Group investment options for middle class dying to own house

Recent research shows that the price of land in Kenya has gone up by as much as six times in the last eight years.

The price of land in prime areas, according to this research, is a nine-figure digit. Other than acquisition of land, there are many other assets like airplanes and yacht which are out of the reach of the ordinary citizen.

How then can middle class persons own land or prime assets without having to go to the bank for a loan?

The answer lies in pooled resources and this is where different individuals invest and own a share in the larger asset. Pooled resources as a means of financing has been around for ages and is the concept behind insurance and pension funds.

Needless to say, some of the biggest investors in prime areas are insurance companies and pension funds. Here is an example. A good friend desired to build his family home, but could not afford to buy land in the place of choice.

He joined hands with his friend and they bought a parcel of land as pooled investment. They later sub-divided into halves. Each person has his own title deed.

They are both the owners of beautiful family homes because of pooling their resources.

A second example can be used where one wishes to own a portion of land but which is smaller than one eighth. Typically no title deed can be issued for any parcels less than an eighth.

Now, a group of many young investors who could not afford to individually acquire a quarter of an acre in a prime area came together. They formed a company in which each took shares according to the size of land each wanted.

Some of the buyers ended up having bigger chunks than their counterparts as they had more money and, therefore, they took more shares in the company.

They divided the land and assigned investors numbers. They went to an architect who did the drawings and identified each person’s land and had these drawings registered.

The company maintained overall ownership of the land but released leases to the investors. The only limitation with this method is that the overall title is not in your name but the company’s.

There is, therefore, a slight problem when it comes to using the property as security, especially when seeking building approvals.

However, the company can be formed such that the board of directors is required to give consent and approvals.

If the investor wanted to sell his portion, he would simply transfer his share in the company and also transfer the lease to the new buyer. I was amazed to see these 20-something year olds owning parcels of land in a prime area.

Common tenancy

Legally, there are some properties that can be owned under common tenancy. A common tenancy happens where several buyers own a title jointly but with separate shares in the property.

This is only possible if the title is leasehold. Therefore, people can invest in a large asset as common tenants and allocate shares according to their investment.

Each investor’s name appears on the title and his share is known. If such person wishes to opt out, then what they sell is the share.

For larger pooled funds that invite public subscription, real estate investment trusts regulated by the Capital Markets Authority are an option.

Mputhia is the Founder of C M Advocates. [email protected]. @cm_advocates www.cmadvocates.co.ke