Real Estate Moment: TJRC, Homes Expo, Bubbles or Boom

TJRC: Two weeks ago, Kenya's Truth Justice & Reconciliation Commission handed its completed TJRC Report to the President concluding three years of work in which the committee set out to document violations of human rights, abuse of power and misuse of public office since Independence and look at solutions that may be beyond the reach of the judicial system to addresses and restore.

They collected over 42,000 statements around the country and, at 41%, land and property issues topped their list of violations, far ahead of the next four issues (extra judicial killings, serious injury, persecution, torture) combined.

Homes Expo: The Homes Expo took place in Nairobi last week and some properties and exhibitors at the Expo included:

- AMS Properties has Five Star Gardens on Mombasa road with 2 and 3 BR apartments for  Kshs 5M and 7M respectively.

- Bluebell have 3BR apartments in Kileleshwa and Westlands for Kshs 18.5M and Kshs 24.5M  respectively

- The Cullinan will be full service apartments coming up next to Casabalanca in Kilimani/Yaya area and will have 1 bedroom apartments that range from Kshs 10M for 1 bedroom to Kshs 22M for 3BR ones

-  Imara Gardens on Mombasa Road have 2 and 3BR apartments at Kshs 6.8M and Kshs 7.8M respectively.

- Legacy Apartments being sold by Hass Consult are studio, 1 and 2 BR apartments on Naivasha road (minutes from the Junction Mall ) for Kshs 3.5M, 5M and 7.25M respectively ($85,300) 

- Peony Estate by Gao Yu comprise 100 homes with apartments that cost Kshs 17 million ($200,000) and Penthouses  for Kshs 30M in Lavington

- Victoria Villas are 4 BR houses in Kisumu for Kshs 10.5M

Other

- Diani Homes have properties in Mombasa, Lamu, and Diani

- The Kenya Ministry of Lands has constructed 600 3BR apartments in Kibera - Soweto East 

- Anza and Pam Golding Properties (with an app in the android store) enable property sellers to show 360 view of their properties online for interested buyers. This eliminates an inconvenience when showing a proprty that is currently occupied by tenants

- Also at the expo were supermarkets like Tuskys and Nakumatt offering home furnishings and other companies like LG who displayed their Kshs 1.8 million 3D TV 

Banks

Financiers at the expo included

- Barclays has a 15.9% fixed rate mortgage for the first three years and maximum mortgage durations of 20 years. So a Kshs 10M ($120,841) mortgage attracts repayments of Kshs 138,000 ($1,662) per month

- CBA has 25 year mortgages in shillings, US dollars, Euros and Sterling Pounds

- Co-Op Bank has good home mortgages that range between 12.75% to 14.75%

- Family Bank has mortgages as low as Kshs 1M ($12,048)

- I&M mortgages are at 16%

- KCB give mortgages of up to 25 years for home buyers, while those for investments are up to 20 years. Real estate developers get finance for up to 2 years with 85% finance and investment groups get up to 19 years with 80% financed - all with loan rates starting from 13.5% up

- National Housing Corporation has 13% to individuals   

Standard Chartered has 14.9% mortgages and finance properties up to Kshs 100M ($1.2 million) and these are also available to expatriates and non-residents –e.g. to own a holiday or investment home

Other Real Estate Blogs

- Contrarian Kenyan advises why you should invest in REIT's (Real Estate Investment Trusts) rather than in empty plots on the highway  as they offer better liquidity and diversity, but with less bureaucracy. 

- George Adulu  looks at common dilemma of many people who are paying rent in a house, but take mortgage land to build a home by borrowing to buy a plot of land to develop at some point in the future

- He also looks at the  buy to let  prospect of buying a property to rent out for income, but notes that, with the high interest rates, it only makes sense if you put down a sizable down payment, not the 10% that mortgage companies tease with. Also  if you are thinking about a property for purely rent income, then forget about the suburbs, instead head to densely populated parts of Nairobi and other urban centers. You will be shocked to know that hose single roomed units in those multi-storied buildings in Umoja, Dandora, Kayole, Embakasi and so on have a repayment period of less than 10 years.

Other Real Estate News

- Bad Debts : The construction, building and real estate sectors topped the list of sectors with biggest loan defaults in the first quarter of the year.

- Construction Jobs: The construction sector generated new jobs at the fastest pace in the five-year period to 2012. 

- Listed Property Company? Home Afrika plans to list on the Growth Enterprise Market Segment (GEMS) at the Nairobi Securities Exchange. The firm, with 128 shareholders, has projects under construction valued at over Kshs 12 billion such as Migaa (golf estate in Kiambu) Lakeview Heights (Kisumu), Llangwe (Kwale) and Kikwetu (Machakos) financed through shareholder funds and loans

- Succession:The Delamere Family is subdividing a Naivasha Estate as part of a succession plan involving grandsons of the settler farmer. 

- Unaffordable Homes: Owning a home in Kenya has become harder owing to the cost of finance. Still ccommercial banks had Kshs 122.2 billion ($1.5 billion) worth of home loans held in 19,177 accounts. (19,000 mortgages in Kenya)

EDIT

The Kenya Banker's Assocation CEO Chat series in May 2013  featured (PDF) Barclays Kenya CEO Jeremy Awori, and it focused on mortgages (PDF) 

Strathmore University has a course on Construction Project Management in June and another for Real Estate executives in July 2013.

Real Estate Moment: Property Expo, Bubbles, Mortgage Rates

A Homes expo took place  last weekend at KICC. Around that, other real estate matters include:

Mortgage rates down: The launch of the quarterly HassConsult property report showed  that the average mortgage interest rate in Kenya is now 19%, down from 22.5% three months ago. 

A Diaspora SACCO was launched with a view towards investing in real estate.

Aground breaking was held for the recently announced next phase  of the Nairobi Business Park which will comprise 15,000 Sq.M of space for restaurants, a fitness centre and convenience stores. At the event, Mugo Kibati the Director General of Vision 2030 said that the property industry accounts for 5.3% of Kenya's GDP.

Exotic Marketing: Recognizing a challenge that homeowners face by moving further from the city, some developers now advertise themselves in terms of proximity to essential service centres. e.g. Olive Tree apartments [3Br for Kshs 7M] on Kiambu Road list about 5 schools, a mall, hospital and bus stop near the complex.

Kahawa - by @TheMumbi

Others advertise their properties on trucks, on large roadside billboard, in bank halls, have scheduled bus tours for prospective buyers to view the upcoming properties, or send out targeted promotions aimed at the 'laptop and latte' class [“Legacy Apartments (starting at Kshs 3.95M in the Dagoretti area] or proximity to high altitude [Serene Valley Properties, Sigona Valley - 3 and 4 bedroom villas in three different house designs costing between KShs 16M - 19M.

Land Bubble: According to an A4Architect Q&A, construction costs have not changed much it it's land prices that have. Elsewhere they note an infrastructure effect on land prices which can be as much as 1,000% compared to 100% for other land prices over a short period. 

Coast Concern: However at the Kenya Coast, it seems to be the other way as  land issues are among the key grievances that have resulted in unrest and recent attacks on police and politicians.

Expo: Using a 3 bedroom apartment or 3 bedroom house for comparison and with the US dollar exchanging at about 85 Kenya shillings, some properties and exhibitors at the Expo included:

Nairobi

Home Expo, Nairobi October 2012

- The Prism (model drawing below) by Kings Developers will be a new office block on one of the  Ngong Avenues in Upper Hill

- Dara Springs by the China Young Tai Co has 3BR Apts in Kileleshwa for Kshs 17M and they are also developing 6BR townhouses at Karen Splendour to sell at  Kshs 95M

- Imara Gardens are 3BR Apts in Imara Daima for Kshs 7.8M

North

- Edenville in Kiambu from HassConsult has 3BR Camellia Villa’s for Kshs 13.5M

- Chania Gardens in Thika have 3BR maisonettes for Kshs 8M

- Sahara Ridge in Ruiru have 3BR maisonettes  for Kshs 9.5M at Hass Consult

- Canary Springs are 3BR Apts in Ruaka for Kshs 7M 

South

- GreenPark Estate from Superior Homes  (winner of Best Development in a 2007 International Property Award)  is a managed estate

- Lukenya Hills have 3BR bungalows for Kshs 6M in Mlolongo, by SJR who put up the Safaricom headquarters buildings

- 360 Degree Court are apartments in Syokimau for Kshs 5.5M by Kings Developers

East

- Jacaranda Gardens off the Northern Bypass are 3BR Apts for Kshs 7.6M – built by the Sietco & the Chengdu Jiangong 3rd Investment Company

Out of Nairobi

- Milimani Apartments in Nakuru by Kings Developers have  3BR Apts for Kshs  4.5M

- Konza  ½ acre plots for Kshs 2M from Petu Properties and these are 11 Kilometres from the Malili technology city which, along with Tatu City (on Thika Rd), are two new cities planned to be built near Nairobi

Financers

- Investment & Mortgages Bank

- KCB’s Savings & Loan has finance of  13.5% available up to 25 years for ready built or for construction of homes. A Kshs 8.5M (~$100,000) home will attract monthly repayments of Kshs 195,000 over 5 years or Kshs 99,000 (~$1,160) if paid over 25 years.

- National Bank  has mortgages of up to 20 years at 15%, with up to 90% finance.

Planned Prism Tower

- Standard chartered has mortgages at 14.9% and a Kshs 8M loan can be repaid over 5 years at Kshs 189,000 or Kshs 104,000 (~$1,220) per month over 20 years.

Other

The Mortgage Company (TMC) is a mortgage broker that help home buyers source loans from different banks. TMC, with it's partners Oaks Construction and Rafiki Microfinance also has a  makazi mema program that aims to  finance and construct houses within 6 months for maisonettes (and bungalows in 4 months) with the building cost of a 3BR home being about Kshs 2.4M ($28,000)

-       

Savannah Cement is the sixth cement company in the country - and they have two brands of cement, one of which costs Kshs 670 ($7.90) for a 50Kg bag 

The Kenya Revenue Authority had at the stand there. Their brochures note that property owners in the Diaspora who rent our property in Kenya are meant to pay income tax in Kenya on their rental income. 

Real Estate Moment: Ghana Cities, Old Taxes, & Pricey Mortgages

Ghana Cities: Last weekend, in Accra, the Renaissance Group launched two new cities that they plan to be the represent the future of urbanization in Ghana. The cities will be mixed-use areas where residents will live work and play and are in the same vein as Tatu City that was launched in Kenya, but which has been embroiled in a shareholder court case that has affected the pace of the project.

The concept of new cities that Renaissance is planning in Ghana, Kenya (Tatu on 2500 acres for  70,000 people),  Zambia (Roma park) and the Democratic Republic of Congo (Kiswishi on 6900 acres in Lubumbashi to break ground in 2012)  are based on some harsh realities; 

That African cities are fast growing (there are now 52 cities with over 1 million people), attracting rural migrants in search of employment and opportunity. There is a shortage of housing that is quality or decent, and many city  developments are unplanned. Also the infrastructure in many of these  cities is lagging  and authorities  will not be able to supply the services or utilities that residents need to have, while residents are facing ever longer commutes.

The two Ghanaian cities are King City (located 10km from Takoradi harbour in North Akase area) which will be built over 10 years in phases to house 90,000 people and Appolonia (located 30km from Accra and 20km from Tema Harbour) which will have retail and commercial developments on 2000 acres to house 88,000 people. Appolonia which is now having water & road development will break ground in 2013.

With both cities, local communities are investing their land in the deal. They are not selling, and remain as  equity partners with a stake to get a return on their undeveloped land and create employment for the youth and Renaissance team estimates that Accra itself will need another 5 - 6 cities to absorb its fast growth.

Both the cities will have high, medium, and low cost housing units and as the local mortgage continues to develop, the Renaissance team expect that most people should be able to afford homes. Ghana now has mid-market mortgages accessible over 10 years for about 80,000 Cedi’s (~$40,000 or Kshs 3.3 million).

  

Other mega real estate developments, blogs & articles 

Tips: Nahinga blogs about three real estate investing lessons from the Accra Mall project, that began in the early 1970’s namely

- (Speculate)/purchase real estate in the direction that a City can grow towards.
- Use professionals and maintain a high standard of quality.
- Have an exit strategy.
  

Garden City: The real estate sector in Nairobi is attracting more PE interest, and Actis’ portfolio includes ten institutional quality assets in seven countries in sub-Saharan Africa.

Following in that model equity firm Actis and partners including Game are to develop Garden City  which will include homes, an events arena, and the largest retail mall in East Africa. It has already attracted MassMart from South Africa and it will break ground in December 2012.

 Other Mega project opportunities

Railway prime real estate: The Kenya Railways Corporation plans to develop 385 acres of prime real estate land in Nairobi, Mombasa, and Kisumu, and is seeking investors to build hotels, residential housing, light industries and shopping malls.

Kisumu Floatel: A project is seeking investors  to establish a luxury passenger vessel as a 5-star floating hotel  on Lake Victoria that will accommodate 80 passengers.

Cautionary Tale: But sometimes mega projects can go wrong like this ghost city built by Chinese investors in Kilamba, Angola.
 

Taxation Time: The Kenya Revenue Authority has published some recent notices about taxation of rental income and other income  from real estate. While collection of value added tax (VAT of 16% ) has observed in the commercial building sector, some residential owners have ignored that, while others have not been aware that they are also supposed to pay income tax that graduates from 10% on net rent income of up to ~122,000  to 30% on all rental income over ~Kshs. 466,000 ($5,600)

There are also other treatment for non residents, partnerships, estates of deceased landlords and Kenyans living in the diaspora, as well as tax incentives available for  rental income on real estate investment trusts (REITs)  and on low income housing projects (less than $20,000).
 

Nairobi Real Estate Price Index: Hass Consult have just released their second quarter report on housing price trends.  They applauded the recent lowering of the Central Bank CBR rate (to 16.5%) as they noted that the impact of high interest rates will continue to be seen in a slow down in new building amid the high finance costs. They also noted that, while the pace of building in Nairobi is at a peak, it's still a fraction of the housing demand, and while projects are coming to fruition, new ones are not being started as people who would be buying homes are instead staying in rental properties longer

The release of the report was sponsored by The Mortgage Company, a mortgage brokerage firm who also released a mortgage rate sheet for consumer comparison and which showed I&M bank had the lowest mortgage rates of 18%, while Equity, CBA and Family Banks had the most expensive at 24%.
  

Mortgage Chat: The Kenya Bankers Association which is turning 50 this year, just re-branded and launched a new outlook and new website. One of their new outreach programs will be a weekly mychat session with a bank CEO, and in a few weeks time,  they will feature Frank Ireri, the Managing Director of Housing Finance bank, who will chat about mortgages.

<b>TV Time</b>: Finally, there will be a new TV show coming to NTV in Kenya that will be devoted to real estate and will air on Sunday afternoons in a few weeks time.

Real Estate Moment: Not about Syokimau

I don’t own land outright, but I know people who do and have worked on some securities that relate to land. So here are are five trends in real estate deals that drive lead to good & bad outcomes

1. Not all land deals are equal: There is greed & fraud among buyers and officials including government (county & ministry) who will approve incorrect land & building transactions, valuers who will inflate property prices, contractors who will undercut on building materials & costs etc. There can be fraud anywhere, but mostly it is with developers who will score deal after deal and move on from a controversial piece of land. A good tip is to look out for prime, but idle or under-developed land (open parking lot, cheap Mabati (iron roof) pubs & eateries) - which mean that there's probably a story there about ownership that deters those who know from investing too much in structures on the land. But such deals are the minority and should not deter people from investing in land. Note - these houses in Syokimau were being advertised at last month's homes expo at a cost Kshs. 4.8 to 9.2 million.

2. Land is finite: Land is still one of the best investments, for the simple reason that its quantity is not increasing. It’s uses are changing with generations, migration and population changes resulting in different demands for land use (e.g. forest, agricultural or rural to residential, commercial or urban) but the amount of land available is the same (the rare reclamation of land by dredging notwithstanding)

3. Banks have failed: By banks being prudent as lending institutions, this has resulted in a situation where there are very few mortgages in the country – about 20,000. This means that (i) banks have not convinced Kenyans that they are perfect partners in the construction or purchase of houses (ii) people are building out of savings, other income or unsecured loans (iii) by not using a bank for land deals, buyers & builders miss out on the professional advice that could be helpful in the land buying process.
4. Herd Mentality: Investment group, savings club, SACCO’s and other collective vehicles have been popular ways to invest in land. They have worked with, or as developers themselves to scope out, purchase, sub-divide, and sell land to their members, and other interest parties.

Buyers then flock to these developments because groups and peers who have invested convey security and more so as word spread fast via ads in the newspaper, or whispers in bars and church. While initial investors in these schemes may have been quite cautious with calculated risks, later investors will have seen the value of plots (and their entry price) triple and watched as other members put finishing touches to lovely houses that they are still dreaming of - and this can lead to a temptation to rush in without doing the usual land checks. But what if the original land deal was fraudulent? Does anyone check for the mother title or original drawings & approvals? If they took a loan or paid for professionals to assist, they may find out that the deals were not as good.

5. The Government is not Stupid or Evil: The government creates and keeps records, and the government does not issue title deeds in a casual way. Many properties are built without a title deeds or without owners having got all approvals. But the government has an institutional memory and does not forget. You won’t sell a property without clearing arrears on land or paying stamp duty.

The government also does not forget that it owns land and as Syokimau owners found out the way, the government may sit idle, but it will act when it’s convenient or necessary. Legend has it that Ugandans soldiers discovered Migingo Island when checking for insecurity points ahead of the 2006 commonwealth summit (CHOGM), and now, while KAA has tolerated the Syokimau houses for years, now that the country is at war with Somalia, the proximity of the houses to Nairobi's international airport (JKIA) may have escalated security concerns.

Real Estate Moment: Expo II, Land Bills, Timeshares

US$1 is ~ Kshs 100
A second homes took place in Nairobi over the weekend, and this came less than six months after the first in April. It seems unusual to have two expos in one year, but here's a recap of some of the housing, appliance, banks, and other companies at the expo.

Banks: There were the usual mortgage providers there including Housing Finance (whose Treasure account comes with up to 50% discount at KWS parks and 10% at Jolly Roger, Village market, Gertrude hospital) who offer finance of up to 90% at a variable mortgage rate of 14% loan.

Other banks offering up to 90% included Standard Chartered and National Bank. NBK and Barclays both give loans of up to 20 years for individuals (NBK at 13%, BBK at 14%). A recent entrant in the mortgage sector is Family Bank who also launched m-kodi, which is a way for tenants & property owners to make and process rent payments by mobile phone. CBA and Family Bank also give mortgages of up to 25 years, and for Kenyans in the diaspora, Family will give mortgages of up to 15 years for 90% property finance.

Properties Nairobi - Le Mac was introduced at the earlier expo as a 24-storey tower complex with apartments, malls, shops, offices, bank, restaurant, gym on Waiyaki Way and Mark Properties are only selling studio apartments for Kshs. 12.7 million, 1 bedrooms for Kshs. 16 and 2 bedroom apartments for Kshs. 21M
- The gateway 3BR apartments in Kileleshwa for Kshs 14.9M starting in December 2011 with 20% offer, 80% on completion from Bluebell
- Long-standing properties that have featured at a few expo's include Jacaranda Gardens on Thika Road which have 2BR for Kshs 6.6M and 3BR for Kshs 7.6M and another at Phenom Estate IV in Langata (controversially located near Wilson airport), and Sidai Village with 3BR maisonettes costing Kshs 6.5M from Chigwell Holdings

Nairobi Outskirts- Athi View on Syokimau cost Kshs. 4.8 to 9.2M are just off Mombasa Rd. (by SJR Properties), Skyline Apts,which are 3BR off Airport North Rd that cost Kshs 5.8M, and Twiga Hills in Ongata Rongai which are 3BR apts. for Kshs 6M (also have 2BR ones). Also in Kitengela, there are 1/8 acre plots from Optiven that range from Kshs 0.5M (Silver gardens) to Kshs 0.98M (Imani gardens) with immediate financing from Equity Bank.

Coast: The Baobab Development Group has been pushing fractional ownership of an upcoming property in Malindi as luxury apartments at a 'affordable' cost of Kshs 2.5 million (time share properties are new in Kenya). Also Sunset Paradise apartments (700M from Serena Beach) are selling 2BR for Kshs. 7M ($80k), and the 3 BR and 4BR are in two sizes with the larger of each costing Kshs. 10.2M ($140k) and Kshs. 11.9M ($160k) respectively.

Gated properties: News ones included Iluluwe golf estate development in Athi River, now offering an 1/8 acre is Kshs 0.95M and 1/4 acre at Kshs 1.8M and Longonot Gate which will be at the foot of Mt. Longonot and now have 200 1/2 acre plots going for Kshs 3.5 million (later 4M). Buyers will also become members of a Kingdom golf club in the gated resort city at Longonot.

Interiors, Finishes, Appliances: There was also companies like Mabati for roofing choices, Flamingo for floor tiles Solaris for water heaters, Chloride Exide for solar water systems and power backups

Elsewhere: Knight Frank, at the expo or in the newspapers, had Windsor Green in the Mbuya suburb of Kampala for sale starting from $76,800 upwards and they and are also offering 7 acres near Wilson Airport, Nairobi for Kshs 100 million.

Land Ownership: The Government of Kenya's Ministry of Lands has published draft land bills for public discussion. Matters of interest include spousal rights, pastoralist rights, partitioning, appeals processes, use of land, and notes that the land registrar shall make information in the register accessible to the public by electronic means, among many other changes.

Real Estate Moment

The 13th edition of the Kenya Homes expo is going on at KICC Nairobi this weekend. Here’s recap of that and other real estate on-goings. It seems larger than last year with more properties on display, along with energy, interior finishing, communication, insurance and media companies as well as several mortgage banks. Also some properties advertised last year were still on sale.

Expo: Some notable property developments included;
- Trident Park in Langata (behind Splash/Carnivore) 4 bedroom (4br) , all en-suite homes that cost Kshs 15.5 million [Kshs 15.5M or $193,000] (Trident Estates)
- Diamond Park in South C which are 4br maisonettes that cost Kshs 12M (Diamond Park)
- Tamarind Meadows are 3br maisonettes located in Mlolongo/Athi River with prices ranging from Kshs .6.5m – 9M (Tamarind Properties)
- The 3rd phase of Greenspan Housing estate of 3br maisonettes in Donholm/Umoja that cost Kshs 8.5M (brochure says that some houses sod in phase 1 have achieve rental of Kshs 45,000 [$560] per month) (Greenspan Housing)
- Residential plots sold by Ndatani Enterprises in Kitengela can range from Kshs 500,000 - 900,000 ($11,000)
- Le Mac is a planned 24 story tower complex with apartments, malls, shops, offices, bank, restaurant, gym on Waiyaki Way, Westlands that was launched by the vice president a few weeks ago. Offices and showroom will cost 15,500 per square foot , while apartments that will include studios, 1, 2, 3 and 4 bedrooms will cost 16,500 per square foot – translating to Kshs 12.6M for 1br to Kshs 56M ($700,000) for a 4br duplex. (Mark Properties)

Financiers: at the Expo were the usual banks present including Housing Finance, Barclays, KCB, and Standard Chartered.
- Barclays loans start at 12% up to 20 years and 90% of home cost, or 70% of construction costs and they buy mortgages finance by other banks. A Kshs 10M loan taken over 10 years has repayment of Kshs 143,413, and over 20 years has monthly repayments of 110,039
EDITCBA: Mortgages are payable over 25 years, and (they say) you can accelerate and pay off an entire home loan without being penalized.
- KCB has mortgages up to 25 years and rates are 13.75% and finance 90% of mortgages for salaries people homes in urban areas, 70% for plots, and 85% for estate development. A Kshs 10M loan taken over 10 years has monthly repayments of 152,274, and over 20 years attracts a monthly payment of 120, 737
- Housing Finance had their Makao Homes which are pre-designed homes they can build for anyone with a piece of land and range from a 2br bungalow that costs 1 million ($12,500)(ideal for 1/16 acre) to 4br maisonettes ideal for ¼ or ½ acre that cost 13.3 million ($166,000). A Kshs 10M loan attracts repayments of 155,266 over 20 year and 124,352 over 20 years.

- Other finance from Houising Finance, includes plot purchase (70%), for investment groups (70%), for commercial office space/shops development (65%), as well as finance for incomplete or stalled projects.

They were joined by newcomers including;

- National Bank of Kenya
- CFC Stanbic who last week launched a 100% mortgage facility.
- I&M Bank – pay lesser amounts in initial years and higher amount in later years as your income grows (you think?), all loans have free credit card and free fire insurance. Loans are at 12, 14 and 16% and range from Kshs 2M -30M to finance up to 80% of property price with a maximum of 15 years. The brochure also indicates all the typical home closing costs – e.g. a Kshs 10M mortgage will attract valuation fee if 10,000, 1% on disbursement (100,000), processing of 0.5% (50,000), legal fee of 1% (100,000) for a total of about 3% (home buyers are advised to budget 5%)

Other: - The Sameer Business Park has started leasing this week; it initially looked like white elephant its now available through property agents Knight Frank .

Via @azthedance - This article by Brendan Barron titled Arrest this Development? points to some disparities in the sector such as;

- The country’s average wage is somewhere around $4,500 a year, but the average mortgage was more than 12 times that, at $56,000.
- Nairobi currently has no urban plan
- There’s also no real Building Code to which technicians can refer to ensure new homes meet standards. There are, simply, no enforced standards.

Edit: Here's a nice series of articles in the Business Daily by analyst and columnist Carol Musyoka, first on Kenyans obsession with owning property and a follow up on the
investment risk of owning property, which has this paragraph.

Given where today’s interest rates are at say 15 per cent, an average middle income house costing Sh10 million, will require a monthly mortgage payment of approximately Kshs126,000 after the buyer puts down a deposit of Sh1 million or 10 per cent on the 15 year mortgage. This is not an amount that is easily payable by the average Kenyan worker and requires a great amount of sacrifice on the part of the buyer, especially where the rent for a similar house would be about Sh40,000 or a third of the mortgage payment.

The fact is that buying your own home is really not supposed to be an investment, rather it is a method of providing future security for yourself by having home ownership at the end of the mortgage period.

Real Estate Moment

Homes Expo: There was also another real estate expo at Sarit Centre last week - and some of the price ranges observed included

- Two bedroom apartments in kahawa are Kshs 5 - 6M
- 3 bedroom in kileleshwa/kilimani Kshs 16 - 17M ($200,000)
- 3 br Athi River are Kshs 5 – 7 million ($70,000 - $90,000)

Other property prices of interest seen there, and also away from the expo include
- Tatu City and other ongoing developments like Migaa and Thika Greens which are modern estate communities that encompass shopping malls, schools, community centres, club house, sporting facilities/golf course, medical centres etc.
- From Regent - twelve (12) units of 2-br flats in Umoja for Kshs 16 million ($200,000)
- New office space in the Nairobi area ranges from Kshs 10,000 to 15,000 per square foot - and at Morningside it's 12,000 per sq foot ($150/sq.ft)
- In the newspapers was a 9-storey building for sale, which is located in the central business district of Nairobi with 99 year lease, is fully leased, and brings in annual income of Kshs 20 million ($250,000)
- From Kenya Valuers are some of the priciest real estate prices seen including; an acre of land in Kilimani for sale at Kshs 180M ($2.25 million) and another at Kshs 225M ($2.8 million), a 4=br house in Muthaiga for Kshs 150M, a 6-Br in Windsor for Kshs 180M, and a 5-br in Runda that rents for $7k/month.

Mortgage report: Was released by the World bank and Kenya's Central Bank - and it showed that KCB and Housing Finance are the leading banks in the sector with about 4,000 mortgages worth Kshs. 17 billion ($212 million) each . Barclays have 742, CBA 238, Prime 651 and First Community with 157 – which presumably offers only sharia complaint products. Mortgages rates average at 14% up from 12.5% in 2006 - and there were 6,000 new mortgages in 2009 up from 1200 in 2006.

Developers Club: KCB Kenya’s largest bank and leading mortgage company has a developers club for local developers and held a session this week in Nairobi.

Some Highlights
- Mumo Musuva, an architect with Planning Systems talked about this being a very exciting time for Nairobi, currently ranked No. 102 in the large cities of the world with a population of 4 million and which is projected to become No. 73 with a population of 8 million - and with 60% of the country population below the age of 30.
- He’s also lead developer with Tatu City and they are going to use digital management & GIS, detect when someone leaves a tap open, cut off the utilities of tenant who don’t pay, collect rates and deploy that to infrastructure etc.
- He lamented the low quality of most real estate buildings & projects in Nairobi as developers have been chasing quick returns (ROI) – these will change to world standards including environmental designs as the requirements of working with large tenants are evolving.
- The definition of real estate is changing from owing a house or building to it being seen as a commodity - and this is evidenced with the current investment for speculative purposes and eventual roll-out of REIT’s.
- There are massive opportunities for developers in Rwanda, Uganda, south Sudan which KCB can finance.
- They also launched a new KCB property guide will feature developers. The bank also expanded its mortgage offerings (available at their 168 branches), to loans for Kenyans in the Diaspora at 7% in foreign currency as well plot & purchase construction loan - unlike with previous arrangement where one had to pay off a plot loan before commencing construction
- The developers forum which has 300 arranges fact finding trips abroad to China, and possibly South Africa, & Brazil - and Joe Mungai of Tamarind Properties advised any developers to take such trips before embarking on any large projects to learn concepts like construction for low end housing, waste treatment & gated communities.

REIT’s: The Capital Market's Authority (CMA) is undertaking a review of the Real Estate Investment Trust (REIT regulations ) & rules that formulated they in 2009. They will get feedback from developers and real estate institutions on product demand, tax rules. D/L is March 25 2011

Bank Enforcement CYA

The Finance Act 2010 is now available at kenyalaw.org.

It covers a lot of grey area generated by the Central Banks of Kenya’s (CBK) handling of the Grand Regency sale and the Charterhouse Bank closure, and gives powers and direction that provide some legal safe cover (but not retroactively).

It requires funds recovered by the Kenya Anti-Corruption Commission to go to the Government's Consolidated Fund (78) and gives CBK powers to (peek and) take action at a bank based on (a banks' own) auditor report (66) and specifies harsher actions that may be taken against banks who violate share capital limits (67).

Other provisions:
- Banks can lend up to 40% of balance sheet to real estate (up from 25%)
- Beer prices up 20%
- Copyright inspectors can summon police officers to arrest piracy offenders (77)
- Abandoned vehicle number plates should be submitted to Government for cancelation (40)

Real Estate Moment

Buy Buy Buy Many signs are pointing on the need to invest in property/real estate; from a mentor who says that land is the only commodity that is not increasing, to Dr. Laila Macharia, who in her TEDxNairobi talk said the boom is yet to come. NSE listed Centum Investments now has real estate projects on Uhuru highway and at Runda, and even a local reality show star (runner up in Tusker Project Fame) Nganga said in an interview, that if he had won, his Kshs 5 million ($62,500) would have been deployed into real estate.

Also, last week Hass Consult and CFC Bank released a report showing that real estate outperformed stock market in returns; I'm yet to find the report, but a post in 2006 shows that the debate of shares verbs property returns is not a new one.

Money flows in real estate? A lawyer who specialist in commercial law has found herself doing more real estate transactions – and is surprised by both how much money is being invested in land deals and how expensive Kenya is compared to south Africa – e.g. a 120 million Nairobi Muthaiga property, can be trumped by a better one or Kshs 50 million in Cape Town.

Is land over-valued? A notice board had these ads of land for sale last week - 10 acres in Isinya for Kshs 5 million, 2.3 acres in Karen for Kshs 14 million, 30 acres in lanet for Kshs 40 million, 100 acres in naivasha kedong at 60 million (600,000 or $7,500 per acre), 1005 acres in ruiru for 301 million (310,000 or $3,825 per acre), 1,295 acres in thika for Kshs 1.1 billion (i.e. Kshs 850,000 or $10,400 per acre) and 250 acres at 20 million per acre in ngong road.

The recent prices are subject to much debate Is it simple demand (for 500,000 homes a year) & supply (150,000 new houses built a year in Kenya)? Is it Somali money or foreign investors & donor agencies, or is Kenya an investment Mecca for the east Africa region?

Banks are tempting: Last weekend the annual homes expo was held at KICC and present were several bank exhibitors: For comparison, a Kshs 10 million ($125,000) mortgageloan can be obtained from Barclays (at 12% up to 20 years at 110,039 per month), co-op (at 13% up to 20 years at 117,157 per month), Equity (at 15% up to 10 years at 161,335 per month) Housing Finance (up to 20 years at 137,257 per month), and National Bank (up to 20 years, subject to retirement age of the borrower). Most give up to 90% finance, and advise borrowers to factor in 5 - 9% for closing costs.

Housing Finance wrapped up a mortgage bond offer that realized Kshs 7 billion ($88 million) against an initial target of 5 billion. The bank has been in turnaround mode, gone from cost/income ratio in 2005 of 73% to 58% in 2009 and non-performing from 35% to 4% over the same period, and has fended off interest from Equity Bank. The Bank’s MD also called for the Capital Markets Authority to green light real estates investments trusts (REIT’s) as the bank also became the latest corporate to join the world of twitter (@housing_finance).

But few are biting: How many mortgages in Kenya? A central Bank of Kenya source says there are only 14,951 mortgages, in a country of 38 million people. (0.04%) with a total value of about Kshs 60 billion, for an average mortgage of Kshs 4 million ($50,000) Samuel kantai – so banks are not the source of real estate developments.

Any other thoughts on real estate?

Housing Finance 2010 AGM

The 2010 annual general meeting of Housing Finance (HF) took place on April 28 2010 at the Bomas of Kenya. It marked the end of an interesting month for the bank which was featured in media stories of a boardroom coup as well a merger talks with Equity Bank. The AGM was chaired by Steven Mainda (who has been Chairman for a few weeks) and featured Frank Ireri the MD of the company.

Hot-button: Issues revolved around Equity Bank and the dozen shareholder questions were mostly on the subject.

- Merger or not?: Perennial shareholder A. Chami set the ball rolling as the first (as usual) questioner praising Equity and calling for a merger. He noted that it would save marketing costs and enable HF to sell their products deep in rural Kenya (where Equity was) not just urban centres. He heaped blame on the previous anchor shareholder CDC (UK) for their years at the helm which were marked by no dividends.

Chairman replied that HF had an opportunity of a lifetime after 44 years to sell products across Kenya and even in Sudan (pointed out that director Prof Shem is chair of Equity-Sudan) and wanted to get value, for shareholders who had invested in the company. Later he seemed to step back from these remarks (on the HF board leaning towards a merger) and after more pressing questions they became now adamant that it was collaboration with Equity, Britak and other shareholders like NSSF (3rd largest) that would continue, and wondered where the media got the merger talk!

- Directors said they had invited Equity and Britak to invest in HF, and have since collaborated with Equity in terms of funding (notes show a 700 million loan from equity), and shared services (Equity handles all clearing for HF) as well as with Britak with products e.g. Home Freedom - in which one can use up to 60% of a pension to get a 115% mortgage (that is inclusive of the ~20% home mortgage closing cost)

- How will Equity work with HF when they are competitors? Chair said Equity is a commercial bank, while HF is a mortgage bank and it was going to work with shareholders like Equity, Britak and partners like Shelter Afrique.

- Equity strong arm? one shareholder warned that Equity had muscled its directors onto the HF board making a merger inevitable while another added that shareholders at National Bank of Kenya were already getting jittery about Equity’s interest. CEO replied that it was an unfair charge leveled at Equity - noting that they only had the 2 directors entitled to them, as did CDC, the previous anchor shareholder. He added that when CDC showed they were not actively interested in investing in HF, the Board went out seeking new anchor shareholder and talked to 16 banks, before they picked on Equity/Britak.

Past Board Promises: One shareholder complained that the board is making another big promise today (w/Equity) while other big promises in the past have turned out to be duds – they were promised big dividends which never materialized, then took part in a rights issue that cost Kshs. 20/share and subsequently shares dropped to about 14/=. CEO replied that they are serious this time, and they paying about ½ the profit as dividend; on the rights issue, he said it was held in 2008, after which came some NSE challenges (he mentioned post-election, but should have mentioned stockbrokers collapsing) and global crisis - during which all NSE shares had dropped, some by as much as 60%. He said the share is now back above Kshs. 20 today

Risk Controls: Are risk & credit controls strong enough to prevent a mortgage meltdown like US? CEO mentioned they are careful about lending only to those able 9and willing0 to repay loans, noting they had brought down NPA’s from about 80% or 8 billion in 2004 to half a billion in 2009. chairman added that a strong Central Bank and Governor would not allow Kenyan banks to go down that road of lending to people unable to pay (on the hope that rising home values would plug the gap). Separately the Chairman warned off a shareholder who advised the bank to seek off-shore assistance, with the dreaded word ‘Madoff'!

Dividend: One shareholder compared this to being as useful as a glass of water while the bank spent big on expensive corporate social responsibility, while another asked why it could not be higher as the bank had reserves of Kshs. 2.8 billion. CEO said they have been paying increasing dividends over the last 3 years.

Director elections: Earlier a shareholder had asked chairman Steven Mainga how he had ended up there. Director Peter Munga who doubles up as the chairman of the HF Board nominations committee (but is better known as the Equity Bank chairman) drolled through the new chairman's exemplary CV, and revealed that he was picked from a database of distinguished Kenyans (huh?). During elections, most shareholders walked out to get lunch and the media rolled up their equipment - seems they had they come for news of Equity that the Board was not going to disclose more.

The Chairman and Prof Shem Migot-Adholla (Equity director) were later confirmed as directors, but not so for the previous chairman Kungu Gatabaki, and director Naftali Mogere, who while listed on the agenda for elections, had tendered their resignations earlier in the month. The former two had been appointed in April 2009 when two others resigned - Helios/Equity’s Babatunde Soyoye and the Permanent Secretary (Government of Kenya)

Shareholders also amended the HF company articles to allow for use of newspapers, e-mail, and the company web site for the shareholder news & notification as well as publishing of annual accounts. They also approved for HF to consider electronic or mobile payment of dividends.

Goodies: While one shareholder said there were no gifts, the company was rather generous to whatever number of their 31,097 shareholders who showed up. They got a lunch-box from Panafric Hotel (juice, yogurt, cold roast chicken, sausage, apple, sandwiches (cheese & cold beef), boiled egg. HF also hired buses to ferry shareholders from downtown Nairobi to the AGM venue - about 5km away

Real Estate Moment

The 11th edition of the Kenya homes expo was held at KICC last week. Here’s recap of that and other real estate on-goings

EXPO: Seemed smaller than the expo last time at the expo, with not as many properties, and more interior stuff like tiles, security, solar vendors. some notable developments included:

- Chinese built Jacaranda Gardens [2br for 5.7m, 3br for 6.6m and 4br apts off kiambu road & northern bypass], - - Nairobi Game Park Apartments [3br apts for 10.95m - located south of the northern bypass below GP Karting/Carnivore (is that in the park?)] by Homesearch (info@homesearch.co.ke)
- Tamarind Meadows (mlolongo) [3br from 6 to 8m] by Tamarind Properties
Family city estate kiambu 4br town houses for 1.5 – 2m
- Edenville (kiambu road) [3 br villa for 10.5m, 4br villas for 12.5 - 14.5m]
by Hass Consult
- Bellevue apartments [2br for 7.8m, 3br for 8.5m] by Villa Care

Not at the expo were new developments in the sector including:
- New golf estates at Vipingo Ridge and Green Park.
And listed in the Kenya Gazette are new real estate developments planned including
- A gated community in Nairobi’s Eastleigh with 569 luxurious 3-br apts with common Masjid, Madrasa, and recreational area
- River Park Estate (Mavoko) which will have 318 4-br maissonettes, and 51 3-br bungalows
- Another one at Mlolongo Weigh Bridge with 96 3-br units with servant quarters.

Financiers: at the Expo were the usual banks present including:
- Housing finance had their Makao Homes for anyone with land looking to build a home. It has construction finance, approved building plans, structural drawings, BQ’s, loans up to 20 years for individuals, 10 years for companies. Interesting pointer is that closing costs are 5% to 9% of home value, something no matter which bank one borrows from, and one which many buyers are not prepared to pay. Loans can also be accessed by investment groups, for plot purchase and construction.
- CFC Stanbic have equity release loans of 90% of home value
- Barclays loans start at 13% up to 20 years and 90% of home cost. They also have equity release of up to 70% on charged property and 50% on unencumbered property, and buy mortgages finance by other banks.
- Savings & Loan (KCB) has mortgages up to 25 years for individuals, and 10 years for companies and investors – and rates are 15%
- New to the mortgage sector is Consolidated Bank with mortgage loans (14.5%, 15 years) and commercial construction loans (15%, for 2 to 10 years)
- Absent were National Bank who started mortgage finance just few weeks ago and Equity Bank.

Mortgage Shake-Up: Equity Bank has muscled in at Housing Finance and shaken up the board, now led by a new Chairman more amenable to Equity’s vision of having low cost mortgages across Kenya. More here

Kenya Property Bubble
Blogger Pesa Tu had a posts on if the Kenya’s property bubble has burst with signs like
-Property sellers not providing indicative prices
-Compression of rental yields
-Rise in furnished apartments
Read more on the post here

Also just released is the latest quarterly report on the real estate market by Hass Consultants which while showed that real estate was sluggish n the first quarter of 2010. Hass also has a nice summary of the investment potential of different Nairobi neighbourhood

Real Estate Moment

a series of real estate pieces

Real Estate Paradox: was with a real estate developer who’s looking to set up even more projects over the weekend; he talked about a paradox where real estate rental prices are dropping, while house prices continue to rise. Note: I’ve not seen signs of rental drops, but this probably applies to the developer’s current financial outlook when choosing to build for sale or to rent in Nairobi today


NSSF the Kenya National Social Security Fund NSSF continued a trend started last year of publishing their financial accounts. For the year to June 30 2008, they had of total assets of Kshs. 87.53 billion (~$1.1 billion), partially comprising 49% equity investments (43.7 billion), treasury bills & bonds (11.2 billion), and land & building 24% (20.97 billion) which was down from 29% the year before.

While NSSF’s investment income of Kshs. 5 billion was a 25% increase from the year before, poor returns in local shares at the Nairobi stock exchange have hit pension, fund, and insurance schemes leading them to seek greater returns and safety by investing in real estate. Yet the NSSF, because of its past association when it was a political cash cow and got saddled with unpalatable properties, is going against the popular grain, but has no choice even as it faces as long struggle to be viable safety net for retired workers.

Water shortage: dry water pipes in some Nairobi estates have been a pain to residents in some parts of town who have to buy water from vendors. Many construction sites even have to ferry in all the water they need by lorry seems to be a good business idea to have a water lorry now

Bricks & Banks: The new Equity Bank headquarters are now up in Upper Hill and UAP Insurance will soon be putting up a building in the area. On the Westland’s side its Southern Credit Bank and Standard Chartered Africa with new buildings about to be completed.


Cement & inflation: I’ve added retail cement prices to the inflation index starting with a 50 kilo bag of bamburi cement at 780 shillings (~$10).

S&L Gone: Savings & Loan is no more after KCB shareholders absorbed the subsidiary within the group structure as a cost saving measure. There was a nice (offline) article by Carol Musyoka in the Business Daily and she highlighted that S&L’s rapid growth was funded, not by deposits, but by funds drawn from parent KCB and wondered what return this was to KCB shareholders

Goodwill barrier: goodwill is a fee demanded by business owners from business tenants, shop owners etc. It’s a strange phenomenon; the fee, often as much a year’s rent, is paid before the building is even put up for the shop-tenant to secure space in the building. Another fee is paid each time a shop moves in or out of the building. This exorbitant business expense has put off many start ups and small business owners from renting or setting up shop in downtown Nairobi.


More articles on the goodwill phenomenon from Ghana, a Kenya forum and the Standard

Kutwa Tuesday: From Stanchart to LPG

stories found this week

Stanchart Bank:

Smaller profit - Standard Chartered is being much maligned for being the first bank to report a profit drop in 2008 of 4% to 4.7 billion shillings. ($59 million) (Increased 29% in 07). The bank which adopted a conservative approach compared to Barclays, KCB and Equity. Stanchart had asset growth of 9% to 99 billion (13% in 07), deposits up 4% to 77 billion and loans up 10% to 43 billion in 2008. Still their shareholders will get the highest dividend of any listed bank in 2008.

Here are some other performance comparisons of the main banks that have so far reported their 2008 results.

Goes for smaller customers - In a slight about turn, Stanchart has also launched a new low cost transactional account called Hifadhi, costs 2,000 to open, no ledger fees, or ‘cash handling fees’ with e-statements you only pay for transactions you incur, though its’ not as affordable as other 'cheap' bank accounts for small earners. Going for smaller customer has been a recurrent theme in 2008 with banks, insurance and investment companies lowering the minimum subscription amount. Examples are pepea from Barclays, Toboa from Old Mutual and even the Government of Kenya which lowered the minimum investment for GoK treasury bonds to just Kshs. 50,000 (~$625)

Bank briefs
- Stanchart get back to what they are good at – big corporate deals this one for Kengen
- Gulf African launches a shariah compliant mortgage scheme
- New bank branches: First Community bank now in Malindi, Ecobank in Kisii, while Family Bank re-opened in Githurai
- Another SMS sends Equity customers into bank panic withdrawals this time in Machakos.

From the blogs

Siasa mbaya, maisha mbaya: Global economic slump aside, Nairobi’s Stock Exchange will not see a bull run until the country’s political problems are sorted out according to MainaT

The Sunday Nation broke a story of the old Embakasi airport been handed over to an unlicensed new airline, but airport analysis comes from one Coldtusker

Following in the success of the infrastructure bond (over-subscribed by 45%), the Kenya Government is offering another bond to supplement its budget deficit; this one is for 8.5 billion ($106 million). More details from Conceptadvisoryservices and the minimum investment is just 50,000 ($625).

Kenya Rugby Effects: Kenya had a wonderful run at the IRB World Cup in Dubai, and knocked out defending champions Fiji in the quarter finals. Here’s some rugby loss reactionfrom Fiji.

Elsewhere

Employees lose & lose - it’s been a bad week for employees as the Employment Act was set aside and the government shifted more of the pension burden to civil servants to contribute towards their own retirement funds.

Madaraka finalized - Madaraka Estate houses were finally sold, apparently ending a long long running saga between homeowners, the City Council and the National Housing Corporation who should really update their website.

Laptop mania - so many offers for laptops these days, new this week were
- Safaricom selling Macbook with broadband modem for 100,000 ($1,250)
- Acer A110 laptop on sale with open office for $230 - great for Kenyans new to mini laptop market
- Even my bank/broker (CFC) hawks Acer Aspire 4710 and has loans that work out to 5,500 ($70) per month

Is Grad School a Con? - Half the Sunday Nation advertisements were for colleges aiming at the recent high school graduates whose results were announced last week. Also growing are the numbers of universities and master programs, but this article argues against going to grad school to avoid the recession with the author pointing out that;

- Grad school pointlessly delays adulthood.
- PhD programs are pyramid schemes
- Business school is not going to help 90% of the people who go.
- Most jobs are better than they seem: You can learn from any job.
- Graduate school forces you to overinvest: It’s too high risk.
(found at chris blattman)

LPG Shocker - when to buy cooking gas last night. Found the cylinder, however it appears that there is now a valve that will be mandatory on all cylinders from April 2009 - it is a universal valve, that will enable consumers to buy LPG /cooking gas from any supplier e.g. Kenol., Total, NOCK - replacing cylinders from any of them, since they will now have a common head/valve. The move is supposed to break the monopoly of established companies e.g. if you had a Kenol gas cylinder, you could only replace it at Kenol when buying new gas, whereas if you wanted to switch to Shell gas, you’d have to buy a brand new cylinder.


new gas cap

The problem was that many Total stations did not have the valve. (I checked at three stations) and they all sent me to the place that has everything in Kenya - Nakumatt. Nakumatt also say they stock valves for all companies, but only had the generic caps to sell. It’s scary to use a generic caps, since there are many fires in Kenya caused by exploding/leaking cooking gas cylinders. Hope this turns out ok when April comes around and more consumers realize they have to buy caps which cost anywhere from 500 ($6.25) to 900 shillings each, another cost to the burdened urban consumer. It would also be nice if oil companies and/or the Government conducted some consumer awareness about this matter, not leaving it to Nakumatt and untrained Petrol attendants.