Unco-ordinated Real Estate Sector

Is it time for a real estate regulator? This was the question left on the lips of me and a colleague after a long exchange and i this was the analysis.

 

A Block of Residential Apartment in Nairobi

 

Real estate is one of the fastest growing sectors of Kenya’s economy today because housing has become the most preferred investment asset among households and other investors. However this enthusiasm has come with a number of challenges; among them:

• Substandard constructions;
• Collapsing buildings;
• Delay in project completion;
• Delay in getting the necessary consents, approvals and/or documentation;
• Financial loss (deposits or entire amounts);
• Unplanned estates and urban sprawl;
• Irregular acquisition of public land;
• Undocumented investors;
• High property prices;
• Bad investment decisions as a result of limited information or poor advice;
• Disputes and protracted litigation.

Numerous players provide goods and services to the sector. They range from government departments, local authorities, financial institutions, developers, professionals, brokers, advertising agencies to building materials suppliers.

Professionals in the sector operate under different umbrella organizations which regulate members’ activities. However a sizeable number of “consultants” are not registered or licensed to practice. This has caused disjointed activity within the sector leading to confusion, losses, frustration and apprehension among potential investors.

Is it time the government steps in and sets up a regulatory body that will act as a reference bureau and also provide guidelines for orderly, transparent and efficient management of the sector?

If constituted, such a body should be an independent entity with representatives from all stakeholders and be charged with the responsibilities of ensuring that:

ü  Buildings are constructed and completed as per approved plans and specifications;

ü  New developments have the required approvals before construction commences;

ü  All constructions are supervised by registered and licensed professionals;

ü  Developers meet completion timelines;

ü  Scrutinize title documents and provide advice to potential buyers;

ü  All service providers are registered with respective professional organizations;

ü  Standard operating procedures are set;

ü  A website is set up where service providers are listed;

ü  All agents are vetted and all properties being offered for sale;

ü  Data on property transactions and investors’ details are kept;

ü  Research on real estate is carried out and a journal produced periodically;

ü  A property market performance index is prepared;

ü  Complaints in the sector are attended to expeditiously;

Some members of the public believe the establishment of such an authority will ease public anxiety and restore confidence to the sector.

Professionals agree that research and preparation of a property market index will make property investment decisions more analytical and economic fundamentals oriented rather than market perception driven as is the case today. Some are of the view that a regulator is critical for the success of the proposed Real Estate Investment Trust companies in Kenya because investors will require comprehensive information from trusted sources; otherwise they may shy away.

 

That’sall….. *with a Meryl Steep Accent*
© 2010

The Wake Up Call!!!

"Future Leaders"

When we were busy growing up we were told by the old guard that we are the leaders of tomorrow. What they never told us is when tomorrow begins. Or maybe we need a redefinition of word youth. If people approaching their late fifties and some septuagenarian can be categorized as young Terks, then Kenya must be having the oldest young Terks world over. It makes, in my twenties, me feel like a feotus.

My discomfort is not solely based on age but rather the way these old folks steer the country. It’s the high time young people made it their business to take over business of running the country, because nobody is going to give it to them anyway. And by the young people I don’t necessarily mean the sons and daughters of the current leadership that has plundered our country. Most of them are just a chip off the old blocks whose interest in politics is driven by the urge to protect ill gotten wealth and other questionable interests.

What we need is a silent and peaceful revolution. The beginning point of this revolution should be the realization that we get the leaders we deserve. Thus the current crop of our leadership is just a mirror image of what our society has become. This can be evidenced by the student leadership and politics of our institutions of higher learning which similar if not worse from the national politics. This is unfortunate because these are the crème de la crème of the society and in some instances opinion shapers in their various neighborhoods.

The earlier we accept the fact that indeed there are only two tribes in Kenya that is “The Haves” and “have not’s” the faster we will resolve the leadership inadequacies. History has taught us that revolutions take place when there two opposite classes battling each other. We need to inculcate within us a value system that will set us apart from these folks…..To be continued

That’s all…. *with a Meryl Steep Accent*

© 2010

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REITs in Kenya are Long Overdue

Real Estate Investment Trusts, better known as REITs , are basically shares in Real Estate Assets,that trade on an exchange.I was particularly thrilled when the Minister of Finance, Hon. Uhuru Kenyatta, during this fiscal year’s budget speech, gave particular notice of the REITs by providing for tax concessions of their dividend income and capital gains.This is one area of Investment that i’ve paid close attention to mainly due to my interest in matters Real Estate and the revolutionary potential it portends to Kenyan Investors.

An artistic impression of a Real Estate development

Well, REITs haven’t been fully operationalised as yet in Kenya.It was hoped for that by the start of this year the whole system would be fully in place, but apparently the Capital Market Authority is still in the process of fine tuning the Legal Framework that will govern its operation.I trust that under the stewardship of Stella Kilonzo, this idea will materialize before the end of the year.

The introduction of REITs, just like other forms of alternative investments, will no doubt provide a break from the traditional “brick and mortar” way of Real Estate investing.At the moment for one to lay claim on a piece of real estate, s/he must be ready to part with a handsome amount of money, if he is not inheriting.Investors will for once not be required to have large sums of capital outlay for them to participate in the Real Estate Pie.This is because the REITs will in effect break down Real Estate Assets into divisible shares of lets say kshs 100 per share, that will be traded on the NSE like other securities.The real estate assets will vary from actual developments to pool of mortgages.So one will be able to claim a part ownership on the various underlying Real Estate assets depending on the size of his/her ownership.

The REITs will ideally take three forms i.e. Equity REITs, Mortgage REITs or Hybrid REITs, presenting investors with a variety of options depending on their needs and preferences.Equity REITs invest in and own properties.Thus, their revenues come principally from their properties’ rents. Mortgage REITs deal in investment and ownership of property mortgages.Their revenues are generated primarily by the interest that they earn on the mortgage loans.Hybrid REITs on the other hand combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.

It has been argued in financial literature that the reason why its hard for Real Estate prices to stabilise is because its not possible to Sell Short Real Estate.This pitfall can be by-passed by REITs which essentially trade like any other security and thus can be sold short.The Dividend Reinvestment Plans (DRIPs), where the dividends earned are ploughed back to the investment and the tax advantages that accompany REITs make them even more appealing.

The operationalization of the REITs market coupled with the introduction of the Futures and Commodities markets, that is still in the pipeline, will give the much needed shot in the arm to our hitherto nascent Capital Markets.The benefits of a developed and efficient capital market in a country’s economy cannot be overemphasized.

Welcome back.

its been a Looong minute!!!

Been a busy bee…he he

Life got busy and squeezing in time to post a blog worth a read proved tricky. Atleast now i can say things have easened up and yes back to blogging, with a new twist, hopefully 🙂