The rental market has expanded to suit the tenant more.
In an unforgiving industry like Kenya’s real estate market, companies sprout overnight and vanish just as quickly, therefore, longevity has to count for something.
To have survived recessions, technological changes, shifting buyer demands and changing landscapes is a testament of grit and foresight. This week, we journey with two founders, back to the start of the 21st century. Their companies have not only persevered the ever-changing market tides, but have also shaped its evolution.
Kunal Pattni, Founder and Director, Halifax Estate Agency Limited
Kunal Pattni, the Founder and Director at Halifax Estate Agency.
Although Halifax, Estate Agency was formed in the early 2000s, Kunal Pattni, the founder, joined the real estate industry in the mid-90s. Coming from a family of Jewellers, Kunal was exposed to real estate very early on in his career life.
“Real estate was my passion long before forming the company. I have always been into different architectural designs. My first job was with a developer who owned commercial properties, including a mall. I was involved in managing the commercial rentals and it was a great opportunity to learn how real estate works,” he says.
In the early 2000s, he decided to form his own company and pursue real estate as a business.
“We saw a lot of gaps and opportunities and we wanted to make it easier for homeowners to own properties and also ease the headaches for landlords,” he explains.
Expanding rental market
Since then, the market has experienced numerous shifts that act as a unique lens to understand the Kenyan property market. The rental market for instance, has expanded to suit the tenant more.
Back then, as Kunal recalls, tenants would have five or so properties to view before making up their minds, but now, they are spoilt for choice. Once they narrow down to a specific location, a budget, plus their expectations, the agent can provide them with 20 or more options to choose from.
In addition, tenant demands have increased. They are not only informed on legal issues but are also keen on getting their money’s worth by going for the best options. In response to this shifting buyer behaviour, developers have expanded the amenities’ list.
“Rental properties are incorporating more modern features. In the past you’d have apartments without special amenities, now we have swimming pools, gyms, lifts, boreholes, generators, modern club houses, walking tracks and more”. With these changes continuously reshaping the rental market, Kunal shares two fundamental principles for investors eyeing or already in the rental market.
Guiding principles for rental investors
The first principle is to treat a rental investment as a business. “A lot of landlords look at cost-cutting as a way to make more money from their rental properties. In the long run, it does not pay off. Cost-cutting means maintenance might be neglected. In reality, maintaining your property is what’s going to retain its value in a competitive market. With the market changing, older properties are aging as newer ones come into the market and older properties struggle to fetch the same revenues they used to.”
While, it may not be easy to bring an old property to modern standards, Kunal notes there are certain things you can do to improve them, such as modernising kitchens and bathrooms, maintaining common areas, improving security measures, repairing roofs and other features, and giving the properties a facelift, giving them a competitive edge.
Keeping tabs with legal developments is also extremely important. “Sometimes, legal issues or tenant-landlord laws are ignored yet they are supposed to ensure both the tenant and the landlord are happy.
A dynamic commercial real estate
On the commercial rentals front, one of the biggest shifts has been the move to coworking offices. These types of offices became more popular after the Covid-19 pandemic as more companies encouraged remote working. They have since become the norm, while increasing options for commercial tenants.
For a landlord, Kunal says, coworking or office-sharing models could mean more money for the landlord.
“Typically, with long-term tenants, rent increases occur after longer periods, normally it is 10 percent per year but could be less. But co-working spaces have introduced short-term tenancies in commercial properties, just like short-stays in residential buildings. And as it is with short-stays, revenues tend to be higher”.
The downside, however, is in tracking each of the short-term tenants. It can be time consuming, therefore it is highly recommended to contract an agent to manage co-working spaces or work with a sub-letting company.
Partnerships between landowners and developers
At a time when younger investors are questioning the viability of real estate and instead opting for alternative investments, Kunal advices, “the world has only a limited amount of space. Land is not expanding. It is a fixed strategic asset, while the population is increasing. Land will always appreciate in value. Sometimes people feel land is not appreciating fast enough but either way, it will appreciate.”
To counter the biggest challenges in land banking such as the difficulty of selling the land or developing, the company provides land development consultancy, which involves connecting landowners with developers. Ultimately, a landowner does not have to sell. They instead get into an agreement with the developer, who puts up money making properties on the land. In exchange the landowner earns a stake in the development and they can continuously earn a return from their stake.
For those who may not buy into this model, Kunal says real estate is still a gateway to wealth building, even when your first property is not perfect.
“Your first real estate is your asset base. From that base, you can start expanding. That first asset unlocks credit and you can use it as security for a loan to secure more assets”.
Also when it comes to returns, other markets may seem to bring higher returns but with real estate, even when you are getting 7 or 8 percent, it is guaranteed. “Even with post-election disruptions, the market bounces back very quickly,” he comments.
Michael Kiarie, Founder and Managing Director, Premier Realty Limited
In 2001, Michael Kiarie joined the workforce as an IT professional. He had previously pursued International Business Administration in IT and launched his career working as an IBM dealer. Three years down the line, he changed career paths and joined the real estate industry.
Michael Kiarie, the Founder and Managing Director of Premier Realty.
“While working in IT, I crossed paths with a client, a foreigner investing in Kenya. The client developed interest in real estate and challenged me to find them property in Kenya, so they could develop apartments. We got the properties and they started with two developments in Kileleshwa. After working with this client several times, I realised real estate is something I could venture into as a business. I decided to switch to real estate, and in 2004 I registered the company”.
One of the biggest challenges Kiarie wanted to solve for real estate investors was lack of trust and professionalism in the industry. The industry had low barriers to entry and many people would get into real estate without training or knowledge on how to handle the business aspect of the profession.
“We wanted to create transparent engagements and so we worked with professionals such as advocates, surveyors and valuers to ensure investors get value for money”.
After-sales support was also neglected in the industry. A lot of investors are looking for end to end services, especially in the Diaspora. Kiarie saw an opportunity to not only close transaction for buyers, outsource the right professionals to work on the transaction and also manage their property and help them make a return on it.
Adapting to an evolving market
Two decades later, Kiarie says the Kenyan property market has evolved tremendously, compelling the company to constantly reinvent itself. From the year 2000 going forward, for instance, the market experienced the “apartment craze”.
“In upmarket areas like Westlands, Lavington, Kileleshwa and Kilimani, you’d only find standalone units on half acre plots, which were not very affordable. Kileleshwa for instance, was mainly dominated by government housing for the railway corporation and other government agencies. When the zoning was changed from single dwelling to multi-dwelling, these areas opened and developers began putting up apartments, which were more affordable for everyday Kenyans”.
Still in the 2000s, land of was very affordable with high demand from locals buying for small scale use such as farming and residential homes. Between 2010 and 2015, the market benefited from infrastructure growth such as bypasses and highways which opened up satellite towns like Kitengela, Ngong and Ruiru and focus shifted to these emerging corridors. Around 2014 to 2020 there was a surge in diaspora investments, which was a turning point for Premier Realty.
“We partnered with Kenyans in America through the biggest diaspora SACCO – the Kenya USA diaspora Sacco. We engaged Kenyans in the US. And that opened up opportunities for others Kenyans in Europe and the Middle East. The partnership with diaspora markets was a turning point for us as we have continued working with diaspora investors”.
To stay afloat the company has also reinvented how they market or connect with potential investors especially in the diaspora.
“To connect with people in the diaspora you have to incorporate digital marketing, video tours, drone footage, virtual tours, 3d walkthroughs, Virtual and Augmented Reality (VR and AR). We are also looking at AI driven and Blockchain searches for properties.”
Current opportunities
“In recent years, buyer needs have become more sophisticated. Buyers do not want bare land. They want gated communities, serviced plots with water and electricity and locations with growth potential. We have adapted by developing plots in areas like Ndeiya, Naivasha, Kitengela and Nanyuki,” he says.
“We have also seen the satellite boom continue to grow with demand for areas like Ruiru, Syokimau and Machakos. They have formed a ring around the city to decongest it. Property values in these towns have also doubled”.
Currently, the trends show buyer interest is spreading further to more towns with infrastructure growth.
“With the proposed 8-lane road development in Rironi-Mai Mahiu-Naivasha and Rironi-Mau Summit roads, travel time to Naivasha, for instance, will be reduced to as low as 45 minutes. We are getting to where developed countries are, where people are able to live and work remotely from other towns without having to live in the capital,” says Kiarie, adding that the real estate market will continue to expand with government-led infrastructure projects. Affordable housing, planned gated communities and mixed-use developments will continue to dominate demand.
To tap into these market trends, the company launched the Pana Ranch, a gated community project in Naivasha, which features a resort and holiday-style homes that can easily be used as residential homes. This gives investors versatile options, from money-making to homeownership. In closing the conversation, Kiarie advises aspiring investors to invest early.
“Land appreciates faster than other assets. Around the year 2008, you could buy land for Sh650,000, but now an acre is selling for about Sh40 million.”
