The Basecamp Explorer's Lodge in Maasai Mara. A new company has embarked on building lodges in the Mt Kilimanjaro area. Photo/FILE
High returns in the real estate sector have attracted an investment group that seeks to buy 420 hectares on the foothills of Mount Kilimanjaro and put up lodges.
Kenya Association of Investment Groups (KAIG) chairman Patrick Kariuki said, at a recent members’ breakfast meeting, that the Amalgamated Chama Limited (ACL) was looking to make the first down payment of Sh40 million at the end of March.
“The site will be developed in line with the masterplan and site selection will be on payment basis, which means first to pay first to choose,” he said.
So far, the recently formed group has raised Sh25 million but has a Sh15 million deficit.
Real estate has become an attractive venture, offering investors high returns in the past 10 years and outpacing the stock market and Treasury bills.
An analysis by Hass Consult last year showed that investors who bought residential property in 2000 had seen a 183 per cent increase in the value of their property compared to prices of a well diversified portfolio at the Nairobi Stock Exchange (NSE) which appreciated by 125 per cent during the same period.
Releasing the firm’s property index report this month the company said; “The property market outperformed the stock market during the fourth quarter of 2010, following the falls on the NSE in November and December, even as property prices continued to rise”.
The firm also said that Kenya delivers greater price stability in real estate than the international markets surveyed —the United States (US), the United Kingdom (UK), the United Arab Emirates, Hong Kong, India, Australia and South Africa.
“The growth in property values in Kenya since 2005 has been some 70 per cent, compared with around 35 per in South Africa and falls of 10 per cent in the UK and 15 per cent in the US,” said the firm, adding that in the last three years property prices have risen by more than 50 per cent, compared with 25 per cent in UAE.
These statistics have seen both foreign and local investors attracted to the sector in an effort to benefit from the high returns.
Lasting friendship
Kenya Commercial Bank’s chairman Peter Muthoka, who was the chief guest at ACL’s breakfast meeting, said that pooling resources was “the sure way of achieving higher goals faster, while enjoying the togetherness and the lasting friendship that comes with it”.
“Let foreign investors come and find us actively investing and partner with us,” he said.
KAIG estimated that one in every three working Kenyans is in an investment association controlling up to Sh100 billion in assets and about 10 per cent of total commercial bank deposits, amounts that have seen banks and insurance firms set up products specifically targeted to these groups.
Other investment groups, real estate companies and Saccos have used the method of pooling investor’s money and buying large tracts of land, subdividing and developing it in a uniform fashion.
Mhasibu Housing Company Limited has used the same method for investors.
The company which is a subsidiary of Mhasibu Sacco Society Limited has acquired 70 acres of land near Runda, two tracts of land of 120 and 102 acres near Ruiru, and was last year in the process of acquiring 300 acres of land in Juja.
Economies of scale
Analysts say that this method takes advantage of economies of scale and companies are able to get discounts on investments that would otherwise cost more if invested individually.
Investment groups, however, face numerous challenges and do not fall under the mandate of any regulatory agency.
Some have become large companies such as TransCentury — the largest locally owned private equity firm, which has plans to list on the NSE — while others such as pyramid schemes have turned out to be fraudulent.
Bank of Africa’s regional corporate manager Patrick Mokaya, in a telephone interview with Business Daily, said investment groups “need to make the rules very clear and need to differentiate the business they are in from themselves”.
The bank offers investment groups an account and hosts periodic educational and networking events.
“One of the big challenges is that these groups have people who are holding other jobs and getting them to meet and agree is a challenge,” he said, adding that the bank has strategies that will guide the groups to grow.
