Don’t be stuck in dreamland chasing a vision beyond reach

At the beginning of every year, many people set targets for what they want to achieve, possibly in the next 12 months. Excitedly, they convince themselves, or sometimes, they are persuaded by others, that nothing will stop them from accomplishing their resolutions. But either of the two convictions may become a reality or remain as imaginary, depending on the action path.

 In the list of their aperitive desires, are enormous ambitions that require proper financial plans to be actualized. One such goals, is the aspiration to acquire property; specifically land or a home.

 This kind of an imagination is what drove ‘John Njoroge’, 45, into a crazy dreamland. In January this year, He was deeply convinced that by the end of this year, he would have owned an acre piece of land around Kimuka area, along Ngong Suswa road in Kajiado County. Njoroge, who earns an income of about Kshs 80,000 per month, had plans to build a dream retirement home in the near future.

 In this fast-developing area of Ngong town and the sorroundings, prices of land are estimated to be between Kshs 1M and 20M for an acre, and Ksh 400,000 and 3M for a plot size of 50 by 100 feet. The variance of these prices depends on the exact location of land.

 These figures explain how huge Njoroge’s ambition was. Surprisingly, It’s now a quarter to the end of the year and he is still stuck at the ‘wishful’ stage. Is he still in the race for becoming the newest land owner in Kenya? Only time will tell.

 A report released by Standard Chartered in 2015, positioned Kenya, as having a population that has a high appetite to own property. This was in comparison with seven other countries in which a similar research was conducted. The report indicated that 7 out of 10 middle-class Kenyans, plan to own property in a span of between two to five years. This result

 Regrettably, some of these individuals have only desires, but never think through the financing models which would actualize their dreams. Ultimately, this disconnect only ensures that the wishes keep finding their way back to the resolutions tally, year in, year out.

 “People have dreams to own land, but they rarely go beyond their dreamland. This is because, owning a piece of land requires intensive capital which may not always be at hand,” says Peter Gitau, a Director with Olive, a property selling company based in Nairobi.

 To tackle this challenge, Gitau emphasizes on the need to have a suitable financial plan that is proportionate to the goal. However, striking this balance is not a walk in the park.

One has to carefully weigh various factors before selecting the most convenient financing option. The competing choices include among others; the available budget as well as terms and conditions that come with the financing options at hand.    

Financing Options

 On realizing the huge need to provide solutions to potential clients, many real estate companies have repackaged themselves in such a way that they now look like a ‘one stop shop’. The companies have an already negotiated cooperation agreement with selected financial firms. This then allows the property selling companies to offer alternative credit to buyers.

 In this arrangement, clients pay a certain percentage of the property’s value to the buyer. The remaining percentage is then financed by the financial institution and paid by the buyer within the agreeable time and interest.

 “This framework of facilitating clients to own property has worked wonders, especially during these harsh economic times when raising huge capital at a go, is a tall order. At Olive Limited for instance, many investors are now satisfied property owners courtesy of this plan” explains Gitau.

 This plan however is slightly different from the one of acquiring credit directly from the bank which then is used to buy a property, without any incorporated company being involved. The kind of financing available depends on an individual’s credit score.

 This automatically dictates the size of the land one can buy. And although banks could have lengthy repayment periods, it may also have higher and variable interest rates. This means buying a property would cost more than the estimated value.

 In the case of a Sacco, it is the most preferrable real estate investment means, especially by the low-income and the self-employed groups. “But you have to save with a Sacco to borrow. This then poses the risk of prolonging the dream realization period,” notes Tabitha Mbuthia, a Manager at Midas Credit.

 She adds, “The delaying threat is also experienced if one opts for a self-financing mechanism. This mode also requires high level saving discipline. It is also affected by the fluctuating property prices, meaning, the buyer may not have the correct estimates even when saving.

 The idea of pooling resources together, commonly known as Chama, is yet another choice for those yearning to acquire properties. This involves a group of like-minded individuals coming together with an objective to achieve a set out economic objective. This approach has an opportunity to create a strong purchasing power for a more rewarding property. However, like all other options, this too has the shortcomings.

 “You may not have full control for where to buy your property. This decision may largely depend on among other factors, the simple majority. The group’s objective of to use the property may not rhyme your personal wish, thus throwing you under the bus. Disagreements among the members may delay even the group’s plans,” advices Tabitha.

 But on a positive note. Where the purpose of buying the property is purely for speculation, then investing through a chama could be the most advisable means. Tabitha says, Chamas are better avenues where patience is required for the property to appreciate its value.