Real estate investments in Kenya have the potential to double or even triple in value per year, with the right property. So how does an investor finance a real estate investment? There are at least two main options available in Kenya: group investments and mortgages.

In addition to being able to avoid risks such as rising inflation, real estate investors can improve their net worth, generate high capital gains, and potentially experience rapid rates of appreciation.

Real estate investment financing options

Group investments

This is the most efficient financing option and commonly used by the lower middle class and those with informal jobs who cannot qualify for mortgages and bank loans due to their irregular source of income.

Group investments, referred to locally as ‘Chamas’, hold more than 80 billion Kenyan shillings of wealth in terms of savings and investment, and one adult in three is an active member of a group investment club. They have been most successful among women, youth and the self-employed.

  • To function, members make daily, weekly or monthly contributions for a specific period of time and with a specific financial goal. Once goals are reached, they identify a potential property, buy it, and start saving to develop it or divide it equally among group members.

  • Alternatively, banks develop investment pools and invite interested parties to make monthly contributions. If the group member wants to buy a property, he simply borrows (at interest rates) from the group based on his contribution. Group members jointly sign the loans and bear the cost of repaying the loan if one of the group members defaults.

The success of group investing is strongly driven by a cultural impetus to raise funds to invest and borrow.

  • Most of the banking institutions and building societies in Kenya have realized the potential of the option and have developed programs aimed at boosting group investments; it is based on the idea of ​​creating savings and investment opportunities.

2 real estate loans and mortgages

There is a fine line between loans and mortgages in Kenya, and people often use the two terms synonymously.

These are the facilities offered by various financial and credit institutions, such as banks and mortgage companies, to help you buy a property:

  • Loans and mortgages are awarded to successful loan applicants who meet minimum loan qualification requirements.

  • You can fully or partially finance loans and mortgages. Most lenders, however, finance the property up to 90%.

  • Various lenders have variable interest rates and income-generating loans that charge an interest rate of 15% per year and real estate development attracts 13% per year

  • Owner-occupied property can receive 80% financing, while investment property, such as rental units or vacation homes, can receive up to 70% financing.

Duration of repayment of loans and mortgages

Maximum of:

  • 15 years for individual borrowers

  • 10 years for limited partnerships

  • 2 years per phase for real estate development

Additional costs

Most Kenyan loan and mortgage applicants are oblivious to the hidden fees that come with taking out loans and mortgages.

  • Stamp duty

Currently at 4% of the cost of the property.

  • Valuation rates

Fees vary by appraiser, and it’s critical that you have your own before the property is appraised.

  • Legal charges

Determined by the amount of the mortgage. Higher loan amounts attract higher legal fees. Banks have their preferred law firms that they deal with, so be sure to learn their preferred law firm from the lender.

  • Banking facility charges

It varies from bank to bank and is intended to cover loan facilitation.

  • Penalties

Charges for paying off the mortgage before the agreed time; varies between

  • Property insurance

It is not mandatory and is paid per year. Protects the property during the loan repayment period.

  • Mortgage life policy

It varies between lenders and covers your outstanding balance in the event you die.