The Property Banks Buyers Guide to Kenya
Of all the advice given to
investors considering the booming Kenyan real estate market, the
most pertinent is ‘employ a recommended lawyer to assist you with
the entire investment property buying process in Kenya!’
An investor’s consulate or embassy in Kenya may be able to supply
details of qualified and reputable law offices; if not it’s wise to
take personal recommendation or to conduct a certain amount of due
diligence on any company or individual you’re considering. And no
property investor should make an offer to purchase or enter into any
contact before getting expert legal guidance.
In terms of regulations governing either the real estate purchase
process or estate agents working in Kenya, there is very little in
terms of legislation to protect the purchaser therefore Kenya is
most certainly a country an investor should approach with caution.
In terms of restrictions placed on the foreign freehold ownership of
land and property in Kenya they are as follows: -
Land or property designated as ‘commercial class’ can be purchased
by foreign investors.
Land or property designated as ‘agricultural class’ cannot be
purchased by foreign investors unless the investors establish a
local company structure in Kenya that has a majority Kenyan holding
and then purchase the agricultural land or real estate in the
company’s name.
If a company chooses to purchase agricultural real estate it is
possible to apply for a change in classification but acceptance of
the change is not guaranteed.
There is a clear distinction in Kenya between land that is freehold
and land that is leasehold. The majority of land is owned by the
government and available for leases of between 50 and 99 years.
If an overseas investor requires finance to buy in Kenya they should
ensure any leasehold land or property they consider has at least 50
years left on the lease otherwise domestic lenders will be reluctant
to grant a mortgage on the property.
The land registry system in Kenya is far from perfect with many
properties unregistered and the true owners of large parcels of land
untraceable. Therefore the fundamental key to buying investment
property in Kenya successfully is searching the title of any
potential real estate acquisition carefully before making an offer
or signing a contract to purchase.
Ideally the vendor will be able to give the investor’s solicitor the
title deeds that should show the vendor listed as the owner of the
property, if should show the class of the property and finally it
should show the exact dimensions or size of the land and property.
Only when such deeds have been located and examined and found to be
in order should an offer to purchase be made.
Once a price for the property sale has been agreed upon a
conditional preliminary contract can be sighed and a deposit of up
to 10% of the purchase price be paid. It is then usual for the final
contract to be signed within a 90 day period at which time the
outstanding purchase price will be paid by the property investor and
the buyer’s solicitor will register the final contract with the land
registry and apply for a transfer of the title deed into the new
owner’s name.
Additional costs. Keep in mind that in addition to the purchase
price you'll need extra cash for closing costs (including points and
fees), inspection, and future expenses. All in all, to get through
closing—meaning, once you've signed the last remaining paper after
agreeing on price and terms with the seller—the cost will typically
be 2 to 7 percent more than the agreed-upon selling price. If you
calculate that from the middle zone, at 4.5 percent, a $200,000
house will cost $209,000 to purchase.
Taxes and lawyer’s fees will be payable within 30 days after the
final contract is signed. All fees in Kenya tend to fluctuate and
are usually based on the underlying purchase price of the investment
property being bought. Therefore an investor should speak to their
lawyer about the expected additional costs before beginning the
search for real estate.
And finally, it’s possible for an investor to give their solicitor
complete power of attorney in Kenya so that they can handle the
entire buying process while the investor remains outside of the
country.