Nairobi’s residential real estate market is a complicated landscape to navigate, especially when making your first investment. In recent years, stories of construction collapses, grabbed land, and unfinished developments have become uncomfortably commonplace.
As an individual looking to invest in real estate, the most important decision you can make is not in what neighborhood or even how many rooms are in your property; rather, the decision that can make or break your chances of getting a return on investment is selecting a developer.
Similar to how an analyst does research into what stocks to purchase, a smart real estate investor should research developers before making a decision.
Here are a few of the factors you should consider before mobilizing that hard-earned money:
- Reputation and track record
Before working with a developer, the easiest thing you can do is a quick Google Search of past news and projects the developer (and the company’s directors) has done. If your search results in news of behind-schedule delivery, land ownership controversies, incomplete projects, building collapses, or financial impropriety, you may be better off finding a different developer.
- Project capitalization
If you have seen any projects that have been incomplete for many years, it is more than likely that the developer ran out of money to complete the project. Off-plan selling is one of the ways developers finance their projects but if they are unable to meet their sales targets, this could cause the project to stop in its tracks.
Fortunately, some developers work directly with financiers both locally and internationally who provide part or all of the money necessary to complete the project. To hedge against the ‘developer finance risk’ of real estate investment when investing in the early days of a project, a smart investor may consider developers who have outside financial support for their projects.
- Quality of construction
The quality of construction sits at the crossroads of the incentives matrix for the investor and the developer. If you are an investor, you want to ensure your building remains strong for many years and requires minimal maintenance. However, a developer may naturally want to maximize the difference between their cost and the money they make from investors, sometimes meaning that the quality of a project is sacrificed in the mission for profitability.
It is crucial to find a developer with a pedigree of strong, quality construction because the last thing any owner wants is the building to collapse or be condemned for safety reasons. It’s hard to make a return on your investment if the building doesn’t exist.
- Financial partnerships
Some developers build partnerships with banks to help their investors access mortgages at special interest rates. Both the developers and banks go through a due diligence process before a partnership is initiated. The due diligence in this stage is typically extensive and is a good sign of a strong developer.
Additionally, the ability for an investor to access special rate mortgages through a bank can play a major role in the amount of cash you may pay to acquire the real estate. In simple math, the difference between a 15% and 20% interest rate on KShs 20 million over 5 years is over KShs 3.2 million extra in interest over the lifetime of the loan.
- Completion timelines
When considering an investment in a project, it is prudent to ensure the developer is willing to give you clear timelines for completion. If the developer is vague with their timelines or unwilling to give a month or quarter of expected completion, that is a good sign that they may have issues completing the project on time.
As an investor, one’s primary priority is to chase a return on investment. A difference of even a few months in the completion of a project can have a sizable impact on your ability to make a return on investment.
Making the final decision…
Of course, a potential investor can look at a multitude of other factors before making a decision about which developer to work with. However, the aforementioned factors are a good starting point.
Mi Vida Homes, the developer behind the landmark Mi Vida Garden City development adjacent to Garden City Mall off Thika Road, is part of the exclusive club of developers who check all the boxes above.
Mi Vida Homes is uniquely positioned in the Nairobi real estate market with an untarnished reputation, fully capitalized project through its partnership with some of the world’s largest residential developers, high-quality construction, financial partnerships with numerous Tier One banks, and a history of on-time delivery with clear completion timelines.
This story was originally published on Kenyan Wall Street