Real estate financing options available to Kenyan home buyers

There are several financing options for those seeking a piece of the real estate pie.

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Regardless of the reason behind your dream home financing hitches, your road to success in the real estate sector will require you to do a proper analysis before settling on an option to ensure you achieve your dreams.

Most people join investment clubs to pool resources while others go for mortgages or buy land in areas with potential for growth and hold onto them until the value goes up as some embrace flexible payment options and collaborate in construction work.

This shows that investing in real estate is capital intensive, and therefore, the need for stakeholders to come up with innovative financing solutions.

Real estate finance entails analysis, planning as well as management of financial resources, specifically connected to the sector, commercial loans, and properties.

While one can buy a property in cash another can tap into capital from people in their network, or personal connections. However, it is always smart to go the real estate finance route.

The advantage is that you are at liberty to negotiate interest rates and payback periods.

In Nairobi Metropolitan area, for instance, a realistic loan size would range from Sh6 million to Sh10 million.

Not many consumers can afford to part with millions of shillings at a go when an opportunity pops up.

If a customer is unable to make a downpayment of 10 to 20 percent of a property value to secure an investment deal, adjustable financing – which usually starts with lower interest rates and monthly payments – would make sense.

However, when there’s interest rate volatility, especially in a market such as ours, real estate companies are better off exploring fixed-rate financing.

When a loan is “fixed” a property could end up costing less in the long run as sudden changes in terms of expense are out of the equation. This tactic mostly guarantees investment firms the much-needed security across their portfolios.

Players in the real estate sector need to come up with innovative financing solutions to cushion customers from the usual financial burden that comes with purchasing high-value assets such as a house, office, or even land.

In the United States, for instance, some buyers have used a Home Equity Line of Credit, commonly called a HELOC loan which works as a credit card.

According to Bank of America, such loans can be used on large expenses or to consolidate higher-interest rate debt on other loans.

Kenya could come up with its own HELOC loan to provide opportunities, especially to consumers who are cash-poor, but asset-rich. It is a case where a buyer borrows against the available equity in his/her home.

Real estate investment trusts, popular as REITs also present opportunities. These are companies that own, operate, or finance income-producing real estate across a wide range of property sectors.

This option allows stakeholders to earn income from real estate without having to independently buy, manage or finance the purchase of properties.

Developers can also partner with lenders to provide inclusive facilities that would accommodate a majority of investors to purchase homes.

The writer is head of sales, Superior Homes Kenya

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