Attractive laws and high returns draw foreigners into Kenya’s property sector

Kenya’s property boom continues unabated, pushed into an “up-up-up” trajectory by a growing middle class and the injection of expatriate capital into the sector.

As a result, not a single year, since 2003, has seen a slowdown in the growth of the sector, and the rebasing of the country’s economy this year revealed that the contribution of the property industry to Kenya’s Gross Domestic Product had been massively undervalued for years.

Of keen interest to industry observers is the contribution of foreign direct investment to the sector, especially over the last five years. One explanation has been that the rate of returns on investment has been one of the best in the country, meaning expatriates could reap hundreds of millions of shillings in returns from a relatively small investment.


The other has been that, as the country grows, so is the sophistication of the housing needs of its citizens. This, coupled with a growing foreigner population, especially in the country’s major towns, has resulted in developments that capture Kenya’s economic diversity, particularly among the rich and super-rich.

“The number of expatriates in this country has significantly grown over the years because of the major organisations that have set up regional offices here,” explains Mwangi Karume, a property lawyer. “These employees need places to stay, and they want first-class accommodation.”

That accommodation does not come cheap, and developers know it. Because there is a ready market, builders have tried to outdo each other, both in architectural designs and on-site amenities. This, expectedly, has boosted the average quality of new accommodation in, especially, Nairobi, Mombasa and Kisumu, and that quality has also boosted the average going price for housing units.

Data from HassConsult, a real estate consultancy firm, shows that, between 2000 and 2014, property values in Kenya rose by a stunning 357 per cent. The appreciation-in-value graph is even steeper in areas where Mr Karume describes as “green and blue zones”, which mark the traditionally preferred areas for expats.

“Westlands, Rosslyn, Nyari, Kitisuru, Loresho and Eden Ville, among other high-end estates, are regarded as being relatively secure by expatriates working for such organisations as the United Nations,” say Mr Karume. Such preferences mean property rates will be higher in these zones than other areas offering almost similar housing propositions.

Mr Ibrahim Mwathane, a surveying and land information consultant, says the renewed interest in Kenya’s property scene by foreign investors “is a great boon for the country”.

“While critical factors like recent international interest in the energy, petroleum and infrastructure sectors have acted as key drivers for the real estate industry, investments in institutions has also created demand for housing units for students,” he adds.

The boom trend in the real estate market, others say, could be tied to Kenya’s new Constitution. Before, the bulk of the country’s real estate projects was government-owned, they point out.

The argument is that a relatively investor-friendly law that allowed foreigners to own land and guaranteed them of government support and protection ended up attracting people who would otherwise not have sunk their money into the sector. As the market was opened up to the private sector, it attracted investors from far and wide. The diaspora was also looped in.

But that came at a price: property prices hit the roof. Plush villas, residential homes, commercial properties and apartment units in prime areas of the city are being snatched off the market faster than they are being built.

“Foreign investment came much later when investors realised that there were better returns in the industry. Imagine having a 20 per cent profit margin from an investment. Who wouldn’t pick that up?” asks Mr Karume.

Kenya also became an attractive real estate investment location for foreigners as many have easy access to cheap credit back home, and therefore are able to swiftly invest in large developments.

Local investors, meanwhile, do not have that advantage and are forced to deal with high interest rates from financial institutions, which affects their competitive advantage at the marketplace.

Mr Karume also points out that economies of scale and the good old “game of numbers” have played a key role in how foreigners invest in the local property industry.


“If you put up, say, 1,000 residential units, the cost of construction is significantly reduced compared to ten units. The cost per square metre is simply incomparable,” he says.

“Foreign developers, particularly from the developed nations, have good track records and experience in mega property investments, and also have the comparative advantage of access to ready capital. They are therefore able to mobilise much faster in our property industry,” Mr Mwathane points out.

While the industry has a myriad prospects, the land factor often leaves many tongues wagging. Five years ago, land became one of the major topics of discussion among land owners, especially foreign ones. According to a global property website, Lamudi, foreigners in Tanzania can only occupy land when it is intended as an investment, which is done by obtaining a right of occupancy through the Tanzania Investment Centre.

Back home, however, foreign ownership is often restricted to a leasehold basis, where international buyers can acquire property only on a 99-year lease. However, on expiry of the leasehold term, the Constitution states, a renewal of the lease may be sought.

Article 65 further provides that any document which purports to confer on a foreign investor an interest in land with a lease of more than 99 years is deemed as conferring on that foreigner a 99-year lease and no more.

The clause, however, has resulted to the swindling of many foreign investors, who are often duped into entering into dubious arrangements with locals.
“This is usually based on the alleged ‘prohibition’ that a foreigner cannot own land in their own name,” explains lawyer Mwangi Karume.

Mr Karume says that, while the Constitution (2010), the Lands Act (6/2012) and the Land Registration Act (3/2012) grant the right to each person, either individually or in association with others, to acquire and own land in Kenya, many foreign investors “have been duped into entering into agreements with locals with a view to the locals purchasing properties on their behalf”.

“Such unnecessary partnerships often turn sour and should be avoided,” he says.

He also insists that international investors can own property in the country in their name, contrary to what many of them are told.

Mr Mwathane says that County governments should “cease making alarming statements regarding renewal of land leases for local and foreign investors.”

“Let land leases which have been used for the purposes for which the land was initially intended be renewed without prejudice and bias. This will create confidence in continued investments in property in Kenya,” says Mwathane.

Source: daily nation

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