Many people struggle to let go of their investments, while others find it difficult to secure the right buyers even after years of speculation.
Kenya’s real estate market has grown tremendously over the past few years. From short-term to long-term rentals, co-working spaces, student housing, digital real estate assets, and co-living spaces, among other investment options, there is no shortage of opportunities for investors. There are now more ways to make money through real estate than there were 10 years ago. As an investor, you’ll be spoilt for choice.
With the market growing and new opportunities emerging, investors should rethink how they approach real estate. Moving from one investment to another can help maximise returns and manage risk.
Many people struggle to let go of their investments, while others find it difficult to secure the right buyers even after years of speculation. Some sell without fully understanding the financial implications, ultimately making less than anticipated from the sale.
Exiting real estate investments doesn’t have to be challenging once you understand how to navigate the market. The experts we spoke to agree on one thing: timing is everything. In this article, we explore strategies for exiting real estate investments and transitioning from one property to another. Mr Moiz Hassanali, director, Kings Developers — a firm with 20 years of industry experience — shares key market considerations, while CPA Ronald Bwosi, with 19 years in finance and 14 years as Group Managing Partner at Ronald’s LLP, discusses the tax and financial implications of selling your property.
When to exit
Mr Hassanali notes that with two decades in the real estate industry, he has seen first-hand the value that patience and timing can add to property investments. Holding onto a property can sometimes be the smartest move, especially when new developments or infrastructure projects are in progress, as these factors often drive property values, particularly in urban areas.
While there’s no perfect time to resell, certain factors can help guide the decision. For instance, if you've met your goals for the property and achieved a good return, moving on to the next investment may be worthwhile. If a property starts becoming a liability, selling it is a sensible choice. Reinvesting in a more profitable venture or tapping into an emerging market can also be wise moves.
When to postpone an exit plan
If you're at a crossroads, unsure whether to sell or hold onto a property a bit longer, Hassanali advises investors to rely on market insights to guide the decision. Kenya’s real estate market, he explains, is constantly evolving, with trends and neighbourhood transformations directly affecting property values. Knowing when to hold or sell can have a significant impact on returns. It’s essential to investigate whether there are upcoming infrastructure projects in the area and consult a real estate expert to assess if market conditions are favourable for selling.
“We’ve observed properties in Nairobi, Nakuru, and Eldoret appreciate substantially following the announcement of new expressways or the entry of large companies. In such cases, holding onto a property a bit longer can capture additional growth, while selling too soon — especially during a temporary market dip — can mean leaving money on the table,” says Hassanali.
Overall, real estate is a numbers game, and Hassanali stresses that the decision to sell should be data-driven to ensure maximum gains.
Common Mistakes to avoid when exiting a real estate market
When you finally decide it’s time to dispose of a property or properties, you may encounter common mistakes that Hassanali says are avoidable. These mistakes can impact your returns or even hinder your ability to exit successfully.
“One common error is allowing emotions to influence the process. Sentimental attachments can lead to overpricing and resistance to realistic negotiations, prolonging the sale. Another pitfall is not having a reinvestment plan. Without a clear strategy for the proceeds, sellers might miss opportunities to build long-term wealth. Additionally, attempting to navigate the sale without professional guidance can result in costly mistakes. Real estate advisors, lawyers, and financial experts provide critical insights on pricing, legalities, and timing, ensuring a smooth and profitable sale.”
Demand for second-hand properties
One important consideration when selling real estate is the demand and nature of the second-hand properties market in Kenya. As Hassanali explains, the market for second-hand homes is becoming increasingly attractive, particularly to buyers looking for established neighborhoods with mature landscaping and well-developed infrastructure. However, buyers are discerning and often gravitate toward properties that feature modern upgrades and well-maintained facilities.
“At Kings Developers, we've seen that investors can significantly boost resale potential by making strategic updates, especially in key areas like kitchens and bathrooms. Modernising these spaces not only enhances the property’s competitiveness in the market but also increases its overall value. Additionally, maintaining proper documentation, setting a competitive price, and working with a reputable real estate agent who knows how to handle transactions are essential steps for a successful sale.”
Re-investing your proceeds
Liquidating your real estate investment comes with a number of risks, the most common one being mismanagement of proceeds. Perhaps you wish to transition to a different property or market. It could be you are selling a family home to buy an income generating property or selling a residential property to invest in a commercial one. Hassanali notes transitioning between properties in Kenya requires a well-structured approach. First, have a clear plan and decide whether you’re looking to upsize, downsize, or relocate. This will help focus your search, timing, and budget. Creating a checklist of your priorities, like preferred location, amenities, and timelines, keeps you organised.
The processes of selling and buying different properties need to be aligned. This means assessing market conditions in both areas—the one you’re selling in and the one you’re buying in. “You need to understand whether each is a buyer’s or seller’s market, as this information will shape your strategy and help you decide whether to sell or buy first. In many cases, selling your current property first can be beneficial. With funds from the sale available, you’ll have a clearer budget for your next purchase and greater confidence in negotiations.”
Overall, investing in real estate is a long-term journey, and it’s essential to plan each step carefully. Build relationships with the right property experts who understand local markets and trends, and leverage their professional expertise to maximise your investments. “Kenya’s real estate market offers promising growth, especially with the right guidance to navigate its dynamics. By planning carefully and staying informed, investors can not only reach their financial goals but also build lasting value for the future,” concludes Hassanali.
Tax Implications
With the tax regime changing and the government tightening the noose on tax offenders, it would be a misstep to overlook the importance of tax implications when selling and buying property. Property tax law is neither complex nor simple. There are many details one has to pay attention to, to avoid penalties. As CPA Bwosi above explains, there are several primary tax implications for property sales depending on who is selling and the nature of the property.
If you are selling as a company, for instance you will be subjected to 30 per cent Corporate Income Tax on profits from the property sale. And, if it’s a commercial property, the sale will be liable to 16 per cent VAT on the total value (of the land and building) - which applies to transactions exceeding Sh5 million. Residential properties are however VAT-exempt.
Capital Gains Tax (CGT)
When selling as an individual or a company that is not legally recognised as a real estate company the sale will be subjected to 15 per cent Capital Gains Tax on property sales. By definition, real estate companies are those that build or buy and sell properties as their primary business.
When remitting the Capital Gains Tax, deductions for incidental costs such as legal fees, stamp duty, fencing and renovations are allowed.
There are however, several types of property sales and transfers which are exempt from paying CGT. “In the case of companies, exemptions apply to property transfers during company restructuring. For individual homeowners or property owners, properties selling below Sh3 million are also exempted from CGT.”
Other transactions that enjoy this exemption include, agricultural property transfers under 50 acres outside urban areas, primary residences held for at least three years continuously and transfers of property to family trusts, for loan security, or between spouses or divorcees. In a scenario where one is seeking a waiver on the grounds that the property is a private family residence, the government tax collector will require proof. You will need to produce proof of utility bills paid for several years and they may also research further to ascertain that you indeed lived there for more than three years.
Minimising tax liability when selling a property
When it comes to managing the tax liabilities, there are a number of legal ways to minimise your tax burden. For companies paying Corporate Income tax, Bwosi recommends claiming all business-related expenses to reduce corporate income tax. However, with E-tims, now there is a catch. “Under E-Tims, transactions with compliant suppliers are essential to avoid disallowed expenses. Moving forward expenses whose receipts were not generated on E-Tims will not be recognised as legitimate, meaning they will be disallowed. It helps to only transact with E-tims compliant service providers and suppliers. For instance, if buying materials for construction or renovations or consulting with experts, ensure they are E-tims compliant,” explained Bwosi.
For VAT-registered companies, claiming input VAT on property-related expenses can lower tax liabilities. Input VAT is the amount you were charged (as VAT) when purchasing goods or services. For instance, if you bought construction materials that are VAT-rated when building a property, you can claim a refund of the input VAT and lower your tax expenses. Proper timing of claims is however crucial, especially for residential property sales. Claiming input VAT is limited to six months post-purchase. Claims beyond this period are disallowed.
Keeping proper records also goes a long way when navigating the taxes and refund claims. You have the burden of proof and word of mouth is not sufficient. You will need to keep receipts acquired when buying construction materials, and when paying for services. Such paperwork comes in handy when you need it.
Additional financial implications
Beyond the taxes attached to your property’s sale, Bwosi also recommends accounting for other expenses as these will impact your profits. If working with an agent for instance, you have to pay their commission. Typically, this ranges from 2 to 3 per cent for the sale price. “Conducting market research will go a long way in setting competitive pricing, and minimise time spent looking for a buyer and the related costs.”
You also need to account for legal and valuation fees. Bwosi advocates obtaining multiple quotes from several service providers to ensure you get the best deal and maximise your profits.
Time is a crucial factor in financial and tax planning. Bwosi agrees with Hassanali on the importance of allowing your investments the time needed to reach their maximum earning potential. For rental properties, extending the holding period can enhance cash flows. Most importantly, the duration you hold onto a property should align with your personal financial goals, such as retirement.
If you decide it’s time to sell, ensure that the sale is also aligned with clear financial objectives.
“Identify specific goals such as retirement and debt repayment, while prioritising immediate needs versus long-term investments. To prevent financial leakage, create a budget, establish an emergency fund, and consult financial advisors to avoid mismanagement.”
You may also engage a financial consultant to draft a holistic financial strategy. “A financial advisor integrates the sale proceeds into the homeowner’s overall financial plan, ensuring alignment with long-term goals like retirement, education, or diversified investments.
They help define clear objectives and create actionable plans, such as reinvesting in real estate or exploring other investment opportunities. Most importantly, they assist with tax planning by assessing potential tax liabilities and providing strategies to minimise taxes through exemptions, deductions, and tax-efficient investment options.
