An asset is that which brings you income, house, as a roof over your head, does not bring income
By April K. Mbalu
A true Kenyan of the blood, huwa hashikikii, after buying a house through some miracle from a long-bearded Prophet in the Old Testament.
They never tire telling anyone who cares to listen how “I now live in my own compound, thank God, landlord tuli malizana!”
The more arrogant are
fond of telling those who rent in high rise flats how “I now flush my own
The reason is that majority of Kenyans work their butts off to save enough money and become home owners. A home could be bought off-plan or on the market. Most afford the off-plan option due to discounted prices.
Other Kenyans opt to erect their homes from scratch on a parcel of land, more often than not, very far from tarmac and without water, electricity and where they’re both the security provider and consumer.
The ploti (maguta! maguta!), purchased through a running nose with a Sacco loan which is repaid in painful installments, could be 30 kilometres from Kamulu and thus without utilities such as sewer, septic tanks, paved roads, internet and paid TV services.
The fact remains, owning a house is one of the costliest asset classes for most people in Kenya where only one in 50 people can afford a mortgage according to the Kenya Integrated Household Survey 2015/16 which also revealed that over 80 percent of Nairobians pay rent.
Of those who live in their own houses, one in 20 families inherited or were given like most Nairobians living in City Council houses in estates such as Kariakor, Huruma, Kariobangi North, Jericho and Umoja.
Either way, doing away with a pesky landlord every end month is considered a sign of success, of progress. In some communities the opening ceremony of one’s house stars a priest blessing it and the slaughter of goats, the swilling traditional liquor.
But owning a home, surveyed closely, is not an asset. You could be better off renting, imagine. An asset is that which brings you income. A house, as a roof over your head, does not bring income.
Most Kenyans buy homes financed through Sacco and bank loans. Or through disposing other assets. Like selling off your 40×80 plots along Kangundo Road and which you had acquired before the 2007 elections.
It could be a mortgage masquerading as a house in Nyayo Embakasi Estate- incurring maintenance costs, interest payments and taxes- money you will never see again
But think about it.
When you buy a Sh10 million house whose loan you’re servicing with interest means you don’t own a house-you own a Sh10 million loan in concrete. Others own a mortgage masquerading as a house in Nyayo Embakasi Estate- incurring maintenance costs, interest payments and taxes- money you will never see again.
But doesn’t owning a home save the owner from paying monthly rent, you might argue?
Well, that could be true. It may help save money, but it won’t help you make money!
What about buying a house then renting it out?
Well, the buying price of an apartments is rising higher but rental prices have stagnated in most parts of Nairobi and its environs, according to the 2019 Hassconsult report which adds that apartment’s glut has led to a decline in rental yields as tenants prefer cheaper houses outside Nairobi in areas such as Banana, Gachie, Gatina and King’eero (the name means slaughter).
A house can only be an asset if: You rent it out for more than you’re paying rent elsewhere. Sell after it appreciating in value then downgrade residences. Use it as collateral for acquiring another property. Turn it into an office, daycare centre, kindergarten, AirBnB or storage space. If you have a backyard, grow food or keep dairy cattle and sell the proceeds.
But it appears there are more reasons why it’s better renting than buying a house. Here goes…
When the location of a house is not a plot, a tenant just moves houses
Location: When the location of a house is not a plot, a tenant just moves houses. The same is not the case with a home buyer and who can hardly control how a place later develops. Those Kenyans who bought apartments at Sunset Boulevard estate in Athi River, Machakos County, have to contend with a slum that sprouted nearby, really an eyesore. There is also a dusty road that keeps off potential tenants, a river that floods making access a nightmare besides water causing electric shocks. Others who bought apartments at Greatwall Gardens, Syokimau, have to contend with smelly factories.
There are Kenyans who bought land in Syokimau only for the government to demolish the erected houses for being on land belonging to the Kenya Airports Authority!
No savings: Kenyans who buy town houses north of Sh50 million don’t save any money by being home owners. Consider. With Sh50 million you can pay Sh50, 000 monthly rent for 83 years. So a buyer is not acquiring such a house to save on rent for that long! It is just a nonsensical ego driven buy. In the meantime, you’re on the hook for maintaining, repairing and upgrading the home.
Opportunity cost: Buying a Sh8 million house and renting it out for Sh40, 000 in monthly rent means taking 16 years to recover the money. There are other asset classes with a faster return on investment like buying shares at the Nairobi Securities Exchange (NSE). Factors like crime, traffic, unemployment, or a surplus in homes can cause depreciation in value. But then again, some argue that the house would have appreciated in value over those years? Yes. And so do other assets like stocks or a small business.
A four bedroom home which you own ends up attracting your cousin who lost her job
African socialism: Owning a house means you are more financially blessed than others, mostly relatives. A four bedroom home which you own ends up attracting your cousin who lost her job and moves in with you in one of the space rooms until Jubilee creates the 500, 000 jobs it promised. This brand of African Socialism means loss of privacy and extra expenses shouldering family and relatives. Family circumstances are unpredictable. Your wife had two kids which were enough for your three bedroom house then she gives birth to triplets. The house that was made to measure becomes too small-or too big-when they later grow and move out!
Insularity: Owning a home may give you privacy, but renting can be a way for you to meet new people, gain new experiences, and maybe even make a life-long friend. Roommates are like built-in friends — you can rehash a bad date with them, share a meal, and split the cost of your cable bill.
Stress: With all this talk of property taxes, home depreciation, and costly maintenance, it’s no wonder that many new homeowners report being stressed about their homes. They have to check whether cement is being stolen by fundis. Even if potential homeowners do their research before committing to buy, they never really know what their home is like until they move in. But many regret, wishing their home was bigger or had a different layout. Shoddy workmanship can raise blood sugar levels as owners of Everest Park Apartments in Athi River found out when they were declared unfit for human habitation. The apartments have since been repaired but figure the stress of the owner who bought via a bank loan!
No income: A house used as a primary residence generates no cash flow on the asset as you wait for it to increase in value. Your tenant could be better off investing in stocks and balanced or mutual funds- which have dividends- as you wait to sell your hose at a future date and for a higher price. The way things are like in Kenya today, that might be a long shot!
Illiquid: Connected to opportunity cost is that not so small matter of illiquidity.It is not easy having access to the Sh10 million you splashed acquiring a home. You have to sell it first. That means hiring real estate agents and waiting for a buyer who will drive a hard bargain while foaming at the mouth. But a tenant who invests the Sh10 million in a Sacco not only has interest in annual dividends, but can also access the money in a week’s notice.
While it’s easier to dispose apartments, the same cannot be said of a four bedroom house on Kangundo Road
Under siege: Your new home may be the house of your dreams, but the surrounding neighborhood and people can make your life a breeze or a nightmare. Tenants have no such stress including dealing with nasty neighbours even in a gated community. They can move houses!
Hard sell: While it’s easier to dispose apartments, the same cannot be said of a Kenyan who has built a four bedroom house in Kantafu area of Kangundo Road. Buyers of such houses can also afford to erect theirs. And even if you get a buyer, there are Capital Gains Tax and legal fees to consider.
Trapped equity: If the hood is not conducive and you desire to move out only means trapping more money in buying another home. Others argue one can borrow against the house which puts more cash in your pocket for purposes unrelated to the house, but it also creates a corresponding liability of being in debt with the house as collateral. Selling and moving to a rental situation beats the whole purpose of having bought the house in the first place, besides the social stress of downgrading!
Risky: Individual housing tends to be a risky investment with poor returns, but it does appreciate over time, leaving many people to believe it was a good investment. But those who bought houses with Suraya Group are now crying in the toilet alongside those who acquired apartments at Sunset Boulevard where the developer took loans on the sectional title deeds and the home owners were left dealing with the financiers. The tenant, without heartburn, simply moves elsewhere!
Millennials: They don’t need to own houses since that means locking them in a particular location for a while. Most are in the ‘gig economy’: social media managers and Interface Customer Experience gurus and thus job hop around and don’t need to buy a house but rent where the Gig Economy takes them. These are the future parents who won’t need to buy houses, so even if your house appreciates in value, the Millennial buyer will prefer renting and demand in-house fridge, cooker, microwave, a functional sitting and dining area before moving in!
No shared services: Buying a stand-alone house means footing bills for the gardening, lighting, security, cleaning, sewerage, garbage collection, repairs and general maintenance. Buying an apartment reduces the costs through shared services and thus reduced service charge, but then that could mean living in an apartment without privacy and contending with nasty neighbours.
Burying money in land: Erecting a house in a stand-alone parcel of land means first burying money in a plot. This attracts seeking professional help in drafting the sale agreement, doing the land title searches, conducting a valuation study, and filling land transfer forms. After that you need more money to build the house…only for the house to require more land than your 40×80 plot! The tenant can invest the same in some business instead.
Space: Unlike a tenant who rents according to need, buying a house can come with filling more space you did not need.
Buying a house could be for pride. Or paying for the privilege of living there, but it’s not an asset.
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