Land speculation continues to be one of the most widespread investment strategies for real estate investors in Kenya.
Investors accumulate capital individually or collectively and then buy large or small chunks in selected locations, in anticipation of future infrastructure projects, planned developments or the natural growth of urban centres to drive up the value of land.
Many low-income and middle-income earners have found this an easy strategy by using collective investment schemes like SACCOs or Chamas to purchase large tracts of land and then subdivide.
As a result, SACCOs have become some of the largest buyers of land in major urban centres. This strategy has made land one of the biggest asset classes, even more than house or apartment rentals.
“It has actually created a crisis in urban development because there are a lot of people buying land, not for the sake of building anything or adding value, but for the sake of speculation,” Nahashon Mungai, Executive Director for Global Markets at Standard Investment Bank told Marcopolis in a recent interview.
The inevitable result of speculation has been overpricing which has suppressed the returns on investments for those who buy land for the purpose of building rentals. Rental yields are affected by the market value of a property which in many cases has been inflated by the high cost of land.
“A lot of land is overpriced due to the speculation around it and it causes a very poor return if you actually develop property for rent or for sale. The average rental yield in this country is around 5 percent which barely beats inflation which is around the same level. As an asset class, it underperforms in the market,” he said
Real estate, stocks and government bonds remain three of the most accessible asset classes for investors seeking to grow their money.
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