A Guide for Buying Property in Kenya for Foreign Investors and Kenyans in Diaspora

 

Introduction

Kenya’s macroeconomic performance remains favorably stable, with significant investments in real estate, building and construction, agriculture, renewable energy, and infrastructure supporting sustained growth projections.

Foreign nationals are increasingly buying homes in Kenya’s coastal towns, such as Malindi and Kilifi. These buyers are mostly Italian, Swiss, German, British, and French. Foreign nationals working in multinational companies, embassies, and international agencies such as the UN are also increasingly buying homes and leasing serviced apartments. Still, there is a growing demand for commercial spaces and offices by multinational companies and start-ups.

The Kenyan government is committed to increasing the supply of decent and affordable housing through its Affordable Housing Programme, a project aimed at implementing Article 43 of the Constitution of Kenya, which entitles every person to the right to accessible and adequate housing. The Kenyan government aims to construct 250,000 houses every year for low-income earners through public-private partnerships and providing incentives to foreign and local developers.

Further, Kenya’s Real Estate Investment Trust (REIT) market has attracted significant investment from private equity, institutional investors, and private individuals. Kenya’s real estate is highly lucrative, and buying property is prudent.

In addition, the government’s focus on food security makes agricultural land-based investments highly strategic and profitable. In addition to being a world leader in exporting tea, coffee, and horticultural products, Kenya is emerging as a leading grower and exporter of avocadoes globally. This makes Kenya a strategic hub for land and property investments through agricultural production.

Since remittances are Kenya’s highest foreign exchange earner, foreigners and Kenyans abroad should increasingly consider investing in attractive segments such as real estate. In this guide, we seek to walk you through Kenya’s property ownership process and requirements.

 

Available property investment opportunities in Kenya 

Key properties and projects attracting investment in Kenya include:

• Residential house projects;
• Commercial space for office and industrial activities;
• Industrial land investments;
• Real Estate Investment Trusts (REITs)
• Agricultural land investment.

Prices and Trends

Kenya’s real estate contributes around 15% to the country’s GDP. The prices and trends are supported by extensive infrastructural developments that have made more towns accessible.

Rapid annual urbanization at the rate of 4.4% and significant population increase, thus increasing the demand for housing solutions. The market is extremely high in Nairobi, Mombasa, Nakuru, Kiambu, Thika, Machakos, and Kisumu.

High returns in real estate, which average 25% compared to 8-13% in other sectors, have attracted more private and institutional investors.

Entry and expansion of multinationals, regional bodies, UN agencies, and international non-governmental organizations have expanded the demand for Kenya’s commercial office space.

Demand for services offices and serviced apartments has driven the demand for green buildings and increased investment in serviced apartments.

Per Hass Consult’s Land Price Index Q1’2023, selling land prices in Nairobi grew by 1.4-8.1%. The highest increases happened in satellite towns of Nairobi that house most of Nairobi’s workers. These satellite towns include Rongai, Juja, Ngong, and Syokimau. These increases show that Kenya’s property market is highly resilient and expected to grow irrespective of the hard economic times.

Nairobi suburbs such as Spring Valley and Lang’ata perform extremely well because of an increased demand for land and housing. They have adequate amenities and are close to the CBD and important commercial hubs like Westlands.

Area	Commercial	Residential
South C	Moderate suitability	Very High suitability for middle-class and high-income earners
Loresho	Low suitability	High suitability for ex-pats and high-income earners
Lang’ata	High suitability	Very High suitability for high-income earners, middle-class, and expats
Parklands	Increasingly attractive for commercial office spaces for service providers and consultancies, multinationals, and international agencies	Very High suitability for high-income earners, middle-class, and ex-pats
Westlands	Very High suitability for multinationals, commercial banking, and international agencies	High suitability for ex-pats
Kileleshwa	Moderate suitability for multinationals	Very High suitability for high-income earners and ex-pats
Ngong’	Moderate suitability for MSMEs	Very High suitability for high-income earners and middle-class households
Rongai	Moderate suitability for MSMEs	Extremely attractive for middle-class households
Juja	Low suitability for commercial spaces but highly suitable for industrial parks, agricultural production, and land for manufacturing activities	Extremely attractive for middle-class households and low-income earners
Kiambu (Waiyaki Way)	Low suitability for commercial spaces	Extremely attractive for middle-class households and low-income earners
Athi River/ Mlolongo/Syokimau	Moderate suitability for industrial uses and commercial spaces	Extremely attractive for middle-class households and low-income earners
Nakuru	Increasingly attractive for commercial office spaces for service providers (doctors, lawyers, engineers, architects) and consultancies, multinationals and international agencies, and agribusiness	Very High suitability for high-income earners, middle-class, and ex-pats

A boom in retail services driven by Kenya’s growing middle class has made malls popular and attracted international retailers such as Carrefour and restaurant chains such as Subway as anchor tenants. Popular malls include The Hub, Village Market, Sarit Center, Garden City, and Two Rivers Mall.

Industrial parks are emerging to support modern retailing, modern warehousing, and complex supply chain practices.

Speculative land buying and land banking are increasing as land prices are increasing due to extensive infrastructural development.

Based on these trends, we are strategically placed to advise foreigners and Kenyans living abroad on how to invest in real estate, buy land, develop commercial spaces, develop or buy serviced apartments, buy agricultural farms, buy buildings, develop industrial properties, lease properties, or sell their buildings and lands.

Kenya has an acute housing deficit of more than 2 million units. Foreign nationals wishing to buy land and develop housing can consult our team for guidance.

The legal considerations of owning property as a foreigner

Understand Land Ownership Types in Kenya:

There are three types of land ownership in Kenya:

1. Government land: It is land that is owned by the state.

 

1. Community land: It constitutes land owned collectively by groups and communities under customary law.

 

1. Private land: Owned by an individual or a registered entity. An individual can own land in Kenya either under free or leasehold tenure.

The Constitution of Kenya entitles foreigners to the right to own land in Kenya based on leasehold tenure for a maximum of 99 years. The lease is renewable for a similar term, with the lessor having first priority.

Foreigners have three options for owning property or land in Kenya:

• As an individual
• As a trust for the foreigner buying the land or for the benefit of another person
• Through a company where the foreigner is a shareholder.

In all three cases, the foreign national or trust or company can only own the land for not more than 99 years. Notably, foreigners require government authorization to buy and own agricultural land but do not require approval to own first-row beach plots.

Kenyan citizens can individually own land in either freehold, leasehold, or as a community. There is no limitation on the years of leasehold for Kenyan nationals.

The foreign national should consider applicable tax deductions depending on the foreigner’s home country. These include mortgage interest, management expenses, depreciation, length of holding, and repairs. These tax requirements will change based on whether the person owns the property individually, through a trust, or through a company.

Depending on the property’s location and intended use, investors should also consider zoning regulations. Some areas with high investment returns have quality infrastructure and amenities, but strict zoning regulations can affect development. Investors buying property in Kenya can book a consultation with our team to understand different zoning regulations.

 

Sectional Properties/ Apartments Ownership in Kenya

Kenya’s Sectional Properties Act 2020  allows individuals to buy and own properties or houses within apartments. The Act provides for the division of buildings into units to be owned by individual proprietors and common property to be owned by proprietors of the units as tenants in common and provide for the use and management of the units and common property. This means that an individual can have title documents, either a certificate of title for freehold tenure or a certificate of lease for leasehold tenures for their unit in an apartment, and be a shareholder in the management corporation, which consists of all unit owners. Another benefit of having title documents on a sectional property is the fact that it increases the financing options of a unit owner unit as they can easily secure financing by charging the units in favor of the lenders. Sectional properties regime has also seen the rise of vertical development on land and, therefore, optimizing the use of the limited land resources in Kenya. This increases the number of units available for homeowners. It is, therefore, good for high-population-density areas. Foreigners and Kenyans in the diaspora who intend to invest in the Sectional properties sector should consult our team for guidance on benefiting from the sectional properties law.

Off Plans Developments

What is an off-plan?

An off-plan purchase is an arrangement where the purchaser invests their money into a project or a property that is yet to be developed or completed on the promise that the property will be fully constructed within a particular time span.  The purchase price is ideally used in the construction of the project.

In Kenya, there has been a rise in off-plan developments in the real estate sector. Off-plan purchases are seen to be of lower prices as compared to the already constructed houses. In fact, the units are always marketed “as being sold below the market prices.” This makes off plans very fertile for unscrupulous developers taking advantage of innocent purchasers by taking inordinate time to complete the projects, delivering substandard work, or collapsing the projects.  Further, there is the possible risk of the units being auctioned by the financiers who charged the land in case of defaults by the developer.

We currently do not have a specific legal regime governing the off-plan purchase rather than the law of contract and the existing land laws.   Thus, off-plans are full of risks that the purchasers must counter through aggressive due diligence on the developer, the legality of the land, the legality of the company, the legality of the contract, etc.

We advise prospective buyers to engage a serious lawyer for holistic due diligence to ascertain the developer’s land ownership.

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are regulated collective investment vehicles that allow investors to pool resources and invest in income-generating activities in real estate. Some of the investments by the Kenyan REITs include office buildings, malls, shopping centers, hotels, and residential properties.  In Kenya, REITs are regulated by The Capital Markets Authority (CMA) pursuant to the Capital Markets (Real Estate Investment Trusts) Regulations, 2013.

The Kenyan REITs sector consists of 3 types, namely:

• Development Real Estate Investment Trusts (D-REITs):A D-REIT is a type of REIT in which investors pool their capital together to acquire real estate to undertake development and construction projects and associated activities.
• Income Real Estate Investment Trust (I-REITs):An I-REIT is a type of REIT in which the investors pool their capital to acquire long-term income-generating real estate, including housing, commercial, and other real estate.
• Islamic Real Estate Investment Trusts:This is a unique type of REIT that only undertakes Shari’ah-compliant activities. A fund manager must do a compliance test before investing in this type of REIT to ensure it is Shari’ah compliant.

Various advantages come with investing in REITs, including:

1. Long-Term Returns-REITs offer investors competitive returns as their performance is based on the performance underlying real estate assets in the REIT structure,
2. Liquidity-REITs offer investors enhanced liquidity compared to direct ownership of real estate assets. REITs thus enable investors to easily buy and sell units in a trust that has invested in real estate assets.
3. Consistent Income Stream– REIT structures, specifically income REITs are mandated by the law to distribute at least 80% of their net after-tax profits to their unit holders as dividends. This can provide unit holders with a stable and consistent income annually.
4. Diversification– When combined with other asset classes, REITs provide a unique diversification tool when incorporated into an investment portfolio.
5. Tax Benefits– REITs enjoy various tax considerations, making them an attractive asset class for investors. REITs are exempt from income tax except for payment of withholding tax on interest income and dividends. Additionally, REITs are exempt from stamp duty, value-added tax, and capital gain tax in some instances.
6. Professional Management-REITs provide investors access to professionals such as property managers and fund managers who understand the industry and the business and can take advantage of opportunities.

REITs are in their nascent stages in Kenya and thus are fertile investment opportunities to foreign nationals and Kenyans in the diaspora. The Kenyan REITs market requires a minimum investment of 5 million for individuals and a minimum capital investment of 100 million for trustees.

The procedure of owning property in Kenya as a foreigner/ diasporan

Briefly, the procedure of buying and owning property in Kenya as a foreign nation or a Kenyan living abroad involves several steps:

• Understanding your investment goals:

This involves knowing the purpose of the land, whether commercial, industrial, residential, or agricultural, and then understanding your budget and how you will raise the money. With these, you can decide on the appropriate location.

• Scouting for the land:

After understanding your desired land and the appropriate location, you must do physical site visits for a suitable land within your pre-defined goals.  It also lets you know if the land exists, if boundaries are properly demarcated, and whether disputes relate to that property; this is done through talking to the neighbors.

• Meeting the Seller in person:

Upon getting suitable land for your investment goals, you need to meet the seller in person. This is an opportunity for you to know who the seller(s) are and get the official documents regarding them and the property for your due diligence. You will need to ask if they are humans, as well as copies of their IDs and copies of the original title deed or lease certificate. If the seller is a company, you must get a copy of their incorporation certificate and the CR-12.

• Conduct Search:

Being in receipt of the documents regarding the property and the sale, the next step involves due diligence aimed at inspecting the title. There are various searches that you do, including an official land registry search, a company registry if the company is selling the property, a legal case search from the DCI and the Kenyan courts, and various land reports, including the Ndungu Report (Report Commission on Illegal and Irregular allocation of public land) to know if the land is public or irregularly acquired and whether there are any existing legal disputes, Survey search, to know the actual acreage of the land.  The Supreme Court of Kenya in Dina Management Limited v County Government of Mombasa & 5 others (Petition No. 8 (E010) of 2021) has elevated the bar on due diligence on land transactions by saying that a normal search on the land registry is incomplete and does not guarantee a valid title. A purchaser must investigate the history of the title to know if the title was legally or illegally acquired. The apex court’s ruling emphasizes the need for caution, diligence, and robust investigations when engaging in property transactions in Kenya. A prospective purchaser must ensure that the property is fit for all their purposes by having all applicable consents and clearances and ensuring the land is free from encumbrances.

• Negotiations with the seller:

If a buyer confirms through due diligence the land is free from any encumbrances, they can negotiate on the prices going with their earlier determined budget and source of funds.  Once parties have agreed on the sale prices, they draft an agreement containing the governing terms and conditions for the sale process. The seller’s advocate drafts the agreement, but the buyer’s advocate must review it until both parties agree on the terms. On signing the agreement, the buyer must pay a 10% deposit of the agreed sale price, with the remainder to be paid on the completion date. For the execution of the sale agreement, parties sign it; it is attested by witnesses and verified by an Advocate who verifies that parties appeared before him/her and executed the agreement.

• Transfer of the Property (Registration of the title):

The actual transfer of the buyer’s purchased interest only happens when the title documents are deposited and registered with the Registrar of Lands under the State Department for Lands in the Ministry of Lands, Housing, and Urban Development. All the government fees, including the land rates, rent, and the stamp duty tax, must have been paid before transferring the title. Documents are considered to have been paid stamp duty when franked by the relevant authority to endorse that the duty was paid or exempted.  At this stage, the balance of the purchase price is also paid once the seller’s advocate gives the buyer’s advocate all the completion documents to affect the transfer.   Once registration is complete, the buyer becomes the official owner, and a new title deed is issued in their name. Conducting a second round of Search and Certified Green-card requisitions after the title deed has been registered in your name to confirm accurate registration of your details as the new owner of record for the land you have successfully purchased is prudent.

• Put land into intended use:

Once the buyer has the title documents under their name, they can move forward with their objectives. This will also include seeking the relevant approvals from relevant agencies to change land use and obtaining the relevant permits and licenses from relevant government agencies.

Key Points to always remember in buying property in Kenya.

 

1. Engage a qualified and competent lawyer throughout the process. Land fraud is a very elaborate and deep scheme in Kenya.
2. Ensure you conduct robust and historical due diligence on the particular land and its sellers before proceeding with any process.
3. Engage a qualified and skilled Surveyor: They will give you the appropriate acreage, survey maps, mutation forms, etc., to know the validity of the land genuinely.
4. Never pay a deposit of more than 10% of the purchase value: To cushion yourself from any possible fraud scheme, only pay a small deposit of the agreed purchase price.
5. Never pay the seller directly; use the advocate account upon issuing a professional undertaking or an escrowed account. This ensures you do not pay the seller until all the agreed conditions have been met, thus safeguarding your money.
6. Only pay when the conditions have been met, or the land has been registered in your favor.

 Caution from Njaga & Co Advocates

This document offers a broad overview of the property purchasing process in Kenya, highlighting potential due diligence steps. It’s important to note that this information is intended for general consumption and does not serve as professional legal advice. Should you require in-depth and personalized guidance on property acquisition in Kenya, we urge you to contact us using the contact details provided. Our real estate law experts stand ready to assist you in navigating the intricate and often complex terrains of conveyancing.