Real estate investments in Kenya have the potential to double and even triple in value per year, with the right property. So how does an investor finance a real estate investment? There are at least two main options available in Kenya: group investments and mortgages.
Along with the ability to procrastinate against risks like rising inflation, real estate investors are able to improve their equity, generate high capital gains, and potentially record rapid appreciation rates.
Real estate investment financing options
1. Group investments
This is the most efficient and commonly used financing option by the lower middle class and those in informal employment who are unable to qualify for mortgages and bank loans due to their source of income. irregular.
Group investments, locally called “Chamas”, hold over Ksh 80 billion of wealth in Kenya in terms of savings and investment, with one in three adults being an active member of a group investment club. They have had the greatest success among women, young people and the self-employed.
To operate, members pay daily, weekly or monthly contributions for a fixed period and with a specific financial objective. Once the goals are met, they identify a potential property, buy it, and either start saving to develop it, or divide it equally among the group members.
Alternatively, banks develop investment groups and invite interested parties to make monthly contributions. If the group member wants to buy a property, they simply borrow (with applicable interest rates) from the group based on their contribution. Group members co-sign the loans and bear the cost of repaying the loan if one of the group members defaults.
The success of collective investing is strongly motivated by a cultural impulse to pool funds for investing and borrowing.
Most banking institutions and mortgage companies in Kenya have realized the potential of the option and have developed programs aimed at stimulating group investments – it is based on the idea of creating savings and investment opportunities. investment.
2. Home loans and mortgages
The line between loans and mortgages is thin in Kenya, and people often use the two terms synonymously.
These are facilities offered by various financial and credit institutions, such as banks and real estate companies, to help you buy a property:
Loans and mortgages are granted to successful loan applicants who meet minimum loan qualification requirements.
Loans and mortgages can be fully or partially funded by you. However, the majority of lenders finance the property up to 90%.
Various lenders have variable interest rates and income generating loans being charged an interest rate of 15% per annum and real estate development attracting 13% pa
Real estate intended for owner occupancy can receive 80% financing, while capital goods, such as rental accommodation or vacation homes, can receive up to 70% financing.
Repayment term for loans and mortgages
15 years for individual borrowers
10 years for public limited companies
2 years per phase for real estate development
Most loan and mortgage seekers in Kenya are oblivious to the hidden fees that come with taking out loans and mortgages.
Currently at 4% of the cost of the property.
The fees vary depending on the appraiser, and it is essential that you have yours before the property is appraised.
Determined by the amount of the mortgage. Higher loan amounts result in higher legal fees. Banks have their favorite law firms that they deal with, so be sure to learn about their preferred law firm from the lender.
Bank facility fees
Varies by bank and aims to cover loan facilitation
Mortgage clearing fee before the agreed time; varies between
It is not compulsory and it is paid annually. It protects the property during the loan repayment period.
Mortgage life policy
Varies by lender and covers your outstanding balance in the event of death.