Investing in Kenya

Hello Diksha,

Is the Kenyan economy open to foreign investment? Do local authorities encourage investment (through formalities, tax, etc.)?
I can speak for investments in the real estate sector.
Short answer: Yes.
-    Capital gains tax in Kenya is only 5%.
-    The rental income tax is only 10%.
-    Foreigners (non-Kenyan citizens) are allowed to own property here (on a leasehold title)
-    Kenya has DTA's (double taxation agreement) with several countries.

These are only some of the factors that make the Kenyan real estate sector highly investable for foreigners. The property market is comparatively stable, with property value and rental prices on a steady long-term increase.

What are the promising sectors to invest and do business in Kenya?

Investing in properties poses a considerably lower risk to your capital than putting your money into an existing or new business venture here in Kenya. It requires less knowledge about the Kenyan economy and market, less research done compared to other sectors, and you don’t need to get directly involved in the business.
Furthermore, you can access a great deal of reliable information and data regarding the local property market in your area of interest. Sale and rental prices are readily available online and at property agents. This lets you verify all the figures you’re given regarding your investment. You can easily check whether you’re overpaying for the property you’re offered, or whether the rental returns the salesperson promises you are realistic. 

Who do you turn to for information before investing your money? (organisation, professional, lawyer, consultant)

Speaking to an expert or consultant in your field of interest is never a bad idea, but I think when it comes to property investment the best person to talk to is someone who has done or is doing the same thing you want to do. Find someone who has invested in properties, and try getting as much information from them as possible. Ask them why they chose to buy from that company, how they got started, what they believe they should have done differently, what dangers to avoid, and all the ins and outs of the deal they made.

According to the sectors of activity and the projects, what budget should be foreseen for investment in Kenya?

The beauty of investing in real estate is that you can choose from a wide range of properties, ranging from as little as $20,000 for a one-bedroom apartment, to millions of dollars for a commercial building (or sections of it). It all depends on your budget.
Many people assume that they need ready capital in order to buy a property, but that is not always the case.

For example, there is one property developer in Kenya, who sells their projects off-plan. They offer 3-5 year payment plans, where you can pay a small deposit for the property and then pay the remaining balance off in monthly installments over three years. Once the three years are up and construction is complete, you get the ownership, acquire a tenant and begin receiving rental income.

Not many developers can pull off selling hundreds of properties before they even exist, but due to their extensive knowledge and understanding of the Kenyan market, the trust they’ve built with their clients over the years, and consistently delivering their promise of annual return on investment, they get sold out in a matter of months.

The company has clients all over the world, and those clients are mostly recurring, as they keep buying new properties through monthly installments once they’ve seen the value and advantage of this model. It is a way for people to secure their disposable income, whether their budget for installments is $500 or $2000 a month, a way to both save their capital and grow it consistently.

However, you should only buy off-plan if you are absolutely certain of the developer’s legitimacy. Do your research, go visit them, try talking to their existing clients as mentioned before. This leads us to your last question.

What do you think are the pitfalls to avoid and what advice would you give someone who wants to invest?

If a proposal sounds too good to be true, it probably will be. Avoid the deals that offer you crazy high returns on your investment or make lofty promises. It either means that the seller doesn’t know what they’re talking about, or they’re trying to con you. Look for consistent rather than high margins. Look for reasonable people (rare, but they do exist) who will cater to your needs and value you as a customer.

When given a letter of offer or asked to sign any sort of contract, read through it over and over. Have your lawyer go through it. Have your partner or friend go through it. Make sure it is airtight and you are protected in every way. If something is unclear, take it up with the seller.

This was only a brief overview of property investment in Kenya, but I hope you’ll find it useful.

Should you have any further queries you are welcome to shoot me a PM.

Thank you
Mustafa

As someone who has been investing in property since 2008, I would add the following:

The 'doing business' part.  As a foreign investor in property for the rental market you must be very careful not to fall foul of the immigration laws.  If you are directly managing your property, then you'd probably be deemed to be working and should have a permit for this.  The permit for investors requires the investor to have invested (or have in the bank) a minimum of $100,000. 

The way around this is to rent your property through a management agent, who will find tenants, draw up contracts and fully manage the property.  There are plenty of well established and honest property management agents out there.  Another way might be to purchase a property in something like a golf estate and have the estate mange the property rental for you.

Buying off plan: Developers like to offer good deals off plan as they can fund part of the development from the revenue gained from the properties sold.  A  serious word of warning though........don't expect the property and its environs to look like the artist impression.  Developers want as much return as possible, so will often cram in more buildings than the initial drawings would suggest.  The layout of the properties can also be different to those on the promotional literature. 

Quality of building work can be very variable - cracks etc can appear a few months after completion you have absolutely no control over this when buying off plan.  Fittings can be cheap and although it all looks good when new, they aren't durable - developers love imported Chinese kitchens and other fittings, which look great, but because they are cheaply made, fall apart quickly.  Wide use of MDF, rather than solid wood, which is promoted as being a selling point.  Developers look surprised when I point out that MDF is a cheap substitute for wood.  Personally, I haven't bought off plan for all the reasons stated above.

Look out for high and escalating service charges for apartments, in particular.  These will eat into your profits.

Potential pitfalls:The governments crackdown on corruption has affected the flow of large amounts of money.  The Central Bank of Kenya tends to intercept large transfers and hold them until they are satisfied that the source is clean.  This has caused the property market, previously very buoyant, to become static.  Although the rental sector is good to get into, if you are buying to sell on and make a profit.........forget it in the short term.

Mortgages:  High interest rates make these unattractive.

Lawyers fees:  Very high at 1 - 2% of the property value.  This rate has been set by the Law Society.  There is also stamp duty at 4% to be paid.

Title search:  It isn't uncommon for developers to build on land that was originally illegally acquired.  The illegal acquisition could date back to the '70's and the developer may believe that the title is clean, it having legally changed hands several times.  Make absolutely sure that a proper search is done against the title.  Anything irregular and your nice property could be demolished by the government and you'd have no right to prevent it.