Owning property in Kenya is an appealing real estate investment with cities such as Nairobi, Mombasa, Kisumu, and Eldoret growing rapidly.
A popular consideration for investors and those looking to live away from home is investing in off-plan property in Kenya, which means buying a house or apartment before it is built or completed.
Purchasing property in Kenya in this way has some advantages, such as cheaper property prices and favorable payment terms, but it carries substantial legal risks.
We are going to through the legal implications and risks of purchasing an off-plan house in Kenya, how to protect yourself, and what to do when you buy a house for sale in Kenya.
What Does Off-Plan Property in Kenya Mean?
Off-plan real estate property in Kenya is offered for sale before it is completed. Buyers usually pay a deposit, sign a land purchase agreement in Kenya, and pay in installments as the development proceeds.
This method is attractive as it enables buyers to get a piece of property for sale in Kenya at a cheaper price than finished houses for sale in Kenya.
For example, developers frequently pre-sell off-plan houses at handsome discounts in Nairobi, Kenya, targeting early buyers.
However, as you purchases an off-plan house in Kenya, you have to trust that the developer will deliver a quality house as promised.
Depending on just trust, if not properly safeguarded, can result in financial loss or legal entanglements.
For those interested in purchasing property in Kenya through off-plan, it is essential to know the legal context, as what you don’t know can hurt your finances and resources.
Why Buy Off-Plan Property in Kenya?
But before we get there, let’s start by dissecting why many investors love to buy off-plan houses in Kenya:
- Costs: In many cases, the costs of properties in Kenya for off-plan are less than those for built houses for sale in Kenya, and as such, they are attractive for investors.
- Convenient Payments: Customers can spread the cost and pay in installments over time.
- Return on Investment: The price of the available property for sale in Kenya goes up as the project nears completion, giving a good return anticipated for early investors.
- Customization is possible: Some developers permit buyers to customize features such as kitchen designs or flooring during construction.
Although these advantages are attractive, purchasing an off-plan house in Kenya has risks and should be approached with caution and legally bound safeguards.
Legal Framework for Off-Plan Purchases in Kenya
Several laws govern land transactions in Kenya, including off-plan transactions, but there is no legislation specifically on off-plan transactions.
Instead, buyers turn to general land laws and the Law of Contract Act, which stipulates that agreements for land purchase in Kenya must be written to be valid.
Key laws include:
- Land Registration Act (2012): Regulates registration and transfer of titles to property.
- Sectional Properties Act (2020) covers the ownership of apartments and shared properties, which are typical of off-plan developments.
- National Construction Authority Act (2011): Guarantees that developers and contractors meet construction standards.
- Environmental Management and Coordination Act: Mandates environmental clearance for construction projects.
These laws outline the purchasing methods in Kenya, but they don’t fully cover the unique risks possible in an off-plan house purchase in Kenya. This disconnect can expose buyers to problems like project delays or developer insolvency.
Risks of Buying Off-Plan Property in Kenya
Before figuring out how to buy off-plan property in Kenya, you need to know the risks involved. Here are the main legal and financial risks:
1. Developer Insolvency or Default
The developer’s failure to complete the project is the greatest pitfall when purchasing an off-plan house in Kenya. If the money runs out for a developer or becomes mired in legal troubles, the project can stall, leaving buyers with incomplete houses for sale in Kenya.
This was exemplified in Willow Park Limited v. Jamii Bora Bank Limited when off-plan buyers lost millions when the bank sold the property to recover a loan the developer had defaulted on.
To avoid this, before purchasing houses in Kenya, always find out how financially stable and established the developer is.
2. Project Delays
Off-plan buying in Kenya is not without delays. A few projects take years longer than promised, leaving buyers waiting and uncompensated.
A poorly written land purchase agreement in Kenya may not have penalties for delays, and you end up stranded.
To help manage your risk, put a timeframe on the delivery in your contract, with penalties if the item is delivered late.
3. Land Ownership Disputes
Some developers advertise land for sale in Kenya without a clear title deed to avoid this mess. If disputes over the land, a mortgage, or other legal claims exist, your investment could be in jeopardy.
Always check the title deed and search the land at the Ministry of Lands to ascertain the developer’s ownership.
4. Lack of Regulatory Approvals
Before construction, developers must secure approvals from bodies such as the National Construction Authority (NCA) and county governments. Without them, the project could face legal challenges or be torn down.
Before purchasing an off-plan house in Nairobi, Kenya, ensure the developer has all the required permits, such as zoning, environmental, and construction approvals.
5. Fraud and Scams
The risk of being conned when purchasing off-plan property in Kenya is high. Sometimes, Developers may use fake title deeds or contracts that mislead buyers.
To prevent scams, you should never sign the documents under pressure and always opt for a full review of the land purchase agreement in Kenya by well-known property lawyers in Kenya.
6. Substandard Quality
The finished property for sale in Kenya are sometimes of lower quality than what was promised in the marketing materials. For instance, the construction materials or the size of the property may not be as advertised.
Visit the construction site often, or get a lawyer, or someone you trust to make regular visits, and include quality conditions in your contract that may prevent this.
7. Money Destroyed by Bank Loans
Debt is raised by developers who borrow to finance off-plan projects, with the plot as security. If buyers default on the loan, the bank could sell the property to recoup its funds, and buyers are out the money they spent.
Willow Park is also an example where the interests of purchasers were subordinated to the bank’s interest. To protect yourself, ensure the land is not subject to a loan and use escrow accounts for payments.
How to Buy Property in Kenya Safely
To reduce the risks of buying real estate in Kenya, especially off-plan, follow the following steps:
1. Conduct Thorough Due Diligence
Before signing anything, check out the credibility of the developer of a project. Review the developer’s past projects, read reviews from previous buyers, and visit completed developments.
Verify the legitimacy of the land ownership by searching the title at the Ministry of Lands. The developer must also obtain all NCA approvals and community permits.
2. Hire a Qualified Lawyer
You will need a real estate lawyer like Chepchieng and Company Advocates when purchasing an off-plan house in Kenya. They will examine the land purchase agreement in Kenya, search for sinister clauses, and ensure the contract is in your best interest.
A lawyer can also perform some due diligence and confirm that the developer owns the property for sale in Kenya.
3. Use an Escrow Account
To shield your money, demand to pay via an escrow account. This only has the effect of disbursing funds to the developer when certain building milestones are met.
This also minimizes the opportunity cost of losing the allocation should the project fail.
4. Stipulate Protective Clauses in the Agreement
The land purchase agreement in Kenya should spell out specific time frames, penalty clauses for delayed completion, and refundable terms when the project fails.
Its content should also specify the materials and finishes used for the completed house to meet the quality promised.
5. Visit the Construction Site
Frequently go and visit the site to check and control the progress. If you can afford it, hire an independent professional, an engineer or an architect, to evaluate the work.
6. Register Your Interest
To safeguard your investment, your lawyer will register a caveat against the property’s title at the land registry. This signals to third parties that you are interested and stops the developer from selling the property to another party.
Buying Off-Plan Property in Kenya as a Foreigner
Can foreigners buy off-plan property in Kenya?
There are legal limitations, however. Under the Kenyan Constitution (2010), a foreigner may hold land on a leasehold basis for a maximum of 99 years and never on a freehold basis.
Most off-plan properties, including apartments, are leasehold properties, making them accessible to foreign buyers. But purchasing off-plan real estate in Kenya as an alien demands an extra level of caution:
- Ownership Verification: Confirm that the developer has a leasehold title.
- Verify Approvals: Ensure that the project has all the permits required because foreign homebuyers often find it challenging to resolve disputes from overseas.
- Hire a Lawyer: A local lawyer can manage the due diligence and ensure compliance with Kenyan laws.
- Know the Costs: Foreigners must pay stamp duty (4 percent in urban areas, 2 percent in rural areas) and other fees.
These should be considered in the overall cost of purchasing houses in Kenya.
How Much Is Property in Kenya?
Kenya property prices are not the same in all places; various areas make the prices different. Off-plan homes in Nairobi, Kenya, can start from Ksh 5 million for a one or two-bedroom house to over Ksh 20 million for luxury homes in places such as Kilimani or Westlands.
In small towns, you will find a home for sale in Kenya at a lower price, say Ksh 2m. Never buy without a professional valuation.
You’ll want to ensure you are paying the correct amount when purchasing real estate for sale in Kenya, and you should always enlist the help of a real estate valuer.
Buying Off-Plan Property in Kenya
Below is a step-by-step guide on how to safely purchase off-plan property in Kenya:
- Developers: Pick a developer with a good previous job history.
- Check Documentation: Look at the title deed, land search, and approvals.
- Employ a Lawyer: Ensure you have a legal practitioner to review the land purchase agreement in Kenya.
- Employ Escrow: An escrow account is the most secure payment method.
- Checkpoint: Drop by the build often to maintain work progress.
- Clear the title: Register the property in your name after completion.
Conclusion
Off-plan buying of property in Kenya is a good way to buy houses for sale in Kenya, as you usually get to buy property in Kenya at much lower prices with more flexible payment plans.
Still, the dangers of developer default, delay, fraud, and litigation mean it must be prepared. With comprehensive due diligence, a good lawyer, escrow accounts, and protective clauses in place, you can mitigate risk and make an intelligent investment.
Whether you are a Kenyan or a foreigner, if you are considering buying off-plan property in Kenya, you need to know what you can legally do to secure your dream property or buy-to-let house in Kenya.
