The Developer's Digest, April - July 2017 Issue

HAVE YOUR SAY
HAVE YOUR SAY
DUE DILIGENCE GUIDE IN INVESTING
IN KENYAN REAL ESTATE:
HOW TO SPOT A SCAM
By the KPDA Secretariat
Investing in real estate is always high
risk, whether it is in the development
of rental property, a family home or
commercial real estate developments.
Consider this scenario:
The property listing almost looks too
good to be true – it is in the perfect
location, has beautiful photos and is
well below your budget. You send off an
enquiry and receive a quick response:
the landlord is currently overseas and
cannot show you the home. But if you
can wire through a deposit as soon as
possible, the property is yours.
For many people who have tried to
rent property online, this scenario
might sound all too familiar. While
new technologies have made it easier
than ever before for property seekers
to get all the information they need
to supercharge their house hunt, the
internet has also made it easier for
online fraudsters to target both buyers
and renters.
Remember that if it sounds too good to
be true, it probably is! One of the most
important rules in real estate is that if
a deal sounds too good to be true, it
most likely is. Be skeptical about any
online listings for attractive properties
which are very well priced for the area.
Scammers often use these very low
prices to lure property seekers.
Being aware of a few tell-tale signs,
house-hunters can learn to quickly sort
the scammers from the legitimate real
estate agents. Below is a compiled guide
to help property seekers avoid falling
victim to a scam.
Due diligence is an investigation of
potential investment prior to making
a commitment in order to confirm all
facts and keep an investor and his/
her resources safe before entering
into a transaction. It is considered a
reasonable act expected of anyone who
is thinking of investment. In real estate,
due diligence is defined as a buyer’s
obligation to do an investigation of
property to determine whether he/she
is satisfied.
During this period, the buyer conducts
an in-depth analysis of the condition
of the property and the feasibility of
purchasing the property. If the buyer
finds defects in the property midprocess,
he/she is allowed to cancel
the purchase of the property due to
unsatisfactory results.
Below are some key things to consider
during the due diligence process;
1. FIND OUT WHAT THE MARKET OFFERS
The state of the market usually affects
the pricing of property. When there is a
high demand for property with a lack of
supply of good quality property, then
prices of houses tend to rise and vice
versa.
However a large supply of housing that
is in high demand translates to higher
pricing as there might be buyers in the
market who are willing to pay whatever
it takes to acquire the property.
Knowing what the market offers will
ensure that you do not end up paying
more than you should. For example
having information like the current
over-supply of office space in areas like
Upper-hill will help someone who wants
to buy commercial space get a good
bargain on office space.
2. INSPECT THE PROPERTY
If you want to end up with a nice home,
you need to be strategic. The rule of
thumb is; “do not make payment for
a property that you have not seen”.
Fraudsters are everywhere looking for
who to con next, and given the sacrifices
you have made to save enough to buy
your own home, be very careful who you
give your money to.
After confirming that a property exists,
ensure that you scrutinize it top to
bottom looking for issues that would
cost you extra money to fix. Renovating
property is a huge expense; therefore
ensure you get estimates for work
before you decide to move forward with
the purchase, if at all you decide to buy
property that has issues to be fixed. If you
are in a position to hire a home inspector
to do this the better, if not make sure
you do it thoroughly. Having a second
or third opinion is highly recommended
for this.
3. APPRAISE & VALUE PROPERTY
An appraisal is an estimate of the
value of property, also defined as
the opinion of the market value for
a property. A valuation on the other
hand is done to establish “exactly how
much a property is worth”. Property
appraisal and valuation are necessities
for successful real estate purchase. A
valuation report usually includes details
like its location, legal description, value,
improvements, land use as well as
information on comparative sales in
the area. This information will help you
review the future performance of your
property, therefore lets you know if the
particular property is a good investment
opportunity or not.
4. INVESTIGATE TITLE/TRANSACTION
DOCUMENTS
You need to establish legal ownership of
property you are buying from someone.
For a home that already exists, there
has to be a public record showing that
the seller of this property has legal
ownership. To facilitate this, ensure you
do a title search at the Lands Registry,
Ardhi House to avoid issues like a long
lost aunt claiming ownership of property
that you have already paid for. Such
issues are costly to address, and you
need to sort them out with the previous
owner before you inherit a problem you
don’t want to have.
Ensure you hire a conveyance lawyer
to facilitate the Purchasing process
and draw Agreements based on terms
acceptable to both you and the seller.
5. CHECK FOR GOVERNMENT
REGULATIONS/ZONING ISSUES
Check for issues that could have an
impact on the property you want to
acquire or a building you want to put
up. Find out things like whether your
home will lie in a flood zone are or if the
renovations you plan to do, if any, will
cause some environmental hazard to
you future neighbours.
Ensure that you are well conversant with
National Construction Authority Act
(NCA) to avoid buying property that will
later get the big ‘X’ sign for demolition
after pouring all your savings into it.
Bottom line, when purchasing real
estate, it is up to you to ensure that
you get the asset that you are paying
for, given the risks involved in real
estate purchase could be as high as
the perceived benefits. A good practice
would then be to have a due diligence
checklist to guide you through the
process.
DUE DILIGENCE FOR RENTALS
1. Always Insist on Inspecting the
Property.
Never agree to make any payments
upfront or sign a contract without first
inspecting the property.
Viewing the property and meeting the
agent in person are the best ways to
guarantee that the listing is legitimate.
2. Verify the Identity of the Person You
Are Dealing With.
Take steps to check the agent you are
dealing with is a licensed broker or
agent. In the first instance, a simple
online search can help you detect a
scam. Try searching for the property’s
address, the name of the agent and their
email address.
3. Avoid Listings that Have Been
Posted Multiple Times.
One common scam is for fraudsters to
copy an existing (and legitimate) listing
of a property for sale and repost it as a
rental, with their own contact details
attached. Look out for duplicate listings
which have different asking prices.
4. Never Give Away Your Personal
Information or Documents.
You should never be asked to provide
your bank account details or personal
identification documents to someone
over the internet. Importantly, never
provide your credit card verification
code to anyone.
GENERAL TIPS TO AVOID REAL
ESTATE PROPERTY SCAMS
1. Whether you are buying or renting
a property from landlord or you
are going to sell and rent your
property to tenants, ensure this to
make your contract in written form.
Never assume that the party you
are dealing with will follow verbal
promises.
2. If you are going to make any kind
of real estate property deal for the
first time, it’s better to take advice
from experienced professionals.
Experienced and qualified investors
and professionals will help you
to estimate the real value of the
project or property for which you
are investing your money. They
will also help you to identify the
ambiguity in a contract. Professional
suggestions will surely protect you
to make doubtful deals.
3. Before making final decision to
Kenya Property Developers Association... Development brings Development!
Kenya Property Developers Association... Development brings Development!
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