Last year, the construction industry was one of the few sectors that recorded slight growth even as most others registered massive losses due to the effects of the post election chaos.
An index by a local property management company Hass Consult showed that prices have started going down after a year-on-year peak from 2006. The Kenyan property market has since grown tremendously and inevitably attracted attention with suspicions raised of it being used to clean tainted money. The Government’s announcement early this month that it intends to establish identities of property owners has been hailed as a step in the right direction.
Even as the global economy nearly tanked, the local property sector remained vibrant, making the sub-sector the darling of all sorts of people with ready cash to invest.
However, as market analysts start sounding cautious optimism that property prices could be finally stabilising, they continue shooting through the roof as investors pour in more money. An issue that many have glossed over or has been attributed to the normal supply versus demand factor. There are, however, questions about the origin of some of the money finding its way into the local real estate industry.
Fingers have been pointed at dubious foreign sources, which have heavily invested in the real estate sub-sector. However, linking any of these developers or investors with such money is an uphill task, considering the fact that this money does circulate in mainstream banking channels that would otherwise be monitored.
The characters behind these investments are shadowy with some using certain people as fronts while the real investors rarely, if ever, show their hand.
While Kenya continues to be the focus of the international community as a possible destination where money from dubious sources finds its way, the absence of strong anti-money laundering laws aggravates the situation. However, with the passing of the Anti-Money Laundering Bill last week, there is hope of finally netting the illegal investors.
According to Finance Minister Uhuru Kenyatta, the regulation will provide for the “freezing, seizure and confiscation of the proceeds of crime”. Speaking in support of the Bill in Parliament he said: “Money laundering poses a threat to the economy and the society,” a view supported by financial analysts who warn that this may hurt the economy in the long run.
Prime Minister Raila Odinaga also supported efforts to set up anti-money laundering laws saying: “The country had suffered from the effects of money laundering especially in the property sector whose value has been skyrocketing.” Home and Away established that although most of this money is invested in the Kenyan “Somali Capital” Eastleigh, it is fast finding its way into other areas and used to put up both commercial and residential buildings.
Several buildings in the city centre and pieces of land are said to be owned by foreign businessmen. Most have been bought from owners who have been offered two or three times the market price of their property.
Those renting out properties have also benefited with tenants offering to pay rent for months, sometimes a year in advance. Two-bedroom units that were, and ideally should be renting for about Sh15,000 to Sh20,000 are pegged at Sh35,000 or more and when such a tenant offers to pay for six months in advance, enterprising landowners hardly think twice. John Karuiri, a resident of Pumwani’s Majengo estate says several people in the area have moved out after they were literally bought out.
“They ask you how much you want for your land and house then they double or triple the amount,” he said, pointing out that many owners do not hesitate as the amount is enough to buy land in a different area and put up a better house.
Negotiations by proxy
Even as other areas join the list of preferred areas, Eastleigh still remains the place of choice but it is disadvantaged by among others poor infrastructure. A prime piece of land in Nairobi’s Central Business District valued at about Sh1b is also said to be in the sights of such investors who are planning to put up a shopping mall and in return the landowners would be paid rent for the use of the land. Real estate agents and their stakeholders who have dealt in such property are, however, unwilling to talk, most of them fearing to lose business in future as one said: ” Confidentiality is part of the business.”
Most of these investors are organised and operate using the key people upfront. Timothy Mutisya, a real estate professional with Lloyd Masika says; “One rarely, if ever, gets to meet the real buyers with most preferring to use brokers.” The negotiations are carried out almost by proxy though the contact people present themselves as the real buyers. “They do not give the real names,” he said. Initial documents bear the names of these middlemen and it is only in the final stages that the agent is given.
Attempts to set up a meeting with one such group failed to materialise as the contact people pulled out of scheduled meetings at the last minute or simply failed to show up whether as a result of developing cold feet or under instructions, it was unclear.
A woman, acting as one the group’s representatives, speaking on phone in broken Swahili with a heavy foreign accent, which sometimes made communication difficult, sought to assure this writer that they were fully registered and a legitimate operation. “We are registered. We have got all the documents,” she said.
Mutisya says that these buyers became more cautious when the source of their capital is questioned. He says that in a particular transaction, an agent can deal with several groups sent by the same person but masquerading as separate buyers.
According to Mutisya, these buyers give good money for properties and effectively lock out other buyers who they easily outbid. A eighth of an acre around Eastleigh, which is the most preferred area, then goes up to about Sh20 million and this is even higher if it is in Eastleigh proper.
However, other areas are slowly becoming favourites with South C and South B joining the list along with estates close to Eastleigh like Pumwani, Pangani and Ngara. Others own industrial properties along Mombasa Road. Despite the big money, they are cautious buyers and cannot lose their money easily. Lawyers are also carefully selected and those who can protect their interests are used.
While many look forward to the restoration of sanity with the audit of property owners, Mr Dan Arum a marketer with Tysons a property management company says there will be need to have a clearly defined way of doing this as areas are different.
He adds that knowing these developers might be difficult as most register companies using other names. “When you look for the names of directors you will not get their names but those of their children or wives,” he said. He says that there are others who have paid other people to register properties in their names. “The Kenyan owners will be easy to identify,” he says.
Whether the audit of property ownership will bear fruit or not, what remains clear is that the real estate industry has so far been the sector of choice due to its status as one of the fastest growing sub-sectors offering an alternative from the stock market.