Kenya vs USA real estate

[mbwakali]

@MI6

It is much easier for an American to own a home, or to invest in real estate than a Kenyan because of one reason: interest rates. The interest rates here are punitive, making it virtually impossible or borderline hard to use leverage. The fact is, the real estate market is heavily reliant on debt. The interest rate in Kenya is around 14% and that in the USA is around 4%. It makes financial sense for an American investor to make a 20% down payment and finance the remaining 80% at 4% rate p.a. In Kenya, that interest rate is punitive. It doesn’t even make sense to use leverage in Kenya unless you overprice your property significantly to compensate. It is impossible to overprice rent because of market forces. So Kenyan developers who use leverage have only one way to make a return, to sell the overpriced units. This is why anyone who buys those completed units from developers is essentially making a bad investment.
In summary, it is a near impossibility to use leverage when building to rent out in Kenya because you can’t transfer the high cost of capital (14%) to tenants. You can only use leverage if you intend to sell the property, because you can overprice it to compensate for the 14%. The person you sell to is guaranteed to get a bad return on his investment. The renters market in Kenya is more efficient than the buyers market, which is why developers take expensive loans and build for sale to the middle class, not for rent. Until interest rates come down sub-5%, it will never make business sense to take a loan and build for renting out. You will have to buy/build rental property in cash, otherwise you will essentially be working for the bank.

It’s easy but very expensive.
In Kenya it’s hard but way cheaper.

The way you are comparing the cost of borrowing money(interest rates) of two currencies each with different purchasing power (value) is confusing/ misleading

[system]

@GERALD9949

Land owners in Westlands will beg to differ.
Virtually all the apartments on General Mathenge, Brookside Drive, Part of Raphta Road, the upper part of Westlands Road and Mogitio Road have a For Sale or a For Rent Sign.
For the Asians who opted to convert their half acre /1 acre plots to residential apartments, they are the only beneficiaries as they bought that land just after independence when it was cheap.That is not the case in most of Westlands where it is people who bought land for 100 million plus to build apartments being rented starting at 30k for a 1 bedroomed apartment(the crappiest part of Westi) to 250 k for akina One West.
Some of those apartments are so empty, they are about to be haunted. On Brookside Drive, where some of the best apartments are, they almost never have full occupancy at any time.
And this was after rents were slashed in parts of the estate, especially in the areas towards Chiromo.

This applies to Commercial buildings too. On Muthithi Road, do you know how many empty commercial buildings are there and they are still building frigging more??
The rents are so high that some people are preferring to rent the old Indian buildings and turning them to offices without building a new building. I saw that on Tausi Road and parts of Raphta Road too.
And guess what, if the CBD gets ANY improvements like improved transportation links, the offices in Westlands, except for corporate headquarters instantly lose value, because most employees are complaining about the long commute to Westlands if they do not have a car and especially if they are from Thika Road or Eastlands and they come by public means. Many small firms are reconsidering relocating outside the CBD unless it is absolutely necessary or the firm pays all of its workers well enough for all of them to afford vehicles.

True. If you read what I had written earlier, I talked about buying land, not apartments.

[system]

@GERALD9949

That is illegal by law.

Says who?

[Karoga]

@Purple

True. If you read what I had written earlier, I talked about buying land, not apartments.

Buying land for what agricultural , commercial or what your buying land statement is to general what he is trying to tell you is that even some of the most prime lands in .ke are giving very poor returns because of low purchasing power of the citizens , average independent adults age has risen from around 20 years in the 80s to around 25and above today unapata mtu ako 25 still living na paros because hawezi lipa rent because of limited job and business opportunities unlike in the USA where mtu anaweza survive hata akiwa 19 on state welfare that has a bearing on real estate

[GERALD9949]

@Purple

Says who?

Eeerm. In 2015, Robson Githae told Diasporans EXACTLY that and the US was quick to point out, how exactly would an American bank valuate a Kenyan investment??
Most Banks will only loan to companies, with a long established and healthy balance sheet to invest outside but not individuals. There is not an issue of savings, but loans…No.
I do know there are loopholes with credit unions, but not banks.

[GERALD9949]

@Purple

True. If you read what I had written earlier, I talked about buying land, not apartments.

This is increasingly applying to land too.
Nobody wants to buy ‘prime’ land apart from multinationals in areas close to the CBD because the ROI is quite low. In lower Westlands road, many plots lie idle because of Avic alone. You cannot build an apartment there if you buy the land as it will be overshadowed(as the KNH pension luxury apartments already are) nor can you buy the land to build a commercial building. Just above it, Cytonn has a half acre plot it has been trying to sell for a full year.
No buyers, though I wonder why as it is a bit distant from Avic.

[Super_Tall]

Imo, apart from money laundering, the single biggest cause of the astronomical prices of “prime” real estate is the concentration of “prime” jobs in Nairobi. All the best govenment, NGO, private sector jobs are around Nairobi. This coupled with the backward tribalism in the areas surrounding Nairobi that seeks to prevent non-locals from owning land only serve to drive up land prices. Mombasa had potential but is only attactive as a tourist destination.
In places like the US, UK, Germany even SA, there are so many urban centres with good social amenities with well-paying jobs and hence reasonable land prices.