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Wednesday, July 13, 2011

The Secret to Making Millions in Real Estate (part 1)

Time travel. According to certain Kenyan ‘experts’ the only way to start making money in real estate in Kenya is to travel back in time. Well, based on that premise and the fact that scientists have yet to come up with a device that can facilitate such travel, the only logical conclusion is that it is impossible for you to start making millions in real estate today.

More seriously though, the reality is that the recent real estate boom in Kenya has made millionaires out of ordinary folk and billionaires out of millionaires, all in the last decade or so. Understandably, everyone else wants to jump on the bandwagon, but the question on our communal lips is, “Is it too late?” Well my answer to that is
Yes…..and No.

Yes, it’s too late to start making millions now if you opt to invest in the crowded urban residential areas that proved so bountiful a few years ago. In fact I put it to you that anyone who made such an investment in the last 3 months might even end up losing some money. Using the block of flats next door as a reference point, property prices in my crowded urban residential area have more than doubled in 4 years (a new 3 bedroom flat that was going for 8.5Million in 2007 is now listed at 18M). Though I appreciate that property prices are subject to the forces of supply and demand just like many other commodities, I refuse the accept that the increased demand could have outstripped supply by so much! I reject the ‘experts’ who claim that improved access to mortgages has empowered Kenyans to the extent that they are buying houses faster than they can be built. They would like us to believe that higher prices are an unintended consequence of the demand for houses. Rubbish!

It’s a scam!!

The skyrocketing prices are deliberate, part of a grand scheme by developers & landowners to reap obscene gains by playing on our greed and scarcity mentality. (Pause for a minute and think of all the people you know who are racing from development to development churning out mediocre flats that they wouldn’t be seen dead living in). I know a few, but I am yet to meet one who considers building flats to be a long term business. The reason for this is that they know that Kenyans will soon figure out that paying 18M for a 3BR flat doesn’t make sense. They know that it will finally click that the convenience of living within a 6km radius of the CBD is not worth the X million shillings premium that we are being asked to pay. They are also aware that the pool of people who can service mortgages of that size is finite, hence the rush to lock them in ASAP. Besides, it’s common knowledge that banks are starting to tire of adding more of these overpriced assets to their already bloated loan books. 

Identifying & seizing opportunities is part of business, but it is the responsibility of the entrepreneur to devise a sustainable approach that can be scaled up over time. We should want to build businesses that will do more than just add some coins to our pockets today. Sure, a little money never hurt anyone, but our economy depends on the growth of local businesses that have a long term view. So, if you want to start making money in real estate today you need to change your focus and break away from the Kenyan copy cat 'me too' approach to business. In part 2 I’ll show you what I'm doing about it….

1 comment:

  1. Check out the story in today's Daily Nation-DN2 entitled Time for Home Buyers to Smile.
    The best is yet to come


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