14/08/2012
HOW SPECULATORS ARE RANKING IN MILLIONS FROM LAND DEALS
A few years ago, the only serious type of investment most people knew was the stock exchange. But now, buoyed by a vibrant property market that has refused to respect economic tides, many hawk-eyed investors are scouring different parts of the country for land deals that can turn them into overnight millionaires. They say you can never go wrong with land… as long as you are not buying your little piece of earth from a fraudster
Francis Ndung’u brings his car to a sudden stop, then reverses, almost like one in a life-and-death situation. His passenger looks a trifle bewildered as Francis motions that he joins him to survey a fast-developing section of Namanga Road, a few kilometers after Athi River.
Their trip to Arusha to meet a supplier for his timber business will have to wait… a little longer… because Francis has just seen a “Plot On Sale” sign in a “promising” area.
The man has an appetite for these things, which he snaps up for future resale, and so he moves closer to seize his prey. It is a side hustle that has served him “very well”, he says.
“In 2001, I reluctantly bought an 80×40 plot for Sh30, 000 off Kangundo Road from a friend who needed the money urgently,” he says. He then forgot about his newly acquired property for several years.
Towards the end of 2007, when the economy was bang in the middle of its fastest expansion, he found himself in need of quick cash to bail himself out of a business difficulty.
After hustling, Francis remembered his piece of land lying unused on the outer fringes of the capital and decided to liquidate it. So he went to a valuer to get an estimate of what he could hope to get from it.
Accompanied by the valuer, Francis made his way to Kangundo Road… and got the shock of his life.
“Fashionable homes had come up all around the plot, with neat roofs kissing the sky as far as the eye could see. At the time I bought the plot, the whole area was a dusty grazing expanse whose unsightly appearance was only punctuated by withering acacia trees,” he says.
Not so in 2007, as a burgeoning middle class, supported by an economic boom had quickly moved into the area and made it one of Nairobi’s most modern residential zones.
He asked how much he could get for his little piece of earth.
“Sh1.5 million,” the valuer said.
“It sounded so surreal that I was sure there was some hard landing somewhere.”
But in one of the land selling offices in the area, Francis had his valuation confirmed and even told that the office had a long waiting list of buyers if he wished to sell. He did and, two days later, parted with his property. He walked home Sh1.7 million richer, used about Sh100, 000 solve his business problem, and ploughed Sh1 million into acquiring a bigger piece of land.
Somebody had told him about recently sub-divided plots going for Sh100, 000 apiece near the Ruiru chief’s camp and he bought 10 of them.
A few months later, when the post-election violence of 2007-08 came calling, people from the Mount Kenya region displaced elsewhere sparked an almighty scramble for properties around Nairobi, and Ruiru was the focal point of that hunt.
That is how, six months after paying Sh100, 000 for a single plot, Francis gave an agent the green light to get buyers.
“I got Sh600,000 for the first three pieces before the price shot up to Sh900,000 for the final seven,” he says.
That made him a cool Sh8.1 million from an initial investment of only Sh1 million, a crazy return that has been pulling millions of Kenyans to the sector.
The appetite for property in Kenya is being driven by a multitude of factors, according to Prof Joseph Kieya of the Kenya Institute of Public Policy Research and Analysis (KIPPRA). Kenyans have an ultra-capitalist streak and will jump head-first into wherever there is a sniff of a quick buck, he says.
“All you need to do is look at the DECI pyramid scheme and later the Safaricom IPO to know that Kenyans’ desire to make quick returns is almost insatiable,” says the professor.
In the case of real estate generally and plots in particular, Prof Kieya believes that Kenyans are right on the money on this one.
“The returns this business is giving investors are massive,” he explains. “There is nowhere else in the world where an investment of Sh300, 000 can give you Sh3 million in only one year. Based on historical performance trends, speculating on plots is becoming a very rational business plan.”
Other factors are also pointing to this being a hugely profitable activity for years to come.
After an initial rally in the post-NARC government, Kenyans seem to have grown tired of purchasing stocks as an investment option. This is because, Prof Kieya says, the Nairobi Securities Exchange has become increasingly risky, while holding money in a bank account has never been a good option.
“At least on the property front, there is a historical assurance that you can never lose your investment value provided you make sure that you are not buying from a fraudster,” says the professor, who heads the Private Sector Development arm of KIPPRA.
Also supporting the boom in properties is a fast-growing population that is snapping up every available residential property.
In Nairobi, almost every inch of land has a structure standing on it, or a structure planned for it. Developers are now even looking to towns outside the limits of the city as the new frontiers. That itself offers an opportunity for forward-looking entrepreneurs to snap up land in outlying areas and wait for an assured future demand.
Prof Kieya sees every urban centre in Kenya experiencing robust demand, especially now that economic activity is being planned for decentralization under the new constitutional order.
“Vision 2030 will, in the course of time, make sleepy towns like Lamu, Isiolo, Lokichoggio, and Moyale major economic centers. In anticipation, entrepreneurs have been getting out of Nairobi to these previously end-of-the-earth places and snapping up property.”
A rising clique of high net worth individuals has also helped turn some regions into holiday towns. Naivasha and Nanyuki, in particular, have lately become the focus of the millionaire buyer, completely altering their ratings and thus ensuring that those who already possessed land there make a giant return.
So have universities.
Only four years after gaining its charter to become a fully fledged university, Mount Kenya University has established campuses in almost all major urban areas across the country. And it is not alone in this scramble; almost every university is expanding out of Nairobi. In fact, institutions of higher learning are the biggest buyers of land around the country.
When a university moves into a particular town, they help create an added need for accommodation for both the staff and the students outside their own perimeter fence. In the end, entire quiet areas of a town are completely reinvented. Kisii, Embu, and Thika are perfect examples of how, when you hear a university is moving into a particular town, you should quickly get a plot before they become too dear.
A Thika lawyer knows only too well how much you can make by keeping an eye on the land market. Moses Mugo of Mugo & Co Advocates set up his practice in 2004 and has handled countless deals that have been stunning in their evolutionary nature.
When Mugo started out, he handled a purchase agreement where a client paid Sh450, 000 for a plot just next to Thika Motor Dealers. Last year, the client returned with a sale agreement for the same piece of land. After only seven years, the plot sold for an impressive Sh18 million.
And that is not a unique story in the lawyer’s line of work. “A price structure can evolve during a single day from Sh300, 000 to 900, 000,” he says, and reveals a particular case that got him dazzled.
A friend purchased a plot and, just like Francis at the beginning of this story, forgot about it. After a long while, the man needed to borrow Sh300, 000 from his bank, so he remembered his long-forgotten plot and attached its papers as security.
Banks normally value properties before releasing their money, and so the man, whose name Mugo could not reveal because of his profession’s client policy, soon got a call from the bank asking whether he would want to borrow more as his plot could cover a much higher amount.
Confused, the man asked the bank valuer to accompany him to his property to be sure it was the right one that was being assessed. The area had metamorphosed into a respectable shopping district with classy malls, supermarkets, and entertainment joints.
Right in the middle of it all was the plot that he had bought for Sh350, 000 only five years earlier. When the proprietor of the next-door supermarket saw people surveying the plot, he came out and begged that he be allowed to buy the property as his patrons needed a more ample parking lot.
“The bank had valued the plot at Sh15 million but the supermarket owner was offering Sh20 million in cash,” explains Mugo.
His friend took the money and forgot about the Sh300, 000 loans he was seeking from the bank. “He is a rich guy now,” Mugo says.
From every indication, Kenyans’ love affair with plots will hold for as long as stories like these abound.
