Wednesday, January 30, 2008

Issues for Diaspora Investors

Unit trusts
In all the political news this week, some may have missed this story on collective investment schemes (funds, unit trust), who will now have to get more aggressive (take on more risk) to deliver commensurate returns - and are now asking the regulator (CMA) to relax some of the rules that restrict their investments.

A year ago this post discussed unit trusts and the cost of investment being a major deterrent to the returns they offer (and at the time the NSE was in a much better position). I still have issues with the 3 – 5% initial fee and 2% annual fee charged by many unit trusts.

Real estate
The post-election violence will have a mostly negative impact on property values and in rural Kenya, and in towns like Eldoret, Kisumu, Nakuru and especially in Mombasa (where the real estate boom was driven by visitors/tourism numbers). The cost of building will also go up as demand for supplies will be great. So buy cement company shares (Bamburi, ARM, Portland) the day Kofi Annan succeeds in his mediation efforts

In Nairobi, properties near slums like Ayany (adjacent to Kibera) have been badly affected owners and/or tenants moving out. However there is also increased demand in some of the same areas – perceived to be safer parts of the city, such as Kileleshwa and Westlands. They will also benefit from residents of other towns like Kisumu relocating to Nairobi.

These are also the areas that many Diaspora Kenyans have invested in or are considering investing; and while many have postponed their real estate investment decisions, those already in (with mortgages to pay) will have to wait out the storm. Also it may be wise to set up several investment companies to keep rental turnover and sidestep new tax laws

Also Kasarani which is one place you can still buy land cheaply to build, will have values of land increasing as will parts of Central Kenya.

9 comments:

ka-investor said...

I think CMA are too strict on who ventures into the investment business in Kenya, but fail miserably when it comes to their most important job – regulating (think Francis Thuo). Recently they came out fighting private placements made by institutions. I don't think they need to be so stingy on investment firms.

You are right about real estates being the next big thing, but I don't think it will be that immediate. It will take sometime before investors start building. They 1st need to be sure their buildings won't be burnt down after five years.

Anonymous said...

@ Ka-investor:
I share the same sentiments, infact my single consideration for support one of the presidential candidates was his promise to increase the number of investment firms operating in the country.

MainaT said...

I think the comentators maybe confusing entry into the industry with the issue that firms are complaining to CMA about which is the lack of a variety of investment products in the market. I think that pt is valid. We should have at the very least a commodities market because the concept is easily understandable and easy to link in with our agriculture-based economy.
On the issue of entry, I know NSE will demutualise either this yr or next which will mean anybody can set up shop as a broker.

RE-don't know how Central will benefit from the influx of refugees mainly farmers some who left Central in the first place because of the competitive nature of its markets.

Anonymous said...
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mugi said...

Great post!. With the violence and the ethnic cleansing, investment considerations and economic developments have changed forever. UNLESS, we start a gradual process of de-tribalising Kenya. Though i do not have the answers, I believe it is possible.

I grew up and made friends from different communities and we joked about stereo types of each. These kind of jokes will no longer be funny, at least, not for the next decade.

The Y generation, Kenya's hope of de-tribalising the country, have experienced discrimination and death because of tribe. They will, in one way or another, have to, at some point or in some situations, identify with their own communities. Diaspora investors will likewise have to make their choices. Nobody works hard to see their investments go up in smoke because of their ethnicity!

Anonymous said...

We need to demistify land ownership in Kenya, and gradually move away from agricultural based economy. While other countries are embracing the information age (India), and creating service based economies we still talk of buying plots and shambas like we cannot feel wealthy enough if we dont own land directly. I support the new investment vehicles coming into the Kenyan market, like REITS which will ensure real estate can be owned directly. Or else how can you burn down a building if it is part of a property fund that you probably bought shares in? Real estate has to be broken down into units which can be less expensive even for the "Wanjikus" to buy, so that everyone ends up being exposed to real estate investments indirectly. I myself for one do not even want to own a shamba or plot, thats old skool thinking where you just tie up your money for nothing and its very illiquid and cannot be disposed easily.

Anonymous said...

I agree with the previous poster about the plot investing being an idea that has come and gone. After living with parents who fortunately/unfortunately were able to move up from a plot to large scale farming. It is no joke, not something to be done on the side. I think they held onto the land more for ego than anything else. It has been a drain... I remember the weekends we spent shuttling there, the hours spent on one thing after another. If all that effort and money were invested in a small shop, we would have had a chain of grocery stores to rival Nakumatt.

Besides, we are running out of land for everyone who wants to be a large scale farmer.
It is what happened in Central Province and lead people to leave for Rift Valley, and is also happening in other communities. Central experienced it before other groups.

Mzee Kijijini said...

Mzee Kijijini:

Please visit a sober blog for a refreshing change

Anonymous said...

I am only commenting on the fee issue you raised. HSBC charges an initial fee of 5.54% and an annual management fee of 1.5%. It would appear that's a global standard?

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