Yesterday I had my article published in the Daily Nation - Money Magazine.
I have to admit I am really happy that I have started to write again.
Check out my article:
http://www.nation.co.ke/magazines/money/-/435440/850376/-/r30lmb/-/index.html
By HOSEAH NJUGUNAPosted Wednesday, January 27 2010 at 11:22
The stock market depression in 2009 sent many potential investors seeking alternative investment vehicles. Bonds and Treasury bills received plenty of attention, but so did real estate.
While the increased interest in real estate is a positive thing; many investors did not and are still not thinking through their real estate investment decisions.
Real Estate properties are differentiated from most other financial or real assets by their uniqueness.
No two office buildings are alike, no two pieces of undeveloped land are alike, no two hotels are exactly alike and no two shopping cents are alike.
Each property is different because it is in a different physical location. This makes location one of the most important attributes of any piece of commercial real estate.
Location
The first thing to understand about location is that it is not an absolute. There is no such thing as a generically “good” location or a generically “bad” location. The desirability of a particular site is relevant only in terms of its intended purpose.
A property that is good for a residential dwelling is not necessarily good for an apartment, an office building, a factory, and the like.
Assessing the value of a property always requires the strategic perspective: What is the purpose intended for this property?
Only in that context are the actual physical attributes of that site relevant.
Physical attributes of a site would include the current use of the property, its location with respect to traffic patterns, relevant zoning laws, the contour of the land, the attributes and uses of adjacent or neighbouring parcels of land (an otherwise desirable piece of land for a single-family residence might be made undesirable if the adjacent property were a garbage damping site or a noisy factory), the effective marketing area or impact zone of the property and trends in adjacent neighbour and local land use.
Another factor to consider in the valuation of commercial real estate is the impact of subjective perception.
Certainly, a piece of property has an objective reality. However, that objective reality may not be as important as the subjective lens through which that property is viewed.
An objective reality might describe 50 acres of rugged land surrounding a dismal swamp located 20 miles from the nearest urban area.
Preserve
A subjective perspective might be to consider land as a nature preserve, featuring select executive home sites surrounding ecologically important wetlands that provide protection for a living environmental laboratory.
The objective reality might be a rundown building adjacent to a metropolitan central business district whose desirability is threatened by a declining neighbourhood.
The subjective perspective might be that the (refurbished) building could become a badly needed community centre (called Sarakasi) for area theatre and art fanatics that is distinguished by its accessibility and its significant architectural and historic significance.
An investment in such a property could be thought of as a beacon of successful urban renewal that could revitalise the neighbourhood.
Disregard this important consideration in your investment and it can be costly. If you have driven on Thika road from Nairobi to Thika, I am sure you have seen a very attractive building on the right-hand side in Ruiru.
The building is suitable for a five-star hotel, but it is in the wrong place. It is all in the perspective.
A lot of highly successful commercial real estate development occurs because someone is able to think “outside the box”, while keeping location, location, location in mind.
So the next time you want to acquire a plot or property, make sure you consider the location and end use of the property or plot.
The writer is an Independent Financial Consultant: empowerkenya@gmail.com
When you are thinking about a particular house, in a certain area, like for example Perth, you can always check out Home builders Perth WA where you can get the best deals in the home building packages around the city of Perth.
ReplyDeleteThis is very true. Most western countries have online sites that can give you relatively accurate information about homes, apartments, property taxes, land etc for a given area.
ReplyDeleteUnfortunately Kenya has not gotten to that point.
There is no "agreed upon" property index.
Nice blog!
ReplyDeleteI believe that Real Estate is not for everyone. Especially in Kenya.
1. Location now includes other factors as the tribal demographics around your plot. Reality boss.
2. You wake up one day and someone else has a Title deed to your land. Genuine. Issued by the Lands office. You then go to court for 10 years to try and fight for your property.
3. You wake up one day and realize that your lawyer, the seller of your plot, and land offcials all conspired sell you an illegal parcel of land. Could be road reserve. Could be water catchment area. The mansion you put up now has to be demolished.
4. You wake up one day and realise the land you own was actually grabbed by a politician who sold it to someone who subdivided it and obtained legal titles which were then sold to you. Now gava wants to reclaim grabbed land and you are number 23 on the list.
5. Pastoralists declare the entire country belongs for them and is for grazing cattle and henceforth they chase you from their land.
6. Thugs invade your house every week and tell you they will continue until you move out. Each visit gets more violent. No one wants the property and you have to dispose in distress (if still alive).
7. As you finish constructing your dream mansion, some clever person who bought a plot next to yours, builds one hundred shanties (on 0.25 acre) creating a ghetto right outside your door. Others see this business idea and follow suit. Suddenly, you are in the middle of a ghetto with worthless property. The persons could be colluding to make you sell at a loss (or for peanuts) so they can convert the entire area into a ghetto.
Other factors:
8. Real estate ties up your cash if you are an average investor. Flipping property wil ltypically take you about 1 year (or more) per transaction. In some cases there willbe no buyers for many (5+) years. Unless you invested in multiple for rentals. In which case its a different ballgame.
9. Getting a loan against real estate is darned expensive. Benefits are minimal - if any (what is the interest rate on equity release loans?). Basically the bank eats you alive.
10. You wait for years for gains that could take months in business / stock exchange (which are higher risk but more liquid)
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Real Estate is good if:
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1. You want to diversify your security assets. This means you have investments in other asset classes (stocks, bonds, businesses etc).
2. You are doing it for rental income. However will the yield be sufficient to cover your costs or are you just making money for your bank / motgage provider?
3. You can afford to pay a huge chunk of the costs upfront - or can get a super low interest loan whcih you are able to repay in 3-5 years (diaspora?) - hence saving millions in interest costs. You then have a choice of buying as "security asset" or as "investment asset".
Thats my take...
:-)
Thanks,
ReplyDeleteWow, you raised some issues that I wouldnt have thought about!
The whole issue about your neighbors (tribe, what they are doing with their land etc). I guess you cant be too careful nowadays. This is where controlled development comes into play.
Legal aspect is also very important. Due diligence should not be underestimated.
Thanks for your contribution