Future trends in real estate due diligence practices in Kenya

In the ever-evolving Kenyan real estate landscape, due diligence practices in Kenya face intense scrutiny.

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In the ever-evolving Kenyan real estate landscape, due diligence practices in Kenya face intense scrutiny.

Broadly, due diligence over land involves investigating the property details, verifying the ownership, carrying out a historical and physical check and scrutinising the legal aspects affecting a parcel of land.

It aims to ensure that a bona fide purchaser makes informed decisions when buying property and subsequently safeguards the interests of a purchaser or investor.

Technology promises to transform real estate due diligence from a manual and time-consuming process to an affordable, agile, real-time, and data-driven process.

An example is Ardhisasa, Kenya’s digital land records platform launched in 2021 which has ushered in a new era of conducting due diligence. By digitising land records, Ardhisasa promises to simplify due diligence over land. Buyers can verify ownership, check for encumbrances, and assess the property history with a few clicks of a button.

The platform has not been without its challenges, but we anticipate that once Ardhisasa is rolled out countrywide, it will allow for full automation of due diligence over immovable properties in Kenya.

In recent years, tokenisation technology has disrupted various sectors globally, and the real estate sector is one of them. Tokenisation is a blockchain technology that involves the process of dividing an asset (such as real estate) into smaller, tradable units represented by digital tokens.

These tokens are securely stored on a blockchain, providing transparency, liquidity, and fractional ownership opportunities. While tokenisation hasn’t fully entered the Kenyan market, global trends suggest it’s only a matter of time.

Due diligence in tokenisation will involve the integration of advanced data analytics to assess the performance of tokenised real estate assets, providing valuable insights into market trends and risks.

Artificial intelligence will play a crucial role in automating the processes of analysing vast datasets enabling investors to make informed decisions by predicting market behaviour of the tokenised real estate assets.

As the adoption of blockchain grows in Kenya, enacting an enabling regulatory framework will also play a pivotal role in shaping a resilient and inclusive real estate sector.

Real Estate Investment Trusts (REITs) are another investment vehicle already in the Kenyan market. Reits operate like mutual funds,  pooling capital from numerous investors in a trust and using it to acquire, operate or finance income-producing properties for beneficiaries of the trust.

Future due diligence practices in Reits will involve in-depth analysis of property portfolios, through advanced analytics to predict growth opportunities. Buyers and investors will conduct financial evaluations that go beyond traditional metrics, focusing on sustainability and utilising predictive modelling to anticipate risks.

Assessments of Reit managers, promoters, trustees, as well as property managers will be enhanced through data-driven insights, while opportunities will expand for experts to be consulted on these aspects.

Going forward, technology will take centre stage in shaping the future of due diligence practices. With the digitisation of land records, automation of data collection and analysis, risk assessment of the immovable property is likely to be simplified and made efficient, facilitating quicker and more comprehensive due diligence mechanisms including accessing data on the historical root of an immovable property.

With digitisation and automation, robust cybersecurity measures and strict data protection and privacy policies will be crucial. A transformative change is expected in the future where technology and data will drive real estate due diligence practices aimed at accuracy, efficiency and speed.

Amrit Soar is a consultant in the Real Estate and Finance Practice Group at DLA Piper Africa, Kenya (IKM Advocates), Grace Gitau (Associate) and Edwin Gakunga (trainee lawyer) in the same practice gave additional input into this article.

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