenga Web Limited and a former broker at the London Stock Exchange. While markets such as India, Dubai and China have had a boom over the last 15 to 20 years, these markets have big bubbles with potential to explode anytime. What a foreign investor seeks in Kenya’s property market depends on several factors, including one’s risk profile and what kind of returns they are looking for. Industry figures show a slowdown in property prices, a situation experts say offers the best opportunity to get in. However, the cost of mortgages is still high, making many investors hold back their buying

“But there is no bubble in the property market. A rapid population increase and a rapidly growing economy are still fueling demand for property, against limited supply,” says Luesby. Limited supply While there is limited supply of houses, prices have remained flat and stagnated in several places. High mortgage has hit the middle-class, the main drivers of the property market. The market has stagnated because many are unable to buy and are instead renting. In a bubble situation, prices inflate exponentially on the back of no demand. People who borrow to finance purchase of houses panic when the price of the property dips below the cash borrowed to finance its construction. In Kenya, most of the property purchases are cash-based. Property development is one of the most lucrative businesses, with a rate of return of at least 30 per cent. For those targeting rental income, the best option would be to purchase ready-made houses. Investment in rental houses has a return of between six and eight per cent. This compares well with returns in commercial property where returns are at 12 per cent.

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