15/01/2020
Purchasing a Property?
Real estate is perhaps the largest single investment you will ever make, either as an individual or as a corporate. Real estate is capital intensive with very high entry level as you will be required to pay the full price to acquire the property. You therefore cannot afford a mistake. I have gathered below ten points to consider when purchasing real estate to avoid the common pitfalls which can be very costly to you. For sure, these will help you if you are considering investing in real estate.
Ten points to consider when purchasing a property
1 Location comes first
Real estate should be well located; in a growing neighborhood, with good resale prospects and good rental income potential. Well located properties e.g. close to schools, shopping centers, and workplaces ensure sustained demand for both rental and purchase. In urban areas, locations are zoned by use, ground coverage and plot ratios and these together, determine the type and maximum development you can have on the land. Roads and highways determine the accessibility of the property. These factors will determine the returns you will achieve from the real estate both in the short run and in the long run.
2 Always seek a Real Estate Agent
With the advent of the internet, it was anticipated that the estate agent would be rendered jobless. In fact, it emerged that a more informed prospective purchaser would seek an estate agent even more to make a better choice. As a consultant, the estate agent should be knowledgeable in all aspect of property be it law, construction, economics etc. Estate agents are registered and licensed professionals.(REAL Estate WITH JAMES can help)
3 Strive to understand the Real Estate
Real estate simply refers to land and building(s). The type of development, size, design, material and standard of construction should be acceptable. It may be important to confirm whether the building(s) are approved by the relevant authority, e.g. the City or Municipal Council. If necessary engage a consultant to provide you with an expert opinion.
4 Understand the Title and ensure it relates to the real estate
The title defines the ownership structure over the real estate and references the survey map which marks the boundaries of the property on the ground. In most jurisdictions, rights over property are protected by the constitution. The highest form of ownership is Freehold (Absolute) which grants ownership in perpetuity. A Lease grants ownership for a given period. Ownership may also be held by more than one person as in Joint Tenancy where in the event that one partner passes on the ownership reverts to the surviving partner, or Tenancy in Common where in the event that one partner passes on the ownership is transferred to his/her appointed heir.
5 Confirm the property is not a Public Utility Land
Any development on public utility land can be lost any time as the government/public repossesses the land. We have seen this especially with the by-passes, and road reserves. The Report of the Commission of Inquiry into the Illegal/Irregular Allocation of Public Land presented to president Kibaki in June, 2004 popularly known as the Ndung’u Report is one single most important reference on public utility land.
6 Seek Environmental Impact Assessment/Audit of the property
All new developments must be approved by the National Environment Management Authority (NEMA) before construction can commence. The authority has powers to order demolition of properties violating this requirement. It is also a requirement that all developed properties have an environmental audit carried out on them. It is therefore important to be sure of the environmental position with NEMA when purchasing, especially a newly developed property.
7 Confirm Rates Liability
Rates are payable to the City, Municipal, or Town Councils for the maintenance of urban services. Rates are paid annually, usually a percentage of the value of the undeveloped land as presented in the valuation roll prepared by the local authority. Outstanding rates usually accumulate rapidly since it attracts interest. You should ensure all outstanding rates are paid and a rates clearance certificate obtained since the transaction will not proceed without it. You can obtain a free rates demand note printout from the City Hall or Town Hall that will include rates for the year, outstanding rates as well as penalties.
8 Confirm Land Rent Liability
Land Rent is payable to the Central Government at the Land Registry and only apply to leasehold property. The rent payable is usually indicated in the title. Titles under the Registered Lands Act, Cap 300 are registered at the District Land Registries where you can obtain the details on outstanding rent.
9 Seek a good Conveyance Expert – Lawyer
Transactions in land are known to take a much longer time to complete compared to other asset classes. By law, all transaction in land must be reduced to writing. Considering the magnitude of the investment, the duration of time it is likely to take and the complexity of ownership rights, it’s necessary to involving a conveyance lawyer.
10 Seek a good Financial Partner
Most property purchasers buy property on margin i.e. they place a deposit for it and borrow the rest in a mortgage arrangement. This allows you to leverage, where in a favorable market you gain substantially. We have seen property prices double within 5 years or triple within 10 years..
