Real estate investments in Kenya have the potential to double and even triple in value per year, with the right property. So how does an investor finance a real estate investment? There are at least two main options available in Kenya: group investments and mortgages.

In addition to being able to prevaricate against risks such as rising inflation, real estate investors can improve their net worth, generate high capital gains, and experience potentially rapid rates of appreciation.

Real estate investment financing options

1. Group investments

This is the most efficient financing option and is commonly used by the lower-middle class and those in informal employment who cannot qualify for mortgages and bank loans due to their irregular source of income.

Group investments, locally called ‘Chamas’, hold over Ksh80 billion of wealth in Kenya in terms of savings and investment, and one in three adults is an active member of a group investment club. They have registered the greatest success among women, young people and freelancers.

  • To function, members make daily, weekly, or monthly contributions for a specific period of time and for a specific financial goal. Once goals are met, they identify a potential property, purchase it, and start saving to develop it or divide it equally among group members.
  • Alternatively, banks develop investment pools and invite interested parties to make monthly contributions. If the group member wants to buy property, she simply borrows (at interest rates) from the group based on her contribution. Group members co-sign the loans and bear the cost of repaying the loan if one of the group members defaults.

The success of group investing is powerfully driven by a cultural impetus to pool funds to invest and borrow.

  • Most of the banking institutions and building societies in Kenya have realized the potential of the option and have developed programs to encourage group investments; It is based on the idea of ​​creating savings and investment opportunities.

2. Real estate loans and mortgages

There is a fine line between loans and mortgages in Kenya, and people often use the two terms interchangeably.

These are facilities offered by various financial and lending institutions, such as banks and mortgage companies, to help you buy a property:

  • Loans and mortgages are awarded to successful loan applicants who meet minimum loan qualification requirements.
  • Loans and mortgages may be fully or partially financed by you. Most lenders, however, finance the property up to 90%.
  • Various lenders have variable interest rate and income generating loans that are charged an interest rate of 15% per annum with real estate development attracting 13% per annum
  • Owner-occupancy properties can receive 80% financing, while investment properties, such as rental units or vacation homes, can receive up to 70% financing.

Duration of repayment of loans and mortgages

Maximum of:

  • 15 years for individual borrowers
  • 10 years for limited companies
  • 2 years per phase for real estate development

additional costs

Most loan and mortgage applicants in Kenya are unaware of the hidden fees that come with loans and mortgages.

  • Stamp duty

Currently at 4% of the cost of the property.

  • Valuation fees

Fees vary by appraisal appraiser, and it’s critical that you have your own before the property is valued.

  • legal charges

Determined by the amount of the mortgage. Higher loan amounts attract higher legal fees. Banks have their preferred law firms that they deal with, so be sure to learn from the lender which law firm is their preferred law firm.

  • Bank facility charges

Varies between banks and is intended to cover loan facilitation

  • sanctions

Charges for liquidation of the mortgage before the agreed time; varies between

  • property insurance

It is not mandatory and is paid per year. Protects the property during the loan repayment period.

  • mortgage life policy

It varies between lenders and covers your outstanding balance in the event of your death.

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