Why cheap plots in far-flung areas will lose you money

"You can own a parcel of land for as low as Sh40,000 per acre. You won't be required to pay all the money at once and can opt for the installments program, through which you will pay a deposit of Sh10,000 and settle the remaining Sh30,000 within three months, and without incurring additional interest," the advertisement says. 

This is one of the tantalising offers that land selling companies are dangling to Kenyans hungry for land. Tens and tens of land-selling companies have mushroomed across the country and are luring unsuspecting Kenyans to 'own' land at very low prices. "Kenyans have an emotive attachment to the land. Everyone wants to own a piece of land they can call their own. This is the desire that land selling companies, brokers, and marketers are exploiting," says investment advisor Michael Abura. 

The land on sale is usually located in far-flung areas like Nanyuki, Rumuruti, Kwale, Malindi, Kajiado, or Narok. The land will be claimed to be close to an upcoming trading centre, an already developed residential estate, county government offices, a road that is under construction or is claimed to be just a couple of minutes from the city centre.

One of the big mistakes most of us make is to commit before making a site visit. "Most buyers find out that the location is further than they had been made to believe, often in a jungle," he says. Most buyers take these far-flung parcels of land in hope that their prices will rise. But apart from the cunning games land selling companies play with buyers, some buyers knowingly purchase land for speculation purposes. Their main drive is hoarding for price shoots. This can sometimes work, many times, the results are losses. According to Waweru Kariuki, a realtor and the author of The ABC of Real Estate Investment in Kenya, there are places where land can make you money and others that won't.

For instance, Waweru points out that people who bought land in Kitengela in 2008 for Sh250,000 sold it four years later for Sh1.2 million. 

"Land buyers who put their money in land in Kitengela in 2012 and sold in 2017 only managed to make an Sh300,000 profit," he said. Waweru contrasts this to people who had invested the same amount of money in Treasury Bills with an annual interest gain of 10 percent. These investors would have raked in Sh1.9 million in the same period in contrast to those who went for land. "If you buy a piece of land and its appreciation rate is slower than inflation, then you are making a loss, even if you sell the land for a profit," he says.

According to Abura, buying land for speculation borders on gambling. "While Kenyans are spending Sh83.2 billion on sports betting in six months more billions were spent on land betting across the country," he says. 

Abura also cautions that unless you're planning to settle in a far-flung area after retirement, you should not gamble with land simply because it is discounted. "The trend is usually for larger-scale buyers to acquire acres of land which is then subdivided and sold. This will not make sense unless you can use the land for large-scale production," he says.

Acquisition of land through Chamas and table banking groups has also gained popularity as a means for members to own property. For example, 10 Chama may acquire an acre and a half of land at Sh2 million then subdivide the land into ten equal plots. This would mean that each member acquired their plot share at Sh200,000. However, Abura says that it would be wiser to invest the Sh. 2 million in government bonds, or in the acquisition of a more strategic, but expensive parcel of land that guarantees faster appreciation. 

"Cheap land will appreciate very slowly, but pricier land in an area whose bubble hasn't burst will present better prospects, both for resale and commercial development," he says.

On a national scale, land buying for speculation purposes can easily prove to be a costly affair economically. According to economic analyst Ephraim Njega, land should be for production, not speculation. "Land speculation is disastrous for the economy. Land speculation creates a scarcity mentality which leads to hoarding," he says. 

"This results in artificial rising demand for land and pushes prices beyond what most people can afford." 

"We can't have properly developed cities when everyone wants to develop their small plot without any planning or coordination. Eventually, we will all be living in a slum-like environment," he cautions. A spot check by the Saturday Magazine shows that speculators who have no intention of either building rentals or homes for sale have parceled out the land into 40*80 or 50*100 pieces in Nairobi metropolitan areas that are not sufficient for large scale housing development. 

Land prices as of September 2021

According to real estate research firm HassConsult, in the three months to September 2021:

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