As the property boom extends beyond Kenya’s major towns, forward-thinking investors are already considering crossing the border.
The favourite property destinations have in the past been the United Arab Emirates and India, but now the United States of America, reeling under the weight of the worst foreclosure crisis in decades, is beginning to attract speculators.
The biggest incentive for many is the relatively calm political and economic climate, which, when coupled with the going prices of repossessed homes, makes property ownership a real bargain.
Players in the property business say this exodus to the West has been made possible by a number of factors, key among them the fact that banks and other lending institutions have to unload thousands of foreclosed and repossessed properties.
Also, hundreds, if not thousands, of small, mostly community banks and credit unions all over the US, due to the financial meltdown in that country, have failed because they did not get the financial bailout that the major banks did.
And with all these institutions having tonnes of what are called “non-performing loans”, which simply means loans that are not producing cash flow, including mortgages, car, and student loans, they simply had to start selling off their assets, including homes in foreclosure, short sales, and repossessed property.
Most of these are being sold well below their original valuation of only a few years ago, with replacement costs being less than what it would cost to replace them in today’s market.
Also, the low cost entry point (there is no stamp duty payable in the US) has caused an unprecedented opportunity for foreign investors to take advantage of this short-term window of opportunity to purchase prime property.
Joseph Wang’endo, the chief operations officer at Realty Capital, a property agency, says it is now cheaper to buy houses in some parts of the US than in Nairobi.
For instance, a three-bedroom house in a middle-class area of Houston is going for as little as Sh13 million.
The rental income from such a property is between Sh150,000 and Sh180,000.
In Nairobi, a similar house would cost about Sh40 million in Lavington, or Sh12 million in South C, with rents of Sh100,000 or Sh40,000, respectively.
Thus the house in Houston has much higher returns compared to the amount invested.
In fact, some US realtors advertise houses with price tags as low as $30,000 (Sh2.8 million).
There are numerous other benefits of owning a home abroad. For instance, you can claim a number of deductions on your rental property, such as loan interest, insurance, capital works, rates, and depreciation.
If you purchase property in the US, travelling there is a tax deductible expense.
However, you have to buy first and not just go on a prospecting mission. Other travel expenses can be claimed as deductions.
However, before jumping to buy property overseas, there are many financial and legal issues to take into consideration.
For instance, those buying houses in the United States do so using their personal names or through limited liability companies, with the latter being ideal for property investors and having many tax and legal advantages.
By having income generating real estate, one is deemed to be conducting business in the US and has to pay tax and file tax returns.
Tax on any rental income received is paid both in the US and in Kenya. As well as filing tax returns in the US, one has to pay tax on the net rental income after deductible expenses and any interest.
To ease such transactions, many hire tax agents to help them understand the American tax system, which is different from the Kenyan one.
In addition, professional property managers, who typically charge 10 per cent of the gross rent as their service fee, manage the investments of many foreigners.
The property management company is responsible for collecting the rent and depositing it in the owner’s bank account on time as well as issuing a monthly statement showing all rental deposits.
If the tenant is a Section 8 one (Section 8 being a system in the US that authorises the payment of rental housing assistance to private landlords on behalf of approximately 3.1 million low-income households), then the relevant government agency makes the rental payments every month directly into the property owner’s account.
It is also important to get title insurance. This is issued when the title company handling the sale has examined and searched the title to the property and has deemed it clear and free from any debts. It protects the new owner in case any unforeseen liens manage to slip through.
It is advisable to open an American bank account, as the property managers will most likely want to deposit the rent straight into it. In some cases, they can transfer money into a Kenyan account. This is your choice, but you need to get the right advice first.
Before buying a property, ensure that it is located in a good area, near social amenities such as transport and schools, and has been renovated to government standards.
This way, it will be easier to get a tenant as well as any government documentation required.
The process, from selecting an American property to the actual purchase, can take as little as a week if the buyer is paying cash and the house is fully renovated, or longer if there is work to be done on the home.
Usually, a deposit of between $1,000 (Sh92,000) and $2,000 (Sh184,000) is enough to hold a house.