Even with the changing economic environment, real estate is still one of the ventures that are touted to have the possibility of doubling or tripling one's investments while also providing them with a passive income, a much-needed revenue amidst inflation.
While major investors have the financial muscle to splash millions by putting up beachfront properties or a dozen floors or serviced apartments in the heart of the city, others in the minor league may not know how exactly to risk their money.
A sit down with Safaricom Investment Co-operative (SIC) Housing Unit Manager Daniella Nyakuraya, points to rural areas which could be profitable for small-time investors as they grow both their risk appetite and portfolio.
Here is an excerpt from the interview:
The traditional way most Kenyans have invested in real estate is by buying and holding land - waiting for the right time or right price to dispose it. How is this a path to wealth creation?
Investing in land in an area with growth potential, allows you to build wealth since you can hold onto the land until it increases significantly in value. This will yield high returns when you sell it.
Holding land also allows you to give your future generations an investment that will grow in value and help with cushioning against inflation.
Land investment will also help you in building equity which can eventually lead to wealth creation. You can also use your land investment to bring in a stream of income through renting it out.
Buying and renting homes, and commercial properties are some of the other avenues you have shared for building wealth through real estate. How important is portfolio diversification in this space?
When you invest in various asset classes, you can have different avenues for bringing in returns. Diversification into asset classes that perform differently is beneficial since if one asset class is experiencing some risks, then the others can help keep you afloat and ensure you keep on having returns streaming in.
Real estate investment enables you to expand your portfolio beyond equities, bonds, and fixed income.
How small (amounts) should someone start to invest in real estate considering most real estate projects run into double or even triple-digit millions?
Real estate covers many sectors: land, housing, property management, investment in real estate companies and REITs (real estate investment trusts), among others. For this scenario, we will take real estate to mean housing.
Housing can be divided into further branches: social, affordable, mid-market, and up-market. Social housing is the lowest bracket.
The government has affordable housing as one of their top agenda items. Towards this, it has launched the Boma Yangu platform which allows one to own and invest in a property from units as low as Sh1 million payable in comfortable instalments.
The government has also through KMRC-Kenya Mortgage Refinance Company, introduced affordable mortgage products of up to Sh8 million payable in 30 years with low interest rates of below 10 per cent.
These are opportunities the common mwananchi can exploit to invest in real estate at very affordable rates.
For a first-time investor, who does not have as much cash as developers do, what kind of real estate project is ideal for them to invest in? What investment vehicle is ideal for them in the market?
I would advise a very comprehensive market research before they invest. Real estate is a capital-intensive sector and also requires long-term investments.
However, it offers high returns, which as per research, has averaged 25 per cent per annum over the last five years as compared to traditional investment assets such as stocks and bonds which have generated an average of 14.6 per cent per annum over the same period in the country.
With limited resources, one can start with co-operatives such as Safaricom Investment Co-operative (SIC) which buys large tracts of land and sells them to buyers at affordable prices with value-adds such as access roads, perimeter walls, boreholes, etc.
These pieces of land can be bought collectively or individually.
Co-operatives also give one the chance to invest in real estate investment vehicles like our Pepea Fund at SIC.
These funds then give competitive returns to the investors.
Investing through Saccos would also give one access to real estate by making savings which then allow them to borrow from the KMRC funds.
Can someone make money from real estate projects in rural areas? What are the advantages or disadvantages of investing in the city and the rural area?
Yes, you can.
Rural areas in Kenya have seen tremendous growth during the last few years with Kenyans developing an appetite for up-to-scratch accommodation. Devolution has also allowed otherwise remote areas to grow as they keep up with the demand from the county offices and other associated developments.
Airbnb (BnBs) and short-stay accommodations are also a growing trend in rural areas for urbanites visiting their rural areas or those looking to have short vacations.
As I earlier said, market research would be important in deciding between rural and urban real estate as each has its own unique characteristics.
Real estate in urban areas would have quicker returns but higher capital requirements such as land and labour.
At SIC, we offer building services as one of our products which an investor can explore when faced with such a decision. In this, we offer feasibility studies and a scenario analysis at affordable rates. These tools would greatly advise someone on the choice to make.
Is investing in rural areas more ideal for the common man (mwananchi) owing to the cost of construction and land prices in the city?
Yes, it would be if capital is the determinant factor. It would also be prudent for them to consider factors such as statutory approvals and checks which would be considerably more affordable in rural areas. However, the basis of investing is to generate a return. Due to the high demand for real estate in the urban areas, one might find themselves recouping their money and a return on it much faster in the urban areas than in the rural areas.
For example, if an investor has Sh3 million, they might choose to build a simple stand-alone rental house in the rural areas for sale or rental yield. It would however take them some time to find a willing buyer or to find a tenant who would pay the same amount of rent that the investor would be asking for.
