Real estate in Kenya – the one thing we all want a piece of, but unfortunately, it’s seemingly a reserve for high-capital investors.
Well, admittedly, real estate in Kenya has, for a long time, been an exclusive game for individuals who can afford to inject hundreds of millions into their projects.
However, and rather interestingly, we’re now seeing a new wave of investors increasingly joining the bandwagon. It’s now possible to generate considerably good real estate ROI from comparatively little capital.
There are a number of notable opportunities you could leverage. So, let’s dive deep into the details, and critically evaluate the positives and negatives of each low-capital investment option for real estate in Kenya.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts, commonly known as REITs, hit the Nairobi Securities Exchange (NSE) in 2015 and were predicted to grow exponentially over the long haul. However, and rather contrastingly, they are still yet to pick up four years on.
Ok, first things first. REIT is a real estate investment model that basically involves a group of investors pooling their funds to collectively invest in a trust. The trust is then broken down into distinctive entities that earn equitably-shared revenue from real estate projects.
Think of it as a collective real estate investment scheme that’s controlled by the Capital Markets Authority. Income REITs (I-REITs) earn from rental income and capital appreciation, while Development REITs (D-REITs) deal with real estate development projects. Then Islamic REITs are special units that are compliant to Shari’ah-based real estate.
Now, apart from the comparatively little investment capital, the good thing about this real estate investment model is its versatility and increased liquidity. You can conveniently recover your cash by simply selling your “shares”. Compare that with the tedious process of selling actual real estate property.
Another critical benefit is the portfolio diversification that comes with REITs. Plus, of course, the fact that the Kenyan government exempts REITs from stamp duty.
Unfortunately, the uptake of REITs is exceedingly slow in Kenya because most potential investors are yet to understand how they are leveraged. So far, there’s only a single REIT company listed on the NSE.
You’ve seen what they do to write-off vehicles. If the car doesn’t end up in a scrap metal yard, it’ll probably be stripped down into parts. Or better yet, rebuilt and polished accordingly, before eventually being sold for a reasonable profit margin.
Well, that’s pretty much the same concept when it comes to real estate in Kenya property flipping. You acquire a rundown property, renovate it, and then sell it to a willing buyer. It really is that simple. And it can be tremendously rewarding to low-capital real estate investors.
But, here’s the kicker. Property flipping is not as straightforward as it might seem at first. It comes with its fair share of risks and complications.
Finding an ideal dilapidated building for a bargain price, for starters, can be quite challenging. Fraudsters are especially fond of this market segment because buyers are exceptionally susceptible to poor property valuations.
And in case that part happens to sail smoothly, there’s always the challenge of attracting a good buyer after you’ve refurbished everything.
However, it’s not all doom and gloom. If you know how to finesse your way through it all, you can generate immense profits in a relatively short period of time.
The secret here is securing a favorable deal with a legitimate final buyer before you even acquire the rundown property. Understand what your prospective buyer is looking for as you hunt for a well-priced unit that fits the real estate in Kenya standards. And of course, ensure you engage professional experts for property inspection, valuation, redesign, renovation and sale administration.
Student accommodation is an exceptionally attractive real estate in Kenya investment model because of its relatively high returns. However, and rather surprisingly, most prospective real estate investors are not willing to try it out.
So far, the 31 public universities in Kenya can only afford to house a quarter of their student population. The rest are then forced to seek alternative accommodation away from the school grounds.
Apparently, the situation in private institutions is much worse, considering the fact that most of them do not even offer residence within the school. Their learners are always required to make their own arrangements.
Therefore, all things considered, there’s immense potential in the student accommodation sector. And interestingly, it’s growing progressively as the student population continues to swell with each new academic intake.
But, do low capital investors stand a chance?
Well, here’s the thing. Student accommodation units require much less to put up compared to standard real estate in Kenya. The land itself, for instance, particularly around rural institutions, is noticeably cheaper. And you don’t even have to buy it permanently. A long-term lease of about 10 to 20 years would be enough to generate good returns.
And that’s not all. The construction costs are also comparatively lower because the typical finishes for student units are pretty basic.
And while you’re at it, you can as well maximize your returns by bundling accommodation with supplementary services like student catering.
With Kenya’s industrial sector growing steadily, there has been an increased shortage of relevant support infrastructure. That said, manufacturing plants, wholesalers, and retailers are consistently seeking secure warehouses that can provide adequate and convenient storage for their goods.
While the largest manufacturers characteristically go for high-end units, there’s a comparatively large pool of retailers and wholesalers with a much different set of needs. They are rather interested in standard storage facilities with fewer provisions- because of the corresponding cost implications.
A thoughtful way of capitalizing on the resultant demand is putting up cost-effective prefab warehouses conveniently close to the target market.
You can, for instance, consider setting up well-secured storage container warehouses near a busy mall. This alone would potentially attract the mall’s retail tenants, since storing part of their goods in your facility would substantially reduce their overhead costs.
Secondary Cities’ Commercial Units
Real estate in Kenya primarily focuses on properties across the cities of Nairobi and Mombasa. Only a negligible fraction of investors have expanded their portfolios beyond that into the boundaries of secondary cities and satellite towns.
While residential units in such areas usually experience lower uptake than Nairobi, the commercial property scene is a different thing altogether. There’s an increasingly huge demand for cheap retail units, especially along major roads and market centres.
To tap into this market, you could consider a remote area flanking a high traffic corridor. Then, of course, purchase or lease land before proceeding to put up feasible units- using locally available materials.
Real Estate Investment Groups
The concept of investment groups is not new at all when it comes to real estate in Kenya. As a matter of fact, we’ve seen quite a number of SACCO societies morph progressively as they venture into this- making it one of the most predominant forms of low-capital real estate investment in Kenya.
Now, think of a real estate investment group as a mutual fund for rental units. A company essentially acquires properties then allows individual members to take up partial ownership. Ultimately, the company gets to run and manage the properties while remitting the corresponding rental income to its members.
There are many investment models that different groups continue to use. However, the principle is the same- in a nutshell, many people pool their resources to invest collectively.
Real Estate in Kenya – The Bottom Line
We’ve sampled several investment options but we’ve barely scratched the surface here. The fact is- there are numerous possible ways of capitalizing on real estate in Kenya with relatively low capital.
To assess your options comprehensively, get detailed feasibility reports from a reputable project management firm. As long as your professionals study all the parameters accordingly, you should be able to identify the best opportunities you can capitalize on.
I really appreciate your post and you explain each and every point very well.Thanks for sharing this information. And I’ll love to read your next post too.
Hi thanks for your elaborate research we appreciate ur effort I have a plot n would like to do a joint venture and probably get a go deal out of it what or how does one get into a water tight agreement so as not to get a bad deal as many developers want the biggest share of the units are there good investors out there you can recommend my plot is in lenana next to lenana high School
It measi1/4 acaer
Thanks for reaching out. I’d advise you to begin with a detailed feasibility study.
In short, what would you like to develop? How are similar properties in the area doing? What’s your target market? What type of joint venture arrangement are you looking for? What/how much are you willing to commit to the venture? What are the projected returns- best and worst-case scenarios? etc….
Investment companies respond best when you’re the one taking the initiative.