Tuesday, August 9, 2022

How Kenyans lose money to cunning sellers of cheap jungle plots

You can own a parcel of land for as low as Sh. 40,000 per acre. You won’t be required to pay all the money at once.

You can opt for the installments program, through which you will pay a deposit of Sh. 10,000 and settle the remaining Sh. 30,000 within three months, and without incurring additional interest.

This may sound to be true, but it is one of the tantalizing offers that land selling companies are dangling to Kenyans hungry for land.

Tens and tens of land selling companies have mushroomed across the country and are luring unsuspecting Kenyans to ‘own’ land at very low, throw away prices.

“Kenyans have an emotive attachment to land. Everyone wants to own a piece of land they can call their own. This is the desire that land selling companies, land brokers, and land marketers are exploiting,” says investment advisor Michael Abura.

The land on sale is usually located in far flung areas. Nanyuki, Rumuruti, Kwale, Malindi, Kajiado, Narok. Sellers align their land to improve their prospects of attracting buyers.

For example, the land will be claimed to be in close proximity to an upcoming trading centre, an already developed residential estate, county government offices, a road that is under construction, or is claimed to be just a couple of minutes from the city centre.

“Buyers want to hear that prospective land is cheap, near a hospital, a school, church, a road, and in an area that is under residential construction. These are the amenities that sellers will tap into,” says Abura.

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One of the big mistakes most land buyers make is to commit before making a site visit. “Most buyers find out that the location is further than they had been made to believe, often in a jungle or an environment that resembles a wilderness,” he says.

And since land doesn’t depreciate, most buyers take these far flung parcels of land in hope that their prices will improve.

But apart from the cunning games land selling companies play with buyers, there are buyers who knowingly purchase land for speculation purposes only.

They neither intend to set up an estate for sale or rentals for hire. Their main drive is hoarding for price shoots. This can sometimes work. Many times, the results are losses.

According to Waweru Kariuki, a realtor and the author of The ABC of Real Estate Investment in Kenya, there are places where land can make you money for the same place to end up burning other investors.

For instance, Waweru points out that people who bought land in Kitengela in 2008 and sold it four years later in 2012 made good money. The average price for an acre of land was about Sh. 250,000. In 2012, the average price for the same land was Sh. 1.2 million.

“The real estate bubble in Kitengela burst around 2012. Land buyers who put their money in land in Kitengela in 2012 and sold in 2017 only managed to make a Sh. 300,000 profit,” he said.

Waweru contrasts this to people who had invested the same amount of money in Treasury Bills with an annual interest gain of 10 per cent. These investors would have raked in Sh. 1.9 million in the same period in contrast to those who went for land.

“The appreciation rate for land must not be lower than the inflation rate. If you buy a piece of land and its appreciation rate is slower than the rate of inflation, then you are actually making a loss on that investment, even if you sell the land for a profit,” he said.

According to Abura, buying land for speculation borders on gambling.

“Kenyans are spending Sh. 83.2 billion sports betting on mobile phones in six months. But this is not where the problem ends. More billions were spent on land betting across the country,” he says.

“If the government announces a road project, Kenyans will rush to acquire land along the prospective route the road will pass through.”

For instance, in 2015, speculators were left losses after the route of the prized standard gauge railway was altered to bypass their parcels of land on a 15km stretch between the port of Mombasa and Mariakani.

Abura also cautions that unless you’re planning to settle in a far flung area after retirement, you should not gamble with land simply because it is discounted.

“The trend is usually for larger scale buyers to acquire acres of land which is then subdivided and sold. This will not make sense unless you have capacity to use the land for large scale production,” he says.

Acquisition of land through chamas and table banking groups has also gained popularity as a means for members to own property.

It might seem plausible for a group of ten chama members to acquire an acre and a half of land at Sh. 2 million then subdivide the land into ten equal plots with access roads which are then shared amongst the members.

This would mean that each member acquired their plot share at Sh. 200,000 through the chama.

However, Abura says that it would be wiser to invest the Sh. 2 million in government bonds, or in acquisition of a more strategic, but expensive parcel of land that guarantees faster appreciation.

“Cheap land will have appreciation delays. But pricier land in an area whose bubble hasn’t burst will present better prospects, both for resale and commercial development,” he says.

This means that Sh. 2 million invested in a more strategic single plot could prove to be a more rewarding venture than an acre and half purchased at Sh. 2 million.

Speculators who have no intention of either building rentals or homes for sale have parceled out land into 40*80 or 50*100 pieces in Nairobi metropolitan areas that are not sufficient for large scale housing development.

This subdivision has spurred a speculative hike in prices.

For example, as of 2020, a 50*100 plot in Juja that sold for Sh. 1 million in 2012 sold at Sh. 8.5 million.

This was equivalent to a more than 750 per cent increase. In Ruaka, an acre of land that cost about Sh. 40 million in 2016 sold at Sh. 100 million.

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