Land investment: How to avoid the dead capital trap

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Many older Kenyans store their wealth in land, hoping to sell them in hard times.

Photo credit: Shutterstock

Branice Wanjiru had gone to her Sacco offices to check how much money she had in savings when she stumbled on quarter-acre parcels of land being sold in Kitengela, Kajiado County.

“The sacco officials told me that there was land they were selling cheaply. They marketed it with the impression of an excellent investment in a developed area closer to the road and not far from Kitengela town,” she says.

She envisioned building her retirement home on this land.

“I decided to hold on to it because the value would go up. I didn’t second-guess myself or do due diligence of visiting the land before I committed my Sh700,000. It was also at a time when I had some loose money and I was on the lookout for somewhere to invest it. I thought that it would be of no use if I just put the money in the bank,” she tells the BDLife.

True to her trust, Ms Wanjiru kept postponing her visit to the land. The sacco had issued her with a title deed, so she knew her investment was solid. A year and a half later, she decided to tour the place.

“I was on leave and I needed money so I went there to weigh options of selling it. I didn’t even know where the land was located, I had to ask the Sacco for directions,” she recalls.

Land speculation has been preferred by many as the route to wealth. Many older Kenyans store their wealth in land, hoping to sell them in hard times. Some strike gold as the land appreciates especially if they bought in an underdeveloped area that then grows fast, roads come up and shopping centres.

Others are not so lucky, as they have to sell at a loss especially when they need the money urgently and if the location takes long to urbanise.

“When I reached there, I found my land was in the middle of nowhere. It took me three hours to locate it. I had to park my car very far before proceeding to the slopes on a motorcycle. Luckily it wasn’t raining as much, but I wondered how my sloppy land located at the bottom would look,” Ms Wanjiru exhales as she narrates her disappointment.

The land that she had been sold for was in a riparian (adjacent to rivers and streams).

“I was so disappointed. It’s difficult to even put a structure there. I knew it would be a difficult task to convince anyone to buy that land so I asked the seller whether they were willing to take it back and just refund my money but they were reluctant since they did not have buyers,” she says.

Land is not a bad investment, financial experts say. But when it is dead capital then it is a bad investment. A majority of Kenyans buy land but find it hard to turn them into money-generating ventures because they are either too small, too far or the owners lack capital.

Joyce Gituro, who also bought a 50 X 100 parcel of land, saw it as a speculative investment. She was told about the land by a friend. It is in Mastoo in Juja, Kiambu County, close to the then-proposed bypass road. She was convinced that it was a good idea.

“I went for that particular parcel of land because of the proposed bypass road that was to be built connecting Kangundo Road and Thika Road. I knew the value would double with time,” she says.

Thinking of how much the land would fetch in a few years she paid Sh800,000. The long wait that started in 2016 finally came to an end. She is lucky though. The land has doubled in price but searching for a buyer has not been an easy ride.

Historically, women in Kenyan communities have been the stewards of the land.

Photo credit: Shutterstock

“I want to sell the piece of land because I have an ongoing project that requires more money and the returns are good, also given that the land value has appreciated twice its price,” she says.

Ms Gituro says finding a buyer was hard because development in the area has been slow. The proposed bypass was also never built.

“The challenge of selling this piece is due to accessibility, the roads are very bad. There are no schools, the nearest one is quite a distance away. There is also an issue of title deeds, though I have the share certificate in my name,” she says, “the proposed bypass would have changed everything about that area. It wasn’t a bad investment if everything had fallen in place.”

For Ms Wanjiru, she says hers was a bad investment decision.

“That land could have cost no more than Sh250,000. To be honest, if I can get someone to just refund my money because with land you cannot rush you will either get a buyer or not,” she says.

What should someone consider before investing in land?

Land investment is like a commodity, whether you choose to invest in it or not. The higher the population growth, the more valuable it becomes.

Johnson Nderi, an independent consultant and corporate finance expert, says if you can manage the risk of acquisition, land is generally a good investment in terms of its store of value.

“One of the problems with holding cash is that it can be eroded by things like inflation. As inflation diminishes, land appreciates on the other side. It is a good hedge against inflation because it tends to acquire higher than inflation rate valuation,” he says.

When it comes to credibility, Mr Nderi insists on working with a good conveyancing lawyer. A lawyer who understands the risks you may face and has a way of eliminating them. The process protects you from being scammed.

“The main risk would be buying a bad asset and they can help you with the due diligence. Factors like the location of the land, make it prone to land invasion. For the transaction process, does the property belong to the seller, Are there multiple legal frameworks for the property?”

In addition, as an investor, you should understand the basics, which include a survey. Take time to research the property you want to buy and don't be in a hurry as it can turn into an investment nightmare.

Do not follow the crowd, John Monyoncho, a financial adviser said at an investor education conference held in Nairobi recently.

“Everything we invest in is risky, but be aware of risks before paying. Understand what you are investing in and where you are investing. Applied knowledge is power,” he says.

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