Buying an old maisonette or apartment in an upmarket area, but for a song, sounds like a good investment deal, especially to Kenyans who could not afford such houses years ago.
However as more old posh homes sold at low prices come onto the market in Kenya following the aftermath of the harsh economy, very few are being snapped up.
The high numbers especially in posh estates are also diminishing the value of other houses. Why would a buyer pay Sh110 million for a house in a neighbourhood that has four or five houses being sold for Sh70 million and may require minor renovations?
George Mbagu, a transfer agent at Immediate Auctioneers in Nairobi says even auctioneers are finding it hard to sell such properties even if they are priced favourably low.
“Investor interest in distressed homes and properties is currently low given the current economic situation,” he says.
Most of the distressed homes are sold by banks through auctioneers.
For instance, in Karen, a repossessed three-bedroom maisonette can cost Sh45 million to Sh50 million, which is about Sh30 million less if a buyer had bought it years ago. In Nairobi’s Garden Estate, some distressed properties sitting on an eighth of an acre of land are selling for about Sh35 million to Sh50 million while in Buruburu one can get a three-bedroom maisonette for Sh7 million to Sh8 million. In South B or C estates a similar house can cost Sh10 million.
Robert Simiyu, a Nairobi real-estate consultant says distressed homes are those whose owners are in some form of ‘distress’ necessitating a quick sale.
Those who sell distressed homes do so, not because they have a choice, but rather because they have to offset what they owe a mortgagee or a lender.
Robert says because the homes require to be sold very fast, buyers have an advantage of a considerable sway in pitching a bargaining price. Some homeowners sell them at 30 percent lower than their current value.
Is it a worthy buy?
Although buying a distressed house can hasten the process of home ownership especially in areas that are too expensive, one has to consider the renovation costs.
This depends on the damage on the property and the additions the new investor desires. In cases where a bank is selling an incomplete house, a buyer may require a lot of money to finish constructing it than buying an old home to be renovated.
“A buyer can be lucky. Sometimes a distressed house could be relatively new, perhaps even only a few years old and therefore requiring very minimal renovations,” Robert says.
Real estate experts advise exercising due diligence when buying.
“You may buy a property not realising that it had been built using a loan or used to secure a loan elsewhere and not all members of the household know about this, leading to wrangles between you and the rest of the homeowner’s family.”
One should also analyse the location of the home being sold and ensure it fits their budget.
Nairobi and Mombasa, the experts say, have the biggest concentration of distressed homes.
Even so, the experts say, distressed homes are still a worthwhile investment because they are cheaper to purchase, many of them are located in prime areas, they are already de-risked at the time of sale therefore relatively safe from any pending liens, and importantly, most are in pretty good condition requiring minimal or no renovations.
Felix Onyango, a property valuer and CEO of Nairobi-based real-estate consultancy firm, Dominion Valuers says the distressed homes market can only thrive in a robust real estate industry.
“Currently, the industry is in a sort of slump, so the prospects of buying a house at lower prices, say, in an auction, then refurbishing and reselling it at a higher price are a bit low,” says Felix.