Off-plan buying, where home buyers pay a percentage of the home price to a developer to reserve a home before construction is complete, is catching on in Kenya.
A number of current developments, some running into billions of shillings, are being operated through this model, which experts say eases financing for both developers and home buyers.
These buyers become de facto partners of the developer and are rewarded with steep discounts on the price, according to Mr Kabaki Wamwea, a real estate expert based in Nairobi.
But while off-plan buying is a good strategy for buyers, it also carries risks and buyers should safeguard themselves from unscrupulous developers.
“Kenyans have embraced the off-plan concept, but there are those who still need to understand it better before plunging into it,” said Mr Wamwea, a director at County Home Developers, which is building Runda View Apartments in Ruaka, a multi-million apartment complex.
The developers have used the off-plan strategy, which they say provides “early bird” buyers an opportunity to purchase the apartments at basement prices.
“We are able to provide a steep discount to those buyers who come in early and commit themselves because this reduces our financing costs and provides early market validation on the viability of the project,” says Mr Wamwea.
Kenya Private Developers Association (KPDA) chairperson, Dr Laila Macharia, says the advantages of pre-sales outweigh the downside because the developer cannot inflate the prices to benefit from increase of property value
“The buyer signs a sale agreement with the developer that determines the sale price before the property exchanges hands,” she says.
She, however, warns that investors should be careful before committing their fortunes because over 80 per cent of developers in Nairobi are informal.
“Buyers must make sure they are dealing with formal developers because our registered members adhere to a code of conduct,” she says
In off-plan arrangements a buyer puts down a percentage of the home value, usually up to 20 per cent of the purchase price.
Over the construction period the value of the home appreciates dramatically pushed along mostly by inflation in the cost of construction, land values, and increased demand as the development nears completion — often appreciating up to 50 per cent in 18 to 24 months.
This means that the off-plan buyer doubles or triples their deposit over the construction period.
But Mr Wamwea says before using this model, buyers should conduct a thorough due diligence on the developer, the promoters, the land, the contractor, and the financiers.
“You may also interrogate buyers of previous projects that the developer has been involved in to ascertain their reputation,” he said.
Like many such projects, Runda View Apartments has received growing demand from buyers looking for homes in organised developments.
The off-plan concept has taken root in Kenya and many savvy investors have been buying homes from developers even before the ground is broken.
“Runda View Apartments has been packaged to appeal to middle-income home buyers looking for quality and affordable homes in an attractive and convenient location,” said Mr Wamwea.
Organised developments come with quality design and finish and amenities such as swimming pool, CCTV, gym, 24-hour security, and adequate parking.
Runda View apartments are currently selling at Sh6.25 million for the two-bedroom and Sh7.25 million for the three bedroom units.
In developed markets, off-plan purchasing is common as there are legal safeguards to prevent unscrupulous developers from misappropriating buyer deposits.