Kenyans’ preoccupation with plots of land and owning houses has completely distorted the real estate market. Today, a piece of land, around an 1/8, in a game park somewhere (remember Wakameat’s comments?) is costing like 2m. An old house in Langata, about 30 years old, is now going for 12m. A simple apartment in Kili or Kile is going for 14m.
Now lets do the math.
If you have a deposit of 2m and wanted to buy that Kili apartment at Sh14m, you’d have to take a 12m mortgage, right?
At 12 per cent pa interest, that means you will probably pay over 20m for the apart in say 10 years. If you default anywhere along the way, ole wako - kila kitu goes.
If you buy the plot and build, on the other hand, you’ll probably spend like 8m. Loans za Coop na bank ndizo hizo, so final price will be like 12m for a house built in the bundus.
Now THIS IS WHERE I ASK THE QUESTION, DO YOU HAVE TO OWN THE HOUSE YOU LIVE IN EVEN IF THE COST IS THIS PROHIBITIVE? In this day and age when even big firms are outsourcing, WHY CANT YOU OUTSOURCE YOUR LIVING QUARTERS (ie, rent!)
If you invested the 2m deposit in government securities over 25 years (long-term bond) for example at 13 per cent, you will be collecting about 260,000/= per year for that period (25 years).
That’s like over 20k a month - enough to rent an average apartment in a good neighbourhood without any hustle - CBK simply sends you the money via bank transfer. If you save another 2m over the next five years and invest again in the money markets (bonds, shares etc), your returns will be higher…so youcan upgrade to higher-class areas with no sweat.
So why the stress of trying to own a plot/house when the factors are so unfavourable? The bank rates are 14% (developed world? 2.5%) and the land is 400% over-valued. Why risk building in the bundus where thugs will chase you out in six months or the jam is impossible (Rongai diaspora anyone?) when you can just invest at the NSE and the CBK and live just anywhere you want?
Lets discuss the merits and demerits of the two scenarios.
NA IDIOTS WA DFHKMNKD KEEP OFF!