How graft might be affecting real estate

WEDNESDAY NOVEMBER 30 2016

By LUKORITO W JONES

Quantity surveyor Leah Kanda and Granite CEO Ng’ang’a believe fraud has a negative impact on the property market. PHOTOS| FILE| NATION MEDIA GROUP 

In Summary

• Some industry players and insiders believe  that grand corruption, both in the counties and the national government, could  be contributing significant to this trend.
• “When politicians obtain huge sums of money in unscrupulous ways, they have a tendency of channelling it into real estate, albeit indirectly through  proxies. The proxies might be close friends and family members. And they  are usually directed to invest the money in land and houses. Property is preferred to other investments because of it can be managed passively,” says Ms Leah Kanda, a registered quantity surveyor.
• She adds that the effect of this on the property market is highly destabilising.

Property prices around the country are rising steadily, with no end in sight to the trend.

According to a report by investment firm HassConsult last year titled Urban Land Rises as Kenya’s Gold Standard, land prices had increased by 535 per cent in Nairobi since 2007. In April this year, the firm released another report saying that land prices were most expensive in Upper Hill, where an acre was going  for an average of Sh511 million. Ruaka was the most expensive satellite town, with an acre averaging Sh59.6 million.

Some industry players and insiders believe  that grand corruption, both in the counties and the national government, could  be contributing significant to this trend.

“When politicians obtain huge sums of money in unscrupulous ways, they have a tendency of channelling it into real estate, albeit indirectly through  proxies. The proxies might be close friends and family members. And they  are usually directed to invest the money in land and houses. Property is preferred to other investments because of it can be managed passively,” says Ms Leah Kanda, a registered quantity surveyor.

She adds that the effect of this on the property market is highly destabilising.

“Right now, Nairobi has an over-abundance of shopping malls because corrupt politicians have been setting up malls left, right and centre in a bid to launder money,” she asserts. She is  angry that grand corruption creates an uneven playing field in real estate that is heavily skewed in favour of a few.

“The normal developer who wants to build residential apartments, for instance, has to apply for bank loans  in order to secure the capital. However, a corrupt individual is hardly affected by the banks’ interest rates. When both developers ultimately put their apartments on the market, the corrupt developer can afford to charge lower rents than his debt-ridden counterpart, hence attracting more tenants faster,” Ms Leah Kanda laments.

In October this year, Murang’a County residents held demonstrations across the county after it was reported that the county government had bought an arid piece of land in Makuyu for Sh10 million an acre, when government valuation of land in the area was Sh100,000 per acre.

REFUSING TO SELL FOR LESS THAN MILLIONS AN ACRE

Mr Mugo Mutembei, a building contractor with several interests in Murang’a County, told DN2 that the residents of Makuyu are now refusing to sell land to that who cannot afford to fork out millions for an acre that was previously going for Sh100,000.

And Mr Simon Ng’ang’a, the CEO of Nairobi-based property investment firm, Granite Capital, says  that a similar effect is being felt in the city’s housing sector. “A developer can advertise a house for Sh15 million when its real market value is Sh10 million shillings. An individual who got money by corrupt means will easily pay the  exaggerated price. After three or four of such purchases in a neighbourhood, the market value for  similar properties in the vicinity rise to Sh15 million,” he says, adding that he has witnessed the phenomenon in a number of estates in Ruaka.

Mr Ng’ang’a believes that as a result of  such scenarios, middle-income earners  are  finding it increasingly frustrating to own decent houses. “Even an increase by Sh1million can end up marginalising very many Kenyans. Unless the government deals decisively with corruption and money laundering, property prices will continue to be out of reach for many ordinary citizens,” he says.

“If an individual shows up with a briefcase full of cash and wants me to sell him a piece of land or a house, I turn down that deal,” he says.

This calls to mind the 2009/2010 property boom when property prices in Nairobi soared beyond reasonable rates.

 The Government spokesman, Mr Alfred Mutua said the Somali pirates, who were receiving millions of dollars in ransom money from hijacking ships, were buying property in Nairobi at inflated prices, causing the hike in property prices.

But the chairman of the Kenya Property Developers Association, Mr Daniel Ojijo, strongly disagreed, sying the  government was using  the pirates as  scapegoats.  And contrary to Ms Kanda’s and Mr Ng’ang’a’s views, Mr Ojijo does not  agree that proceeds from corruption are responsible for the soaring property prices.

“The money gained from corruption that goes into real estate is too little to cause any noticeable disruption on the property scene,” insists Mr Ojijo, “It would be erroneous to blame the rising property prices on corruption  as the market is mostly ruled by the forces of demand and supply.”