Mr Kariuki uses the following examples to illustrate his point: “Take the arbitrary incomes of Sh50,000 in net pay for a 25 year old single person, Sh100,000 for a thirty year old newlywed couple, Sh150,000 for a thirty five year old couple with one child and Sh200, 000 for a forty year old with two or three children, and see what can be achieved at these respective ages,” he goes on…
“If one takes a mortgage or construction loan before they turn 40 years old, they might buy or build a house that might prove to be a liability,” says Mr. Waweru. For a two bedroom apartment in Athi River, Kitengela, Kiserian, Juja, Kikuyu, one will have to part with between Sh5,000,000 and Sh6,000,000,” says Mr. Kariuki.
He points out that buying a plot and building a house in the same area, will mean spending roughly the same amount of money.
“If one takes a Sh5,000,000 loan to buy or build the house at today’s prevailing variable interest rates of about 18 percent per annum, they will be repaying about Sh78,000 per month, for the next twenty years,” says Mr. Waweru.
DUE DILIGENCE
According to Mr. Waweru, if one can actually afford to repay such an amount every month, it means that between now and the time one’s child is in the second year at the university, they will be repaying Sh78,000 every month.
If one decides to move to a bigger house before the repayment period is over, they will let out the two bedroom apartment or house for about Sh30,000 per month — and this is if they are lucky.
“This means that they will be repaying the difference of Sh48,000 every month from their pocket. The person will also be paying rent because they might not qualify for another mortgage,” adds Mr. Waweru.
“When they turn forty with two or three children, they will need to move to a bigger house and will have to pay rent- say of about Sh50,000 per month,” he adds.
The total monthly expenditure on housing will now have increased to Sh98,000, from the Sh48,000 top up from the mortgage, and the Sh50,000 from renting the three or four bedroom house.
“That is already half the net pay, and one is now left with 100,000 to cater for other expenses. At this point, one’s parents also need more medical attention, one also wants to do that Masters degree they have been postponing, start a business and so on,” explains Mr. Waweru.
One may argue that the house or plot is appreciating in value. This is true, but when one calculates the total repayment after 20 years on a reducing balance, they will have paid about Sh18.5 million- and this is assuming that the interest rate remains constant in the next 20 years, which is highly unlikely.
“For the house, I doubt that the value will have appreciated to anywhere near the Sh18.5 million. Actually, if one decides to sell the apartment or house after ten years at Sh10 million, one will make a “loss” because the amount of interest one will have paid, plus the capital cost of buying and renovating the house before selling it will be higher than the selling price,” adds Mr Waweru. He strongly advises young people against buying or building a house as yet, because one will be burying their money in an immovable asset.
Living in a rented house in an area that is conveniently near their workplace and children’s school, and one that is big enough to comfortably house their family is a much better bet when compared to paying a lifelong mortgage.
“I have met young people who followed the hype and built their own houses, and are now selling them to start their own businesses to supplement their earning,” adds Mr. Musa.
Living in a rented house in an area that is conveniently near their workplace and children’s school, and one that is big enough to comfortably house their family is a much better bet when compared to paying a lifelong mortgage. PHOTO | FILE
APPRECIATING PRICES
According to Mr. Musa, there exists many other investment opportunities and a young investor with Sh2,000,000 can opt to develop a start-up business that will supplement what they earn, and if they decide to go into construction, they can take a loan that they will pay comfortably.
Mr. Musa believes young people should start their foray into real estate by buying land.
“If you are still employed and have about Sh2,000,000 that you would like to invest in real estate, they can use the amount to buy affordable land in areas in the outskirts of Nairobi with the intention of later selling it at a profit, instead of using it to build their own house,” he says.
If one can afford it, he advises buying a piece of land in growing areas such as Kajiado, Machakos, Kiambu, Murang’a and Nakuru with the intention of later subdividing and selling.
Infrastructural development has also seen property rates appreciate in value, and the best time to invest in areas next to superhighways and bypasses is now.
“It is advisable to follow due diligence in acquiring property because conmen are also on the prowl and know where investment is highly valued,” says Mr. Musa.
“There are young investors who are interested in housing, but I would advise them to first venture into the land, and then move into housing, as the latter is tedious and capital-intensive yet land is easy to acquire when due diligence is followed, and one is assured of a profit,” he says.
For those interested in housing, they may opt to buy units in a gated community, and rent them out.