Dear Investor, Is Investing In Real Estate Still A Good Idea?

Is Investing In Real Estate Still A Good Idea?

By Soko Directory Team / Published August 28, 2020 | 9:07 am

Covid-19 has affected virtually every sector in Kenya. Businesses have shut down and millions have lost their jobs. Can people still invest in the midst of this pandemic? Is there still hope for the real estate sector?

According to Mr. Kariba Moko, partner Moad Capital, investing in real estate still has a future if investors will purpose to take a different approach.

“Even before the COVID-19 pandemic real estate developers had a rough ride over the last few years as the reality that the romantic period where returns were as high as 50 percent over a short time period was gone. From the early 2000s Kenya’s when Kenya’s economy begun to pick up and we witnessed accelerated investment in property courtesy of massive infrastructure projects such as the Thika Superhighway which opened up new areas for developers,” said Mr. Moko.

For years, the real estate sector in Kenya has been deemed as a safe haven for investors to store their wealth for a rainy day. But over the last few years, the general economy has struggled and this has created new challenges for developers, chief of which is reduced opportunities for quick exits and at the same high returns according to Mr. Moko.

“Initially, projects would be modeled over a two-year period during which construction and selling of the units would be completed within this time. The funding of projects was equally structured along with these timelines,” he said.

One of the greatest challenges that investors in real estate are facing is that of financing. Financial institutions have started being cautious of who to lend to and are strict on when to expect the payments.

According to Mr. Moko, as the clock ticks, financiers such as banks expect that by a certain time the developer would have sold off units or fully rented them out so that the lenders can get their funds back, failure of which inevitably leads to foreclosures and auctions.

Developers today have to model projects over a longer period of up to 10 years if they are to be successful. But how do you sell a project over such a long period?

“One model that has been proven to be successful is the rent-to-own model where tenants become homeowners in a few years. Simply it allows tenants to continue paying the same amount in rent but with the aim of owning the unit over a certain period as opposed to a one-off bullet payment which is financially burdening. The rent-to-own model has proven successful in other markets and there is no reason why it cannot be replicated here,” Mr. Moko says.

For this model to work developers have to bring to the market projects that buyers want or in other words, a house or apartment under the rent-to-own model has to be of the same living standards, if not better than, where the tenant currently lives.

At the end of the developers have t to give their customers sustainable projects where water, garbage collection, power, open and wide spaces, etc. are taken into consideration.

The good news is that there is a growing market for sustainable or green projects. Kenya’s first green bond, whose proceeds are earmarked for student housing, was successfully listed on the Nairobi Securities Exchange (NSE) in January 2020.

Although the green bond is targeted for student housing it nevertheless demonstrates that there is the demand for green projects which offer developers a deep pool of funds to tap into.

Investors on their part can take advantage of this fledgling market to earn returns which is timely given the dearth of corporate bonds on the Nairobi Securities Exchange (NSE).

About Soko Directory Team

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system.Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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