Chaotic land records, lack of capital among aspiring investors and high-interest loans for developers which make it difficult to fund real estate projects: These are some of the common setbacks stalling Kenya’s real estate industry.
Time and time again, tech has proven to be the silver bullet that solves persistent issues in any industry. This week, DN2 Property features a new wave of tech enthusiasts working on solutions for these challenges. But these are not just regular tech solutions. Although Blockchain technology has faced a number of challenges, it bears great promise in cleaning up the industry. We examined three interesting solutions for three different sectors of the industry:
Lekishon Glenn, Founder, Atlas (Private Digital Land Registry)
I took an interest in Real Estate, while still in university. In my final year, I started researching Blockchain and its possible intersection with Real Estate. But the interest fizzled out until last year when I began exploring smart contracts. As I gained a better understanding of challenges within the industry, one issue stood out - the headache that comes with conducting due diligence on land ownership during transactions.
Atlas is a digital platform that serves as an alternative digital land registry. The current public land registry system has a lot of potential for improvement, and so we wanted to build a registry that showcases all these strengths.
One of the biggest challenges our platform is addressing is the imbalance in due diligence expectations vis a vis resources available to property buyers.
In 2023, in a land dispute involving Dina management vs City County of Mombasa – the Supreme Court made a precedent ruling that requires property buyers to run due diligence to the root of the title - a departure from the long-held Torrens curtain principle. This pronouncement transfers the burden of new elaborate due diligence to the public but is silent on the resources provided to the same public by the custodian of land records, to undertake elevated due diligence.
Atlas provides an alternative point of reference for the public to consult and obtain second-degree verification of the results obtained from public land registries. Such verification gives an additional layer of comfort to the public, even as it deepens the veracity of the due diligence process.
Lastly, the platform gives access to accurate, verifiable and tamper-proof land records in a timely fashion.
We built the platform on blockchain as the technology presents several strengths. For starters, it is immutable, which makes it tamper-proof. Details stored on the blockchain platform cannot be altered. Once we ascertain that person A is the bona fide owner of a given property, the respective details are captured on the platform and subsequently stored on the blockchain ledger.
In case of a transaction and subsequent ownership changes, we can only update by adding the new ownership details, but we cannot change or delete what was existing. Blockchain makes it easier to see the entire line of succession. The system is also decentralised, meaning it is transparent and open to the public as opposed to centralised technology systems which give superior access and power to super-admins, leaving the public to rely on bureaucratic procedures to access the records. Lastly, blockchain has a superior security protocol. It would take a lot of resources and time to hack into the system.
Our target user is anyone who wants to deepen their due diligence. Land owners who wish to have their ownership details captured on a secondary platform to protect themselves in case of disputes in the future can also store their ownership details on the platform. The platform does not, however, seek to compete with public registries, rather, complements them.
This is a private solution, not a replacement of existing records. People can sign up for membership like any other tech platform. Like any other responsible corporate entity, Atlas runs Know Your Client (KYC) verification checks before giving users access to our platform. Those who do not own property can also sign up and explore the option to query titles. Once they are onboarded, they are free to log into their account, fund their wallet and redeem credits which enable users to explore the platform.
Searches give a summary report of relevant ownership and title deed details as well as transaction details. To fool-proof the results, details from the public registry will be used as a primary point of reference. We are keen on aligning Atlas with the legislative framework in this space.
For this digital registry to work, there is a need for critical mass or sufficient people to register on the platform. In addition, having more buyers relying on the platform to verify ownership details will go a long way in motivating owners and sellers to embrace transparency.
The biggest challenges so far revolve around people’s mindsets toward new technology, especially when they do not understand it. Additionally, most land ownership records are still not digitised and it becomes very difficult to use existing records to ramp up verification.
Trevor Kimani, Co-Founder, AlphaBloQ (Retail Fractional Real Estate)
In 2015, my friends and I started a chama. We contributed Sh5,000 a month each with the goal of investing. We considered a few business ideas and settled for taxi-hailing (Uber). Back then the profit margins were great, but managing a driver and a car while pursuing full-time careers turned out to be too hectic. Eventually, we sold the car at break even.
Thereafter, we decided our next venture had to earn passive income without demanding too much of our time. Next, we came across an opportunity to invest in agribusiness by buying land and having farm work managed for us. It was a piece of land on a master plan for a much larger farming project with other investors and we would get a share of the income generated from the farm.
But this was a complete and utter failure, even worse than the taxi, mainly due to fraud. The farmland was in a remote part of Kenya, which made it difficult for us to do proper due diligence. Soon after we bought into the idea, the sellers disappeared with the money.
By 2020, I had grown my savings significantly and I was ready to invest in real estate. I looked at the mortgage interest rates, and I realised that loans in Kenya are far too expensive for the average investor. I wondered why there was no option to just buy a share of the apartment that I liked with a few of my friends. That way I can start my investment journey today with the money I have while bypassing the cost and risk of taking a loan.
This is how AlphabloQ was born. AlphabloQ is an asset tokenisation platform which makes it possible for young investors to own fractional real estate. We chose to focus on apartments and the rental market because our goal is to provide safe, passive, inflation-beating, income generating investments to Kenyans.
Lowering the cost of investing
The key challenges we are addressing through AlphabloQ, include the most obvious one when it comes to property investing- fraud. Statistically, about 30 per cent of all legal disputes in Kenya are land-related. We conduct due diligence on behalf of our clients, to make sure the assets’ title deeds are clean, and that what is being marketed by the developer is what has been built.
Properties are also expensive and they continue to outpace most people’s income due to inflation. Real estate is an inflation hedge, meaning it grows in value at almost the same pace as inflation. It gets more and more expensive, and those who own assets in an inflationary environment become richer.
To solve this problem we simply securitise the asset, and this means turning the assets’ ownership into shares. For example, if an apartment is worth Sh5 million, it would have 5 million shares, meaning someone can invest as little as Sh50,000, to own 1 per cent of the apartment or as much as 5 million shillings to buy the whole apartment. This opens up investment opportunities for more people.
Beyond helping people own fractions of income-generating properties, we also take on property management responsibilities. This way, investors will receive their monthly rental income as passive money without the headache of dealing with tenants, repairs and rent collection. So, if you own 20 per cent of the apartment, 20 per cent of the rental income is yours every month the unit is occupied.
Property owners also struggle to access quick emergency loans using their assets as collateral. Loan application and approval processes take months in traditional banks. As a digital platform, we will also provide fractional owners with loans against their shares through our lending partners.
Our target market is young, tech-savvy investors looking to grow their passive income. Our goal is to empower people to start investing in real estate from a much younger age, because starting early comes with the advantage of compounding growth and the possibility of early retirement.
In March 2024, we got accepted into the Capital Markets Authority Sandbox and we’re very grateful for all the support they have provided us this far. Our Relationship Manager from the regulator, Hillary James Obonyo, has provided great guidance and support on how to ensure we deliver a safe product to the market with the goal of improving capital markets participation among Kenyan youth.
We’ve started onboarding investors, and because our tokens are the same as a share in the stock market, just powered by the blockchain which reduces transaction costs, and fraud, the reception has been positive. We do not have complicated lingo or structures. Our token simply represents ownership rights, like a share in a company on the stock market, but in our case for a specific real estate asset.
Kenya is one of the best-performing economies in Africa, and with the tokenization of assets such as real estate, we can reduce the fraud and costs of investing in real estate, making our local assets more appealing to the rest of the world while increasing our ability to raise capital and grow our economy. Tokenization will be the driving force for Africa’s growth and our intention is to ensure Kenya leads the way.
Robert Muoka, My Shamba Digital (Wholesale Tokenization)
One of the biggest challenges developers face is the huge capital demand that comes with developing big real estate projects. Many rely on banks for funding, but the ever-soaring interest rates eat into their profits. If you couple this with unexpected challenges such as legal issues or a sudden increase in construction cost, the risk of venturing into real estate becomes unnecessarily high.
While Real Estate Investment Trusts (REITS) were introduced as an alternative for project funding, tokenization offers a more promising solution. My Shamba Digital has been in the blockchain space for a while, bridging the gap between legal and new tech within the property industry. In 2021, we launched a tokenization service targeting real estate developers.
Unlike retail tokenization where proptechs sell fractional real estate ownership through affordable tokens, wholesale tokenization is about connecting property developers with institutional investors. These investors inject capital into a real estate project in exchange for shares in the project. They earn from their investment once the development is sold or monetised, depending on the model and type of real estate a developer is going for. They also earn from capital appreciation of their shares.
But first, the developers need to tokenize their real estate project, and then proceed to sell the tokens to the investors. The funds acquired by selling tokens are then used to develop the project, thus bypassing expensive bank loans. Developers can tokenize all sorts of properties, from commercial to industrial, residential, social housing, student housing and distressed properties, among others.
My Shamba Digital helps developers tokenize their projects and connect with institutional investors through our marketplace. Beyond high interest rates, the market is also plagued by slow transactions, fraud and ownership challenges and this is where blockchain comes in. Blockchain presents a certain level of transparency that protects investors from fraudulent developers.
Moreover, we conduct due diligence to ensure the developer’s title ownership details are legitimate. This protects institutional investors from developers who may want to seek funding before fully owning the piece of land on which the project is to be developed. We are also easing developers' burdens when it comes to marketing their shares to potential investors by providing a marketplace where both developers and institutional investors meet to transact on mutual interest.
There is a big gap and a missed opportunity when it comes to the digitisation of real estate funding models. On one hand, Kenya’s real estate industry is growing at a good pace with new opportunities opening up in both residential and commercial sectors. On the other hand, there's a growing appetite for investment opportunities from investors. It is estimated that 60 to 70-year-old Africans will increase from 74 million to 300 million by 2060. The future senior citizens are putting their money in pension funds hoping to retire decently. Pension funds, for instance, can invest 30 per cent in real estate to diversify their assets.
Tokenization is a big opportunity for both developers and investors. The tokenization market is growing, it is estimated that by 2030, the value of tokenized assets will hit 5 trillion dollars while real estate tokenization will grow to 16 billion dollars. Kenya needs to be at the forefront of this shift.
