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Land Speculation Remastered
Rank: Elder Joined: 5/27/2008 Posts: 3,760
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What role did pirate money play in the upswing of land/property prices? If the Somali situation is normalized, what will happen? What has happened since KDF went in and cut off supply of dollars into our economy? Is it true to say that a big proportion of price rise can be attributed to Somalia?
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Rank: Member Joined: 6/17/2010 Posts: 572
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mkonomtupu wrote:The Associate wrote:Being an Economics and Statistics student, I have always thought whether there is a passive investment where one can make money apart from stocks and owning rentals. Land speculation seems to be the answer. My little research revealed that most wazuans made their first million after selling land 'How you made your first million'. The only drawbacks are the huge capital outlay and the illiquidity of the investment. With the ability to decipher statistics from the Kenya bureau of statistics, it is time some of this data was put into good use by a mwananchi. The data could be instrumental in helping one to locate areas with the highest population growth. Land is a fixed resource and the population grows exponentially. This means that the pressure on land will continue until a time when there will be no or negative population growth which is very unlikely to happen in the next twenty years. In some places, prices have been seen to double annually. I believe that when armed with vast knowledge in land and urban economics, coupled by a team of competent staff e.g good scout, perfect online researchers and a lawyer who understands conveyancing, one can make a fortune from this. Land is better than stocks because in Kenya, if you speculate wisely, it has better return on investment and next to no risk.Whats more, you can lease the land at a fee as you wait for it to appreciate. With such returns around http://www.businessdaily...6/-/1rlkte/-/index.html and http://www.a4architect.c...d-nairobi-2000-to-2013/ I believe that one ought to master the art of land speculation for better returns than stocks over the medium term. NSE market capitalisation is now more than 50% of the Kenyan GDP that is just 50 odd companies so how is land better than stocks.  Land as asset in Kenya is overvalued due to imperfect information like upcoming roads projects but there is very little value addition. In Kenya the period from 1990 to 2000 the prices of land were largely stagnant. You may end buying overpriced assets like the Japanese in the 1986-1991 asset bubble. Price is what you pay value is what you get while i agree that there will be no bubbles bursting in the kenyan realty market, what i have observed is that the current prevailing practises in the realty market is set on a self destruct course whereby the current overpricing in the market will spur change in attitude towards realty ownership to that of realty rental, if you ask me, i must say realty ownership is overrated in kenya, take this scenario for instance, one is faced with the option of buying an apartment at nyayo for 6.5m or putting the cash in a 12yr govt bond at 11% p/a, would i buy the apartment cash or go for the bond? i would go for the bond and choose to pay rent at nyayo using the interest only, being that i feel 6.5m is to much, on the other hand 6.5m would yield me 715k p/a in interest, if we were to deduct 15% witholding tax i would be left with 607k which translates into 50k monthly which would pay for the 30k rent per month at nyayo and 2k service charge and still have change for utilities and monthly shopping plus i could easily move to another place easily. to get back to the topic, speculators, sellers and developers for sale are systematically killing sustainability in the realty market by the current overpricing they are setting themselves up for massive failure as very very few chaps can keep up with the prices of realty in kenya 'One headache for famous medieval holy people was that someone might murder you to acquire your body parts for the relics trade'
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Rank: Veteran Joined: 2/21/2012 Posts: 1,739
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Ash Ock wrote:webish wrote:murchr wrote:
When the real estate bubble bursted in the US it was because people took up loans that they weren't able to pay. How will this bubble burst in Kenya? Are people taking up loans or are they paying cash?
Good Question. Actually, a very misleading question, just as misleading as the housing demand statistics being bandied around. Whether the purchases are financed by loans or cash doesn’t even come close to explaining what drives an asset bubble. How and where the speculators get their financing is an absolute pointless question. The driving factor for speculating in real estate is exactly the same as in any pyramid scheme. In property bubbles (US, Kenya, Spain, what-have-you), greed for massive profits is/was the driving factor, exactly the same emotion which fueled the DECI and co. schemes. Rational thought was thrown out the window. Bubbles are always driven by emotions which are unsustainable, pure and simple. At the NSE, the KQ and SAFCON IPO’s were prime examples of speculative greed and mass hysteria at play, just as we are witnessing in real estate. Note: taking a4architect’s estimation from his site, “ A median estimate of 25% price appreciation for high cost land around Nairobi can be safely guestimated” and plugging in the average land price of KES 35’000’000.00 (2013) per acre in Karen, in 2030, the average price of an acre would be KShs. 1.5b. Definition of “Greater Fool Theory” from BusinessDictionary.com: “Observation that any price (no matter how unrealistic) can be justified if a buyer believes that there is another buyer who will pay an even-higher price for the same item. This line of thinking causes and fuels stockmarket and commodity market booms and manias which, in due course, lead to busts and paranoias.” @Ash ock. Nice analysis, but do you Personally think that come 2030; 1) An acre of land (in whole) will be available in Karen(using your location example)? 2) There will be a Person willing to part with the amount you have stated, If it (acre) is available? Do not be anxious about anything, but in everything, by prayer and petition, with thanksgiving, present your requests to God..
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Rank: Veteran Joined: 1/4/2010 Posts: 1,668 Location: nairobi
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generally, govt is supposed to use tax to lay more infrastructure hence create a larger Karen so that demand doesn't outstrip supply. In Kenya since there is very little infrastructure devt by govt, demand keeps rising. It will rise until breaking point, most likely a libya/syria anarchy revolt situation. After this, kenyans will learn the importance on relying on scientific research to come up with home grown land /fiscal economy solutions. Wazuans in USA, please confirm that average price of land per acre in USA is kes 300k as described below http://www.bloomberg.com...4-to-2-900-per-acre.htmlAs Iron Sharpens Iron, So one Man Sharpens Another.
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Rank: Elder Joined: 6/23/2009 Posts: 13,475 Location: nairobi
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avoid Kitengela land like the plague
HF 30,000 ABP 3.49; KQ 414,100 ABP 7.92; MTN 15,750 ABP 6.45
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Rank: New-farer Joined: 6/27/2011 Posts: 63
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I personally dont think 1.5b is unreasonable for Karen in 2030. Consider the price of an acre in Nairobi CBD and what the price was 30 years ago.
I personally believe that there might be a bubble, but doubt that it will burst or even if it did, there will be a noticeable effect on the price.
IMHO demand for land is primarily being driven by:
1) Population pressure- which as pointed out grows exponentially.
2)Growth of urban areas/rural to urban migration: This applies to urban areas more than rural which are bound to grow if for nothing else other than population growth. When you factor in the perrenial shift of people looking for better opportunities, this is compunded.
3)Increasing purchasing power: I am sure at least based on car trafick alone one can infer that this has been increasing exponentially especially after year 2000. Whatever the reason I think Kenyans on the whole are a richer lot. I spoke to a developer making million dollar houses in Lower kabete and he told me he sold them all off on cash basis to indegenous Kenyans off plan.
Land supply on the other hand is fixed.
This has the effect of pushing prices up.
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Rank: Veteran Joined: 7/22/2011 Posts: 1,325
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[quote=a4architect.com]generally, govt is supposed to use tax to lay more infrastructure hence create a larger Karen so that demand doesn't outstrip supply. In Kenya since there is very little infrastructure devt by govt, demand keeps rising. It will rise until breaking point, most likely a libya/syria anarchy revolt situation. After this, kenyans will learn the importance on relying on scientific research to come up with home grown land /fiscal economy solutions. Wazuans in USA, please confirm that average price of land per acre in USA is kes 300k as described below http://www.bloomberg.com...-to-2-900-per-acre.html[/quote] To answer your question, land and housing prices in the US depend on location. I wont comment much on the article coz it talks about farming land which is entirely different from residential land, but the logic of location holds for both. Land and houses are generally very expensive in the North East ( NY, NJ, MA,) and in the West(CA, WA) but tends to be very cheap in the Midwest and the south ( GA,LA,TN,AL). Bankruptcy has also made places like Detroit very cheap, at the peak of the crisis, you could buy a house for $1, but it came with a lot of headache. Surprisingly, you can get relatively cheap land or houses nearby the expensive metropolitan areas. For example, there are very cheap houses in PA, which is 2 hours commute from NY, but the closer you get to NY, the prices shoot up astronomically.
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Rank: Elder Joined: 2/26/2012 Posts: 15,979
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a4architect.com wrote: generally, govt is supposed to use tax to lay more infrastructure hence create a larger Karen ( I'd rather other Karens, a larger Nrb has proved to be a disaster, why not take these demands elsewhere?)so that demand doesn't outstrip supply. In Kenya since there is very little infrastructure devt by govt, demand keeps rising. It will rise until breaking point, most likely a libya/syria anarchy revolt situation. After this, kenyans will learn the importance on relying on scientific research to come up with home grown land /fiscal economy solutions. Wazuans in USA, please confirm that average price of land per acre in USA is kes 300k as described below http://www.bloomberg.com...-to-2-900-per-acre.html World over, prices of real-estate are higher where the resources are concentrated. In the US forexample, the prices are higher in the NE and the west coast just as Nabwire has stated, then in the middle, the price kinda goes down now i dont know if its by design but it so happens that most states in the middle have large farms. People can live anywhere and establishments can be set up anywhere its time to Kenya is opened up then prices in Nrb can stabilize "There are only two emotions in the market, hope & fear. The problem is you hope when you should fear & fear when you should hope: - Jesse Livermore
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Rank: Member Joined: 1/1/2010 Posts: 511 Location: kandara, Murang'a
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option of buying an apartment at nyayo for 6.5m or putting the cash in a 12yr govt bond at 11% p/a, would i buy the apartment cash or go for the bond? i would go for the bond and choose to pay rent at nyayo using the interest only, being that i feel 6.5m is to much, on the other hand 6.5m would yield me 715k p/a in interest, if we were to deduct 15% witholding tax i would be left with 607k which translates into 50k monthly which would pay for the 30k rent per month a The 12 yr bond is TAX FREE. Foresight..
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Rank: Veteran Joined: 2/21/2012 Posts: 1,739
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obiero wrote:avoid Kitengela land like the plague @Bro Obiero, How did your Issue at Kitengela end BTW? Do not be anxious about anything, but in everything, by prayer and petition, with thanksgiving, present your requests to God..
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Rank: Veteran Joined: 10/9/2006 Posts: 1,502
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It's wrong comparing Japan land bubble burst and kenya. In kenya land will continue to increase in value for many years to come. Population increase, rural-urban mig,economy growth among many factors . Taxation isn't a practical solution. The best means to curb exponential price increases is very simple. Improve infrastructure. work to prosper
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Rank: Veteran Joined: 1/4/2010 Posts: 1,668 Location: nairobi
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Nabwire wrote:[quote=a4architect.com]generally, govt is supposed to use tax to lay more infrastructure hence create a larger Karen so that demand doesn't outstrip supply. In Kenya since there is very little infrastructure devt by govt, demand keeps rising. It will rise until breaking point, most likely a libya/syria anarchy revolt situation. After this, kenyans will learn the importance on relying on scientific research to come up with home grown land /fiscal economy solutions. Wazuans in USA, please confirm that average price of land per acre in USA is kes 300k as described below http://www.bloomberg.com...-to-2-900-per-acre.html[/quote] To answer your question, land and housing prices in the US depend on location. I wont comment much on the article coz it talks about farming land which is entirely different from residential land, but the logic of location holds for both. Land and houses are generally very expensive in the North East ( NY, NJ, MA,) and in the West(CA, WA) but tends to be very cheap in the Midwest and the south ( GA,LA,TN,AL). Bankruptcy has also made places like Detroit very cheap, at the peak of the crisis, you could buy a house for $1, but it came with a lot of headache. Surprisingly, you can get relatively cheap land or houses nearby the expensive metropolitan areas. For example, there are very cheap houses in PA, which is 2 hours commute from NY, but the closer you get to NY, the prices shoot up astronomically. @nabwire..thanks. I wanted price per acre for both farmland and cbd land for comparison. In kenya, farmland is around kes 100k per acre and cbd land is around 250m per acre. What of usa? The article says kes 250 k per acre which sounds too low for usa. This means alot of middle class kenyans can afford farmland in usa if its true. Exactly how much is an average 1 acre plot in USA for farmland and CBD? Looks like kenyan prices could be higher. As Iron Sharpens Iron, So one Man Sharpens Another.
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Rank: Member Joined: 8/17/2011 Posts: 207 Location: humu humu
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gatoho wrote:option of buying an apartment at nyayo for 6.5m or putting the cash in a 12yr govt bond at 11% p/a, would i buy the apartment cash or go for the bond? i would go for the bond and choose to pay rent at nyayo using the interest only, being that i feel 6.5m is to much, on the other hand 6.5m would yield me 715k p/a in interest, if we were to deduct 15% witholding tax i would be left with 607k which translates into 50k monthly which would pay for the 30k rent per month a
The 12 yr bond is TAX FREE. Your analysis is incomplete..it fails to incorporate value of the property after 12 yrs.what about rental yields?
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Rank: Veteran Joined: 7/22/2011 Posts: 1,325
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This is what I found on Google for farmland http://usda01.library.co...riLandVa-08-03-2012.pdf
Residential land is relative and changes depending on crime rate, proximity to schools, whether the neighborhood is in the inner city or suburbs, quality of school etc. Kenyan prices are definitely higher, but remember the US has many Nairobi's so demand is spread out to many different cities. I wouldn't say that Kenyans can easily afford farms in US coz farming is done commercially, unless you want to do subsistence farming, commercial farmers usually own thousands of acres. Keep in mind that these are family owned farms so they have built a loyal customer base, as a new farmer it will be next to impossible to break in. Also since farming is done on a large scale basis, you will need to invest a lot on machinery, so just because the land itself is cheaper than Kenya, doesn't mean that farming is affordable. Also the US farmer gets subsidies from the Government, as a foreigner you will not enjoy these perks and your business will be driven out. On prices, there is no exact number, as you can see on the link, different states have different prices. Though land pricing is not as volatile as Kenya.
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Rank: Veteran Joined: 1/4/2010 Posts: 1,668 Location: nairobi
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@nabwire..thanks. We can agree that land in Kenya is more expensive than land in USA. The difference is that in USA they have land value/idle land taxation while in Kenya, the tax regime encourages land speculation. The solution to this high land appreciation can only be cured if the land commission implemments the idle land taxation as stipultated in the constitution. Yesterday i visited a site where the client bought the land , 1/4 acres in 2007 at kes 400k. The land currently is valued at 2.8m. This is represents 100% value appreciation per year. This is insane and the govt should step in and stop it because sooner or later, the land will be too expensive for the average kenyan, leading to serious anarchy. As Iron Sharpens Iron, So one Man Sharpens Another.
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Rank: Elder Joined: 3/19/2013 Posts: 2,552
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Demographics is a factor in current and future land prices.Economic conditions highly influence future demographic trends.Current economics conditions are shaped and determined by people.
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Rank: Elder Joined: 3/18/2011 Posts: 12,069 Location: Kianjokoma
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Gordon Gekko wrote:What role did pirate money play in the upswing of land/property prices? If the Somali situation is normalized, what will happen? What has happened since KDF went in and cut off supply of dollars into our economy? Is it true to say that a big proportion of price rise can be attributed to Somalia? I think Kenyans' incomes have also increased rapidly in the last 10 or so years Around 2003, a building in town owned by a state corporation had like 2 vacant floors. By 2007, potential tenants were bribing caretakers to get space! Number plates for vehicles: we thought motor cycles were the cause of our fast move to the next alphabet. We removed them plus tractors...we're now in KBW... Wakenya wana pesa. In one of the towns rent was 5-6k for 1 bed 5 years back, today it's 16k what puzzles me is that salaries for most fellows are not that high to afford all these things but we still see the prices skyrocketting and land parcels being snatched while we complain about how over-priced they are!
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Rank: Veteran Joined: 1/4/2010 Posts: 1,668 Location: nairobi
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@  ..could piracy money be the reason for this? As Iron Sharpens Iron, So one Man Sharpens Another.
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Rank: Member Joined: 8/27/2010 Posts: 495 Location: Nairobi
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a4architect.com wrote:@ ..could piracy money be the reason for this? Not piracy money. This: Sh300 Billion Govt Expenses Unaccounted in 2011-12In any "normal" functioning economy, only a few people can afford to purchase Ferrari's. Even fewer can afford Bugatti's. But the high price of a Bugatti should never be able to distort the price of an NZE. Sent from my Black Nokia 3310
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Rank: Member Joined: 8/17/2011 Posts: 207 Location: humu humu
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My worry is that a lot of investments is been channeled to property development(by every tom dick and harry) not wanting to miss on the boat, and very little to manufacturing. Perhaps that explains why small manufacturing (rare) in cosmetics,plastics,and textiles are churning out millionaires,since competition has been driven to real estate.Well real estate is less risky,offers steady returns and numerous success stories have shepherded billions of shillings into this area.. but as a country we fail to see the bigger picture. By failing to incentivise manufacturing and industry we miss out on large scale gains that could significantly reduce poverty..Iam guilty myself, since i have invested 80% of my portfolio in R.E..well,at a personal level its understandable since my R.E return > than my humble salary.
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