They sank millions in land nobody wants to buy

They sank millions in land nobody wants to buy

Hussein Mohamed knew he had hit the jackpot when investors started buying expanses of land in Kitengela and Kiserian, Kajiado County.

This saw real estate consultancy firms announce skyrocketing land prices in the area.

His ten-acre piece of land was a heaven-sent investment, after all. It was in 2016 when he first decided to sell the land, aiming to smile all the way to the bank.

Five years down the line, the smile remains just a pipe dream. Any signs of the big smile were extinguished by a market that has constantly shown an unwillingness to match his price and take the land.

He has not sold anything yet. “Sometimes I feel I may be forced to reduce the price I intend to sell the piece of land at, to a value way below market rate. This does not sit well with me,” he says.

He expected there would be a comfortable recovery after the 2017 general elections, but the wait lasted forever.

There was little improvement to note. And then came the deadly blow - the Covid-19 pandemic. “It has been difficult finding someone interested in buying land,” he says. “I have had to revise the price downs, time and again.”

He is desperate for a sale.

For two years, Cynthia, also a landowner in Kitengela, has tried to sell her land with little success.

Like Hussein, she no longer likes to talk about it. It is an open wound. She knows she will sell it way below her target price unless a miracle happens. And miracles are not common in this age.

Hussein and Cynthia are not the only two landowners suffering.

Several landowners, especially around the city, have been badly hit by speculative tendencies on land. In a city whose land value has consistently been appreciating at unreasonable rates - mainly driven by illogical speculation, buyers who can match the new prices have disappeared.

Kennedy Murimi, the founder and chief executive of real estate company Denver Group Ltd attributes the bad pricing to research data released by real estate consultancy firms.

The quarterly, half-year and full-year data on the performance of land drive speculation as it does investment.

One of the effects of such data is the attitude it creates around the land, often seeing previously half-interested parties rushing to purchase the fast-appreciating land with the hope of making a kill.

But many have been left with an egg on their face after buying the land. In the rush to buy land, some get conned.

Those lucky enough to survive the cons ultimately realise that they fell for a trick too fast. The market value of land is usually way below figures thrown about on the interweb. When these buyers try to sell, they risk-taking in losses.

“Some of these firms that publish reports on the value of land do not use real data. They just call people and ask for their estimations, and then they use their own speculation,” claims Murimi, adding that the aim of such firms is to increase demand for such land.

Murimi notes that such firms lack teams that should be involved in ground checks to establish if the information that they collect from the public is accurate.

“They should also collaborate with the Ministry of Lands to track the transactions that are happening in the country so they can have the real picture of the ground,” he says.

They would still not be doing enough if they do not hear from companies that are themselves active in selling land, Murimi says, as these are always keen to track price changes by the day.

A focus on only high-end areas, he says, is also damaging. It creates huge demand thus high costs in such areas when they do not have as much potential for growth. Some are in the periphery of the metropolis.

“Look, there are more land transactions in Kangundo than there are in Kiambu. Many people are opting for places such as Kangundo where the prices of land are lower than in more developed places that are closer to the city centre,” he says. “But you will realise that all the focus is on land in Kiambu.”

Pointing an accusatory finger at housing companies, Murimi says these firms try to create an impression that the economy is doing well is by showing the value of land rising at astronomical rates.

“That way, they can have an influx of investors who expect to benefit off good economic projections,” he says. But these investors, alongside their local counterparts, will buy the overpriced property that will haunt them later.

“They will not be able to sell that land when they need to because no one will be willing, or able, to match the prices they set, which is obviously determined by, among other factors, the price they bought the land at,” he says.

Land buyers are hurt when they seek loans from banks with their land as collateral, only for the lenders to value the land and the speculated, exaggerated value gets watered down in the valuation report.

Knight Frank Kenya Managing Director Ben Woodhams says the reports only give the basic overview of the real estate sector based on the level of development in local markets. “It is difficult to list what the value of land is because it depends on many factors such as proximity to infrastructure. We also look at permitted development.” says Woodhams.

He gives an example of land in Westlands which used to cost Sh35 million an acre in 2000 but now goes Sh600 million - 17 times higher in only two decades.

This has been necessitated by the development of high-value or high-rise buildings. Rental values have, however, not increased by the same margin with houses that used to cost Sh50 a square foot in rent now going for between Sh80 and Sh100 for the same area.

“The value of the land will be pegged on the value of the return that it can generate,” he says.

It is such prime areas that have the potential for growth, says Woodhams, research based on the development can be done on an individual parcel of land. Land with the potential to hold skyscrapers will be valued higher than that which has restrictions or where only a low-rise can be erected.

But one of the mistakes that people commonly make is assuming that because a parcel of land in an area has been given high value, their parcels too, by being in the same area, say county, will attract the same value.

The attachment to value is based on factors such as nearness to the road, and valuation is done to the specific local market, with no two parcels, even neighbouring each other, exactly the same.

Murimi says that while focus has been to areas near the city making many people who would wish to own prime land interested in buying, it is areas further away, and around satellite towns, that have the real potential for growth and appreciation.

“More focus is on Kahawa Sukari than on Ruiru, while it is Ruiru that sees new businesses keep on coming up with land now being sold at high rates.

The value of the land at Kahawa Sukari will be stagnant for a long time,” he says.

If the speculation around the very prime places was stopped, investors would, perhaps, suffer less.

Meanwhile, Hussein and Cynthia hope to find a panacea to their problems. Next time, they promise, they will look before they leap into another horrible deal, with the glittery promises of real estate clearly anything but gold.