Homeownership is one of the most pivotal points in life, the motivation for owning a home is either to be a source of security and safety or can be an investment option. According to the Nairobi Metropolitan Area Residential Report 2022 by Cytonn, only 21.3% of the Kenyan population are homeowners. This has been attributed to various factors, such as; high property prices with low incomes in the country, mortgages with high interest rates, lack of credit information for those in the informal sector- leading to their exclusion from credit facilities, and the high costs of construction materials.
There are two ways to go about owning a home; you can either buy an already built house or you can decide to build yours from scratch. Making this decision can be tough and needs a crucial understanding of both options. In this blog, we look at building a means of homeownership, the advantages and disadvantages, how to finance building a home and conducting due diligence.
Factors to Consider When Purchasing Land to Build on
Before purchasing land, it is important to think carefully about the following factors
- Ensure that the property you are purchasing is in a strategic location, this will help you if you wish to re sell the later
- Ensure that you are also purchasing the property from the actual owner and they have sufficient documentation to support this. Always conduct due diligence
- Avoid exploitation by conducting a thorough investigation of the prices of the nearby properties and compare prices to make sure that you are getting a good deal.
- Make sure the title deed is freehold to establish who owns the property and to prevent future land regulation.
- Ensure that your plot of land is located near amenities like water, electricity and good roads. This will make your home more comfortable.
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Advantages of Building
- Customization – When you construct a home from the ground up, you may alter every aspect of it to suit your preferences and way of life, including the layout, the cabinets and floors, the sinks, the lighting, and the doorknobs.
- Less competition: After purchasing the land, you won’t have any opposition in building your ideal home. However, you will have to compete with other home builders and pay more for scarce building materials and labor.
- Better energy efficiency: Energy efficiency is taken into consideration while building new dwellings. You can choose to prioritize sustainable design and green architecture in your home and future if you are worried about your environmental effects.
Cons of Building
- Financing that is more expensive: Due to the lack of collateral, land loans may be more difficult to get and frequently have higher down payments and interest rates as insurance for the lender.
- More effort and time is required for home construction. It will take a lot longer than just purchasing a house and moving in. Overall, it will be more stressful, but with time you’ll end up with the home of your dreams.
- Delays and unanticipated charges: Although you might get a cost estimate up front, it’s common for costs to change throughout the project. Cost overruns and delays are almost certain. Because of the increased construction costs in the country, construction materials may cost more than you anticipated and the budget for labor may go up as well.
Where to Get Financing
Access to credit facilities in Kenya is a major challenge that developers face. Kenya faces high interest rates and transaction rates and thus makes it harder for low and middle income earners to afford credit facilities. However there are various ways to finance your new construction like:
- Cash/Savings- One can opt to save money over time and use it to finance their construction. This may however take a long time. Experts recommend you to have at least 20-30% of the total construction cost before starting your construction.
- Sacco/cooperative loan – Sacco loans are simpler to obtain than bank loans. Before your loan is granted, banks will want a variety of documentation, and also their interest rates are often higher. Saccos will simply need your payslip or contribution record to approve your loan.
- Construction loans- Kenyan banks are actively helping to finance construction and are offering financing solutions to people who wish to construct.
Conducting Due Diligence
Due diligence involves investigating further to learn more about real estate concerns that can later lead to conflict. This could involve learning more about the identities of the owners, size of the land, and that paperwork is okay.
Due to the rise in real estate scams, it’s crucial to confirm that the seller is actually the rightful owner, this is done by conducting a title check.
It’s important to work with a lawyer to ensure that the documentation is original and truly belongs to the seller. Also work with industry professionals like valuers, real estate agents, and surveyors
To prevent purchasing an overpriced piece of real estate, valuers can assist you in understanding the actual pricing. A sign of fraud is that the land is undervalued, and valuers help determining with this.
Real estate agents assist you with tasks that you may be busy to complete or negotiate prices on your behalf. Surveyors assist you identify borders and place beacons after ensuring you are buying the correct parcel of land.