My family holds an annual meeting every August. It's mostly a social gathering, but there's a short speech by the family's patriarch. An eccentric, elderly gent, perhaps, close to ninety. No one knows Grandpa's exact age. Every time, he'd talk about investments. His pet subject? Land.
He'd point at someone rocking designer shoes, and bellow: “Son, on what else have you spent your money? Get land! Get as much as you can!”
As I grew older, I realised his emphasis was not real estate in terms of rental properties or commercial properties - but on plain ‘raw’ land. While Kenyans are generally well known for their ‘kaploti’ affinity, it is often more about wanting to later develop the land or sell after appreciation.
What is less talked about is the potency of land that is typically not earmarked for commercial development. Land that does not exactly fit the profile of ‘kaploti’ that land buying companies always make sure you feel the urgency to purchase in their promotional messaging.
As an investment, land ownership is relatively hassle-free, especially when all due diligence is done and you have your verified title deed in your possession. After this point, investors enjoy immense peace of mind.
Land is a long term, tangible asset. It rarely, if ever, depreciates in value - it almost always appreciates.
When all the due diligence is done by the buyer, land cannot be easily stolen or ‘broken into’ - as may happen with on-land investments, like buildings. That said, depending on the location, you have to take extra precautions to deter trespassers.
A limited resource, raw will not require much maintenance from you. Basically, a hands-off investment. Once you have fenced it off, you are good to go.
While real estate investors focus mainly on rental and commercial investments, there is an opportunity to make large profits investing in raw land.
One downturn to have in mind is that investing in land is not a quick get-rich scheme. The investment has a longer Return On Investment (ROI) period. Patience is very important and on top of that, you have to consider that the initial cost if land acquisition may be high.
This is the simplest, and most straightforward option. An investor purchases land at a good price, or a good bargain. He then holds it for a few years - all the while, he monitors the market for appreciation rates. He sells it off at a profit.
An investor that purchases land and leases out, could make higher returns in the long run than investing the same principle in stocks, bonds and mutual funds over the same period. A land owner also makes an income that covers the land taxes, or insurance.
At the same time - a land owner can make secondary long term investment on the land while it's under lease. For example, he'd ring the perimeter with trees, or intermittent lines to act as wind breakers. He'd be free from their maintenance, but still profit from timber sales after expiry of the lease.
Note that land fit for farming has a higher purchase price.
There's a whole rota of businesses a landowner can invest in that doesn't require permanent infrastructure, like buildings. For example, a recreational park - some bit of good landscaping, sitting areas with outdoor catering points. A kid's fun park is also an option. This entirely involves moveable structures like swings, slides and inflatable pools.
This depends on the property location, and the viability of the business idea. When time comes, the owner has liberty to sell as-is, or exclude the add-ons in the sale.
The downturn is that such businesses have a long checklist in terms of licensing. The main and local governments have austere regulations governing such establishments - health, security etc.
It's important to have in mind that raw land, besides being an appreciating asset, is also valuable to a land owner as collateral for further financing. Traditionally, banks will typically be very accommodating to loan applications with land as collateral.
Better still, should a land owner wish to develop the land, you stand a very good chance of getting a financial institution on board to fund your development. This will typically be based on the commercial viability of the land which can often be a function of location
1. The access rights on the property. Does the land offer legal access to a public road or is there an existing access on the deed?
2. What is the land's proximity to existing utilities like electricity grids, sewage lines, water lines? If it's not virgin land, did the previous owner have wells or septic tank systems installed on the property?
3. How recently has the land been surveyed by a certified surveyor? The boundary lines easily show this. Observe the markers and beacons - fresh, weathered, broken?
4. How are relations with the neighboring landowners? Does the property have any property line disputes?
5. How is the property zoned? In some cases, the local government or municipality may have zoning regulations in place. For example, some areas are zoned as residential, industrial or even marked for future social infrastructure.
6. Why is the owner of the land selling the property? It's unlikely to get this bit from the seller, or his representative. Some due diligence with background checks is recommended. This can be done from media sources, local land offices, banter with neighbors etc.
7. How smooth is the title transfer process, and how soon can the seller close on the transaction? A piece of land without boundary or succession disputes, third party financing processes should have a quick transfer bracket.
8. Does your intended use for the land sync with projects on the neighboring land? Consider that some projects may clash. A livestock project is inappropriate next to a busy highway. If you seek a residential project, will it fare well with commercial development on neighboring tracts?
In this regard, activities on the next tract will be a factor when the time comes to sell the land.
1. Ask to see the title deed or copy of the title deed. Then, pay for a land search at the Ministry of Lands to confirm the real owners. This also shows if the title has a caveat on it.
The search costs Ksh520.
2. Visit the local authorities. Do a search to check if there are any unpaid land rates. If any, no cause of alarm. Agree with the seller on who settles the debt. Any land in Kenya with unpaid land rates cannot be transferred.
3. Go to the Ministry of Lands offices. Purchase two maps of the area where the land is located. One map to show the exact measurements of the piece you intend to buy, called mutation. The other map shows the neighbouring lands.
Each map costs Ksh350
4. Visit the land you intend to buy - armed with your two maps. Physically verify the details on the map. Check out all the beacons.
TIP: It's a daunting task reading the maps, it's recommended to seek the experience of a licensed surveyor.
5. Bargain the price, and reach an agreement with the seller. Draft a sale agreement. The agreement can be done in a lawyer's office. However, it's not a requirement that a sale agreement be drafted by a lawyer. You may decide not to involve one.
Lawyer fees have regulations depending on the value of land. According to LSK, if the value is below Ksh1,000,000, the lawyer fees are Ksh3,000. If it's above Ksh1,000,000, the lawyer gets Ksh8,000 for the agreement.
6. After the draft agreement, it'd be alright to pay some amount as down payment for the land purchase. It's recommended to NOT pay 100% of the fees.
This arrangement, though, depends on the seller. Is the seller an individual, a society or a firm? It usually occurs with individuals. Sometimes, an emergency may have prompted the land sale, and since the transfer process is lengthy, partial payment may be needed. Always seek to have the details included in the draft agreement.
7. It's time to get approvals from the Land Control Board (LCB). This is applicable in agricultural zones. Industrial and commercial zones have different statutes and regulations set by the local authorities where the property is located. The Land Control Board meets once monthly.
It costs you Ksh1,000.
In cases that demand a special LCB meeting, it's possible to book for Ksh5,000.
The LCB then issues consent for the sale of land.
8. Go to the Ministry of Lands, to transfer the title. You need to be armed with the LCB consent form, a recent search (recent means not more than 6 months), Clearance Form from County Land Rates, two maps, the sale agreement, KRA Pin, two passport size photographs and a Copy of the Title Deed.
This normally costs Ksh5,000.
9. At this stage, you no longer need the seller. You can as well pay the balance of the amount due, as per the sale agreement. You can also pay the stamp duty fees according to the value of the land.
The stamp duty is 4% of sale value in a municipality and 2% of sale value in Reserves.
11. Congratulations, you are now a landowner. Hold your horses, though. First confirm at the Ministry of Lands & Physical Planning by doing a search especially when all due diligence is done and you have your verified title deed.
Land presents a robust investment niche. The market is thriving and growing. The key to making fruitful investments in land lies in being keen on the process due in the purchase and transfer.
Avoid backyard get-rich-quick deals. Make extensive consultations and avoid agents. The industry is laced with fraudsters and con artists.
Businesswise, knowledge is power. It pays to follow land market rates to seize good bargains, and also make profitable sales.