Biggest challenge the real estate sector faces is access to credit

Real estate concept with a vacant land on a green field available for building construction and housing subdivision in a residential area.

Photo credit: Pool I Nation Media Group

The Covid-19 pandemic may have been a challenge in the initial days of starting Milikispace Properties Limited, but two years later, the owners of the real estate company, Martin Kariuki and Milka Ndegwa, believe the investment they ventured into following thorough research is eventually paying off.

The two started the real estate firm in June 17, 2020, just a day before the government announced a countrywide lockdown as the pandemic spread throughout the country.

This would see the start-up go for six months without a client as the pandemic forced businesses to either shut down, lay off staff or impose pay cuts to stay afloat.

The company’s target was to provide affordable housing solutions to Kenya’s lower and lower middle-income population.

“In the first year, for the first six months, we did not do any business, apart from travel restrictions and dwindling finances, people were wary of committing their money. They didn’t know what would happen or how long the lockdown would last,” says Kariuki, the company’s CEO.

He explains that while the company’s growth remained strained during the first year, easing of the containment measures since last year and lessons learnt by Kenyans during the pandemic on the importance of investing have seen the real estate firm grow to deal in 15 projects in different parts of the country.

“Covid-19 changed the way people look at housing. A lot of people living in rented houses changed their mindset when the pandemic came knocking because many could no longer afford to live in a rented house. Also, you can be having a very good job today, but tomorrow, you no longer have it, but if you have a roof over your head, you don’t have to suffer,” Kariuki says.

Since the business targets the low income segment, it deals in pieces of land selling under Sh1 million. Kariuki explains that they are guided by the buying power of most of their customers.

“Most of our properties cost between Sh300, 000 and Sh800, 000. It’s a big challenge to maintain that price because sometimes we make a very small profit margin, but we know that going above that with cost us the market we are building,” says Kariuki, arguing that the business model has proved sustainable for clients and for the firm.

He further observes that the choice of the market means that most of the clients the business deals with have to pay in instalments due to lack of ability to pay at once, an issue calling for strong discipline and proper management systems.

Over the two years, the company has dealt in 15 real estate projects in Nairobi, Kikuyu and Nanyuki. They buy large parcels of land which they subdivide for sale. The company has also grown its workforce from the two founder members to 45 employees spread across the country.

Diligence and trust

“It takes a lot of discipline to run a real estate company, to begin with, not everybody is able to pay in cash, people pay through instalments, and it is only once they complete payment that you issue them the documents. If you want to remain in this business, you have to be very trustworthy, diligent and discipline. At the end of the day the big thing we are selling is trust,” he says Kariuki.

In an industry where thousands of Kenyans have lost millions of shillings to rogue real estate companies that promised to sell them lifetime investments, the entrepreneur told Powering SMEs that it has also been a rough ride as they face mistrust from potential clients.

“It’s a very delicate market because if one company goes down, it affects others, since customers tend to view as just another company that could potentially take their money away. For the few that we are able to get, we make sure that we deliver.

He adds, “I don’t believe there is somebody who starts a company to bring it down, it is challenges along the way that bring a company down. The biggest one comes with how you have set up the company. The systems you put in place are the pillars of the company.”

He advises investors in real estate to form stable systems independent of the founders of the business.

“The founders should not be the absolute system of the company, this way, if the business has Sh10 million in the bank, I understand it’s not my money. I have employees to pay, rent and other bills to pay. If you understand that, then you make the right decisions.”

He further notes that the real estate business is a delicate venture due to its highly speculative nature, a reality that affects prices regularly and could have a negative impact on a project if there is lack of proper research.

Make a mistake

“This is a market where you cannot afford to make a mistake. It can be very costly, and can go as far as costing you the company,” he notes.

After taking lessons during the first two years after launching, the company now says it plans to expand to bigger projects, before venturing into offering housing by 2025, the ultimate goal.

“We are doing this because it is what is sustainable for now. We would also want to go into affordable housing construction and are working towards partnerships with banks and other financial institutions to access financing to kick off the projects.

Kariuki says access to credit has been a challenge since the company’s formation, as banks remain cautious of lending to start-ups.

“When we were starting, we had some savings, this is what we put together to start off the company. This is what we’ve been growing slowly by slowly, ploughing every profit we make back into the business,” he says.

Welcome!

You're all set to enjoy unlimited Prime content.