Step by Step Guide to Owning a Home on a Salary in Kenya
Buying a home is one of the most important financial undertakings an individual goes through, as such it’s vital to go through a to-do-checklist to avoid getting caught up in the emotions involved when embarking on the homeowner's journey.
It's important to highlight that there are several ways that ultimately lead to one becoming a homeowner in Kenya namely; Completed property (ready for occupation), Land purchase and Build and the off-plan property purchase plan.
Off-plan property: This mode has gained a lot of popularity across the country. It involves getting into an agreement with a real estate developer to pay a given initial deposit followed by periodic payments until the agreed upon total cost is met.
Upon completion, the relevant documents are transferred to the buyer.
Property investors or potential homeowners like to purchase property using this system in the hope of making substantial capital gains.
This usually occurs because developers who offer a property for sale off-plan, often offer financial incentives to early adopters.
Usually, this comes in the form of discounts as well as customized purchase packages.
Furthermore, there may be ample opportunity for capital growth in a rising market usually driven by the potential or existence of high-level infrastructure in the immediate area as well as social amenities such as a new university, medical centers, and convenience malls.
Dorothy Okello, a Real Estate consultant at Saif Real Estate explained the entire off-plan purchase process while speaking to Kenyans.co.ke on phone.
The real estate developer has employed the buy-build-sell model in which prospective homeowners get to purchase their home by making periodic payments after the initially agreed upon down payment.
Developers have tailored their payment plans according to the market trends thus explaining why most Kenyans are undertaking similar home owning plans. For example, their 3 bedroomed Ksh 18 million Cicada Apartments in Kilimani, Nairobi can be purchased under two plans; a 4-year or 12-year payment plan.
Such firms have come up with lucrative payment systems that afford the client breathing room in terms of cash payments.
Their 4-year plan, for example, involves a Ksh2 million initial deposit with the balance being spread out across the four years at 0% interest.
They have an open day coming up between 1st-3rd March where they will be unveiling the property and giving away a Ksh1 million discount to every purchase made on that day.
A buyer is usually expected to clear the initial deposit before the developer breaks ground, and then go on to clear the balance in regular deposits across the agreed-upon period.
Such plans have driven most buyers away from the traditional mortgage payment plans due to incentives such as the 0% interest caveat.
Other incentives are co-ownership deals, where two individuals are eligible to purchase an apartment, and split the requisite costs as well as earnings equally. Property developers are now willing to go the extra mile and actually source for tenants for the buyer if he/she/they opt to rent it out.
Completed property (ready for occupation): This is pretty straight forward as an individual pays to acquire a fully built house.
What varies would be the modes of payment which are usually dependent on the seller. Some demand cash upfront (especially when buying from individuals), others offer flexible payment terms stretched out over several years, and others allow for a mortgage planned payment.
It is important to note that most if not all, real estate developers allow for all three modes of payment when it comes to purchasing a house.
Land purchase and build: This could be viewed as the most tedious of routes to owning a home, as it involves a lot of paperwork and supervision.
However, it's the most preferred method, especially upcountry, where land and building materials are relatively affordable.
It involves identifying an ideal piece of land, performing a legal search on the same, making an offer to the seller, actual purchase and eventual construction of one’s house.
It's important to note that there are some neighbourhoods that have associations and rules regarding the house design within their neighbourhood, irrespective of an individual claiming ownership to a piece of land.
It would, therefore, be prudent to carry out thorough research into the presence or lack thereof, of neighbourhood associations and their various regulations prior to purchasing a piece of land.
It’s important to note that as a buyer, one will incur certain transactional costs when buying residential houses in Kenya such as;
Stamp Duty/Land Tax: This levy is centred on the property value and the State relies on the amount returned by the Government Valuer or the purchase price agreed upon; whichever is higher:
• 4% for land/property within a municipality
• 2% for agricultural land or property outside a municipality
• 1% if a property is registered as a company and transfer is by way of shares rather than a title
Other costs include the various legal and agency fees that are usually dependent on the rates of the firms employed to carry out these roles.
Despite the various methods mentioned above, the process of owning a home in Kenya requires some basic yet essential steps that are highlighted below.
Step 1: Get Your Finances in Order
This is often overlooked, but it could prove to be the difference between getting a good deal and a great deal.
Take time to visit your personal bank to not only get an appraisal (in the case of mortgage payment plan) but to also establish what one can actually afford.
These institutions can easily access one’s earnings and paint a clear picture of what's within one’s reach in the real estate market.
Step 2: Get yourself a great agent
When looking to make such a huge financial investment, it is always advisable to do it with the aid of a legitimate and registered real estate agent.
Whether one is looking to purchase land or a house, a great agent is vital in helping weed out not only the good deals from the bad but the legitimate sellers from the numerous fake ones that could potentially lead to major losses.
Carry out due diligence on the agent as well as there have been cases of fake agents in the Kenyan market.
Agents are now registered at the Ministry of Lands, where one can easily access records.
Although involving an agent who specializes in buying and selling of houses in the preferred area is vital, finding one who actually has knowledge in the construction industry would be a major advantage in terms of getting value for your money.
The real estate agent should be registered and licensed.
Step 3: Identify the house of your choice
This is where your exceptional real estate agent gets to prove their mettle. One can make a list of all that he/she deems as must-haves in their house of choice and the agent can then get to work.
Things to consider are; Price, location, size of the house, style, neighbourhood etc. Great agents usually have a wide portfolio in hand, thus making the process of identifying your ideal home easier.
Looking through various property websites, magazines, and social media posts could also help one narrow down on their dream home.
If possible talk to a few neighbours and get an actual account of not only the house the general area as well in regards to essential factors such as security, availability of essential utilities among others.
Step 4: Vetting of the developer/seller
After identifying the house that ticks all the right boxes, the next step would be to actually carry out due diligence on the developer/seller of the house in question.
Once again, your agent will come in handy at this point. Based on the numerous cases of fraudulent developers in Kenya, this is one of the most important steps.
It involves the thorough process of getting each and every document checked out and verified by professionals.
Employ the services of a relevant lawyer to conduct a search, to ensure that the property is free from any encumbrances. That means it was not built on a road reserve, riparian land, airport land, it is was not grabbed, and that the legal owners have paid any dues charged – one can now easily trace the title deed back to the very first owner.
In the case of a real estate developer, look into; their existing developments, if none, look into whether they are in possession of all the necessary approvals needed to carry out the development.
After affirming that the developer has all the approvals required, look into the finer details like water and sewerage as well as the financial model in the case of off-plan purchases.
More often than not, a real estate developer looking to finance the entire project using depositors' money should cause for concern
Bonus step: Get a valuer
Once everything checks out, it's important to get an actual valuer to ensure that one gets value for their money.
Your personal bank should be able to provide their own valuer, especially when taking out a mortgage plan.
If it is land, one should request documents supporting where the beacons are held, while off-plan purchases should be examined thoroughly as it involves different documentation.
The lawyer and agent mentioned in the previous steps should be consulted at this stage, but it’s important that the purchaser understands the documentation as well.
Step 5: Make an offer
Once all the above is done, one can then go ahead and make a formal offer to the buyer. Sometimes referred to as an Agreement of Purchase and Sale, a legal document that should be carefully prepared by your legal officer.
It normally includes your name, the name of the seller, the address of the property, the price agreed upon, deposit amount, the closing day (the date you take possession of the house – usually up to 90 days), request for a current land survey of the property and the date the offer expires.
Once the sale agreement is signed by both parties, the deal becomes legally binding and enforceable under the law of contract. The buyer is required to pay a deposit of at least 10% of the purchase price (or such other amount as may be agreed by both parties) upon signing the sale agreement.
The deposit is held by the seller’s advocates as stakeholders pending completion of the transaction in accordance with the terms of the sale agreement.
Alternatively, the buyer and seller can mutually agree to open a joint escrow account mandating both advocates to oversee the purchase funds until completion of the sale.
Buyers will normally then forfeit a percentage, or all, of the deposit if they default or are refunded the said deposit if the seller is unable to complete the transaction. It is important that every instrument affecting a disposition in the land is executed by each of the parties consenting to it.
Execution under the relevant Kenyan law consists of the person appending his/ her signature or affixing his/ her thumbprint or another mark as evidence of personal acceptance of the instrument.
Execution by a corporate body, association or any other organisation should be done in the presence of an Advocate of the High Court of Kenya, a magistrate, a judge or a notary public.
The document may also request a satisfactory home report and appraisal. In this case, the document will be deemed legally abiding only when the conditions are met.
Finally, before one signs on the dotted line, take time to understand the payment modality and consequent penalties with the aid of your lawyer. Understand each and every document prior to committing to such a huge long-term financial undertaking.
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