Potential Pitfalls When Buying Property in Kenya

As with any truly emerging market there are potential pitfalls when buying property in Kenya that an investor needs to be fully aware of if they are to successfully buy land or real estate and make a profit from it or raise an income with it.

Currently the Institution of Surveyors of Kenya and the Kenya Land Alliance have joined forces to try and ‘encourage’ the Kenyan authorities to recognize and target the main issues affecting investors which include title deed forgery and difficulty securing bank loans; we examine the issues, the ongoing work being done to make the property buying process more transparent and the ways investors buying property in Kenya can protect themselves.

The main issue currently affecting the entire property market in Kenya is the fact that there is an increasing risk that buyers view fake title documents from vendors who do not have the right to sell a parcel of land or a piece of property.  Once they have handed over funds they too are issued fake title deeds and it is usually not until much later, when they have made further investment into the development of land bought or the improvement of a property purchased, that the issue comes to light.  This means that the investor stands to lose out significantly.

There have been some high profile cases relating to this key issue in the courts and also documented by the media in Kenya recently, and because it has affected local developers as well as overseas buyers the government are being forced to take the problem seriously. 

The main case brought to court so far related to a development on Nairobi’s affluent Kileleshwa Estate where a local developer bought land in good faith and constructed apartment buildings only to discover that he did not own the land and had to demolish the building.  The case went to court and the judge ruled that the problem was caused by the ineffectiveness of the Commissioner of Lands and has ruled that the developer be paid compensation by the Commissioner of Lands and that all fees and expenses be bourn by the same department.

Naturally enough this is a sting in the tail for the government and one that they cannot continue to afford – despite the fact that there are now a handful of similar cases pending. 

The Institution of Surveyors of Kenya and the Kenya Land Alliance are now working with the government to highlight ways that they can crack down on the forgery of title deeds to protect themselves and the buyers and true owners of property being bought and sold.

Action is taking its time which means that anyone considering making an investment into property in Kenya currently has to act with caution.  It goes without saying that a buyer should involve a lawyer and that the lawyer should look into the history of the real estate being bought and that this should include plotting the ownership trail through the land title deeds and, if at all possible, local knowledge should be gathered relating to the history of the property and the likely accuracy of title deeds presented to the buyer.

Unfortunately the prevalence of fake title deeds has led to blanket reluctance among local banks to finance any property projects which is also having a negative impact on the property investment climate in Kenya at a time when really the opposite should be the case.  Tourism in Kenya is strong, there is a demand for tourism as well as local accommodation and there is a desire among many to enter the market – but if they cannot raise funds for fear their developments will be seized or claimed against, foreign investors are loath to commit their own funds entirely to such an insecure sector.

All in all the advice is clear – beware and be wary, view everything with caution and conduct in depth due diligence.  Look at alternative funding options including sourcing money externally to Kenya – and finally, know that the government, the Institution of Surveyors of Kenya, the Kenya Land Alliance and the Kenya Association of Manufacturers are all working to rectify the situation to protect the foreign direct investment climate in Kenya.

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