The Diaspora Advantage: 5 Property Investment Strategies For Non-Resident Kenyans
Another new year is upon us. As usual, everyone is armed and ready with their resolutions and goals that they hope to achieve. For some, this is the year that they plan to dip their toes into the Kenyan property investment pool. If you belong to this group, then this article is the first thing you should lay your eyes on before taking that initial step. This essential guide breaks down five property investment strategies that you should consider this year as a non-resident Kenyan.
Commercial Leasing
One of the property investment strategies you can employ as a non-resident Kenyan is renting out commercial spaces. However, you should know that ownership for this kind of real estate is restricted to the leasehold tenure system. This means that the property will be leased to you for up to 99 years under a contract.
For you to obtain a commercial lease as a non-resident Kenyan, you must follow these steps:
- Hiring Legal Expertise: Once you have identified your property of choice, ensure you engage a legal professional. They will help you with legal processes such as the title search to verify the property’s ownership status and drafting agreements.
- Obtaining Necessary Documentation: The Kenyan government requires that you have a valid passport, KRA pin and provide Proof of Income documents for you to carry out any real estate transactions.
- Negotiating Your Lease: This is where you discuss the lease terms and conditions with whoever you’re leasing the property from. This process will require you to have an expert lawyer by your side to help you negotiate the best terms for your contract.
- Document Signing & Registration: Once all parties are in agreement with the contract, the documents are signed, and your lawyer registers the lease on your behalf at the Lands Registry.
Even though this property investment strategy requires immense capital for entry, it is a very worthwhile venture because the spaces tend to be leased out long-term. Moreover, if you target upscale commercial spaces in areas such as Westlands, Upperhill and Riverside, you’re sure to reap big from rental returns.
Short-Term Rentals
Over the past few years, Kenya has experienced a short-term rental boom, particularly in tourist destinations such as Nairobi, coastal towns, Naivasha and Nanyuki, just to name a few. Data by AirDNA ranks Nairobi as the largest short-term rental market with over 12,000 active listings, and zones such as Kilimani and Westlands as the hotspots for such accommodation.
According to AirDNA, the average short-term rental owner earns about USD 2,000 to 4,000 annually with an ROI of 5-10% while top-performing rentals rake in a net ROI of 15-25%. Unlike their long-term counterparts, which have an annual rental yield of 5 to 7%, short-term rentals offer greater upside. But, the upside comes with greater risks such as: fluctuating demand due to seasonality, high operational costs and market saturation.
However, with the right approach, this property investment strategy is still worth it. Below are simple yet effective strategies you can use to maximize your profits from short-term rentals:
- Location: As a non-resident Kenyan, you need to be well-acquinted with the real estate landscape in the country. Why? Market knowledge will help you in selecting the best and most strategic location for your investment.
- Hospitality: Your guests’ experience makes all the difference between repeat business and long-vacancy periods. A well furnished space with reliable Internet service, consistent housekeeping and security will keep tenants coming back. You can even outsource management services to reduce hassle on your end.
- Marketing: It’s no use having a beautifully furnished apartment yet no one knows it exists. Invest in high quality professional photography and videography services and utilise listing platforms, such as Airbnb, to help your rental reach the right tenants.
Real Estate Investment Trusts (REITs)
If you are a non-resident Kenyan looking to invest in real estate but short on capital, you might want to consider Real Estate Investment Trusts or, simply, REITs. This property investment strategy works by investing in companies that own, operate or finance income-generating real estate. You then earn a share of the income generated from these properties through dividends, much like stocks.
Thanks to Kenya’s flexible investment environment, foreign participation is allowed. However, as a non-resident, you will be subject to a higher Withholding Tax of 10% on dividends unlike 5% for residents. The process of investing in REITs as a non-resident Kenyan is very simple. All you have to do is:
- Open a brokerage account with a CMA-licensed broker. The CMA (Capital Markets Authority) is a government body responsible for regulating all investments within the capital markets.
- Transfer funds to activate your REIT account. The advantage of REITs is that you can start with as little as KES 1,000. Additionally, the returns you receive are also tax-exempt.
- Select your preferred REIT and buy units on the Nairobi Securities Exchange (NSE). Ensure you seek professional advice on the best REITs to select because some are restricted to professional investors.
Not only are REITs an easy gateway to property investment, but they are also a great source of passive income since you don’t have to worry about property taxes, management and maintenance. You simply invest, sit back, and watch your money work for you.
Off-Plan Purchasing
There is a certain skepticism about buying property off-plan in Kenya. This sentiment is understandable given the notorious risks of fraud, endless land disputes, insolvency, and delayed timelines by developers. Sometimes, the completed development may not even meet the buyer’s expectations. Despite all these challenges, off-plan purchasing is one of the most rewarding property investment strategies when done right.
With off-plan projects, you get access to lower initial prices, potential capital appreciation, flexible payment plans, and the option to customize the layout to your liking. However, as a non-resident Kenyan, you need to take extra precautions since your ability to be around your investment is limited. Below are some of the measures you can take to safeguard your off-plan purchase:
Conduct Due Diligence: This step is very crucial when buying off-plan property, especially as a non-resident Kenyan. Due diligence involves researching the developer’s track record, assessing the development’s viability and value potential. You can engage with a professional property advisor to help you with this.
Legal Protection: Before you commit to an off-plan investment, make sure you have legal protections in place. You should have a legally binding contract that clearly outlines the terms and conditions of the purchase, the payment schedule, and the expected completion date. Additionally, it’s wise to include clauses that protect you in case of delays or the developer’s failure to deliver what was promised.
Student Housing
This property investment strategy is one of the most overlooked yet promising ones in Kenya. It involves investing in accommodation targeting student tenants undergoing tertiary education. Student housing is slowly gaining traction in the country due to the widening demand-supply gap between the surging student enrolment rate and limited available accommodation every year.
Besides their unwavering demand and high occupancy rates, student accommodation offer
strong rental yields. This is particularly true for housing in prime areas near universities such as Karen and Thome. Hostels in these locations have demonstrated rental yields as high as 11.1%, This figure is significantly higher than the average residential yield of 5.8% in the Nairobi Metropolitan Area.
In Kenya, the key players for this kind of real estate are Acorn Holdings, the developers behind the popular Qwetu and Qejani brands. Their investment model is based on holding these assets in REITs which allows third-party investors to contribute in funding expansion.
Final Thoughts
The Kenyan real estate market is diverse with various property investment options to choose from. Moreover, it’s a flexible environment that is open to foreign investment. Whether it’s leasing out commercial property, investing in short-term rentals, REITs, off-plan property or even student housing, as a non-resident investor, you are spoilt for choice. All you have to do is conduct due diligence, seek legal advice and meet all the legal requirements to ensure a smooth sailing. If you are ready to begin your property investment journey but not sure where to start, we are here to help.
