About two months ago, someone shared with me the harrowing experience he has gone through in the past three years trying to buy a new house in Nairobi.
The man entered into a pre-sale contract in 2008 with a marketing agent for a three-bedroom apartment that was part of a yet-to-be-developed block of apartments in an exclusive neighbourhood.
After agreeing on the pre-sale price, he was assured the project would be ready in a year.
All he was required to do was to pay a deposit amounting to a third of the agreed price staggered over six months and then wait to clear the balance as soon as the house was ready in 2009.
He paid the first instalment. Then in January 2009, he got a demand notice from the developers to pay the second.
But before he could do so, he went to the construction site to check progress. The work had stalled.
He then told his lawyer to write to the marketing agents telling them he was not willing to pay the second instalment because work had stalled.
A few months later, the developers sent another demand note telling him to clear the deposit. He did not pay.
Nothing much happened in 2010. When he passed by the site in January 2011, he noticed construction work had just resumed.
But he had already lost interest in the property and wanted a refund.
A few days later, he got a call from the marketing agents asking him to renegotiate the contract, in which he would be required to pay almost 60 per cent more for the property.
He declined and asked for a refund. The agents obliged, but the refund would be Sh100,000 less. He is still pursuing the refund and fears he might altogether lose the deposit.
This incident came to mind last week as I read about the courtroom battles surrounding the multi-billion-shilling Fourways Junction housing development off Kiambu Road.
A brief background: About two weeks ago, Nancy Wanja Gatabaki, a director at Muga Developers — the company that owns Fourways Junction — obtained court orders stopping the construction and sale of the more than 500 residential houses on the grounds that other shareholders had developed a scheme to defraud her.
The injunction, which has since been lifted by the High Court pending full hearing of the case, also sought to restrain other directors from any dealings involving Fourways.
Together with Peter Muraya and Sue Muraya (Suraya Property Group), Mrs Wanja and Dr Gatabaki incorporated Muga Developers to put up houses on a 200-acre piece plot on a 50-50 shareholding and directorship.
But Mrs Gatabaki said in court papers that her other partners had “systematically diluted” her shareholding in Muga Developers from 50 per cent to 16.5 per cent without paying for the value.
Caught in the cross-fire are hundreds of buyers who had committed millions of shillings to their dream houses.
The two cases aptly demonstrate the hidden dangers in pre-sale or off-plan purchase of property.
With housing prices rising almost every month, potential home-buyers are always looking for bargain buys.
Houses bought under pre-sale arrangements offer good bargains, for they are substantially cheaper than similar ones by the time the construction is complete.
However, pre-sales are not safe for buyers. There have been numerous cases where, at the completion of the project, a developer asks buyers to top up payments, citing increases in the cost of construction.
Sometimes, developers ask for the top-ups purely out of the urge to make more profits.
Most developers would rather refund the deposit for units booked earlier, then sell them at a lower price.
At other times, a project can stall because of a court case, insufficient funds, illness or even death of the developer.
But truly, off-plan deals are “sweet”. So what should one do? Make sure the pre-sale contract is foolproof and does not leave room for any changes.
Through the help of a lawyer, the sale agreement must be so tight as to have no provision for varying the price or refunding deposit.
If that is included in the contract, then the only recourse a buyer has is to go to court and seek specific performance — that the developer is obligated to deliver to you the property instead of giving you the money.
Mr Ayieko is a land economist who writes on real estate. (email@example.com)