The buyer is also able to select the best
location for his or her house and can also
specify the finishes they prefer. The buyer
can influence the type of the home and
the quality of construction and finishes for
their homes to some degree as opposed to
complete homes. The value of the property
typically increases as the construction
progresses. Early buyers therefore have
good potential to benefit from capital
gains if the schemes are well done and
delivered on time.
Challenges Faced By
Developers
The challenges faced by developers in
using off-plan sales as a strategy of
financing real estate development are
many. Common is always the difficulty
in achieving the target amount of funds
through off-plan sales, which may have
dire implications if the developer was
relying on these solely to fund significant
parts of the development.
Financing model for off-plan homes
requires a careful balance in financing these
construction with appropriate debt/and or
investor equity and income from sales. If
this is not done correctly, or in cases where
the developer uses the buyers’ money for
other schemes, the projects most likely
will run into financial headwinds. It may
also result in bank penalties due to project
delays or inability to service the loans.
Occasionally buyers of off-plan property
fail to complete payment of the purchase
price due to poor financial planning.
Sometimes, in a desperate bid to achieve
reasonable level of off-plan sales,
developers are tempted to sell at much
lower prices affecting the overall project
feasibility.
Challenges Faced By Buyers
Challenges faced by buyers of off-plan
property include potential fraud by
unscrupulous developers; probability of
distressed sale due to inability to complete
purchase price payment; poor quality
of construction; and delays in project
delivery (Kimaru, Katwa 2018).
Some undisciplined developers do not
ring fence funds for specific projects,
spending buyers’ monies on other projects.
Eventually they cannot find the resources
to complete the projects. In some cases
drop in effective demand for new homes
Granted, more specific regulation is needed
for this typology of housing, but it is
baffling why the government has allowed
off-plan developers to operate as though
there are no laws that apply to this type
of construction causing untold harm and
suffering to buyers.
prevents speculative developers from
raising funds from developing and selling
new schemes. This is typically the end
of the off-plan scams, at this stage they
crumble like a house of cards.
More often than not, developers are unable
to complete the houses in the promised
time frame and this can affect the buyers’
financial plans. Worse still buyers using
bank loans to buy these would be servicing
loans for a house that does not exist.
In some cases, market conditions may
change or the developer may over-promise
returns such as rental yields and capital
appreciation and on completion, the buyer
achieves lower than expected returns.
Sometimes speculative developers over
price the schemes. It is important for the
buyer to do their own due diligence rather
than relying on marketers verbiage that
is meant only to lure and in some cases
misinform.
Another challenge associated with these
schemes is poor quality construction as
developers try to cut costs and save money.
Sometimes developers deliver substandard
products hence the buyers do not get value
for money unlike when buying a complete
unit, where one negotiates the purchase
price based on tangible evidence.
Government and regulatory environment
are weak providing low protection to
buyers leaving them exposed to speculative
developers. Unfortunately government
policies have focused mainly on the
supply side, concerned more about how to
support developers rather than protecting
the homebuyers. The next section discusses
examples of off-plan sales gone awry.
Suraya Properties
Suraya started well with their
developments, all of them marketed
aggressively, through TV, radio and glossy
brochures, for off-plan sales. By the time
they crumbled, they had undertaken about
20 projects. This was quite a good portfolio.
So why did they fail to deliver in most of
their later projects in Nairobi, Kiambu
and Kajiado County including: Fourways
Junction Phase II, Lynx Apartments on
Muchai Drive, Loneview Apartments on
Mombasa Road, Sucasa in Kitengela and
the Falls on Riverside? What went wrong?
It was said that the Surayas (Sue and
Pete Muraya who owned the company)
were manipulative and high handed. They
would force buyers to use their lawyers
in housing transactions; ensuring that
the contractual provisions left the buyers
badly exposed and Suraya’s interest well
secured. They encouraged buyers to deposit
significant amounts of money towards the
housing projects, which they indicated,
wrongly that had secured significant sales,
to lure more buyers. Most of the projects
above did not even start constructing the
building foundations. The irony is that
even though Suraya failed to deliver on
their part, they imposed punitive penalties
on any late payments for these imaginary
homes.
Another problem seemed to have been
financial indiscipline. Monies for one
project were diverted to purchase of land
and development of other projects. This
scheme worked until demand for offplan
homes plummeted denying Suraya
resources from new schemes that they
could roll over into older projects, hence
the collapse of most of their schemes.
At that stage Suraya would dump some
construction materials on site, dig out the
foundation, put a big sign of an upcoming
construction and then disappear. The gyms,
pools, boreholes, generators, playgrounds
in the glossy brochures vanished with the
Surayas, to be replaced with despair and
hopelessness of buyers.
Ekeza Sacco And Gakuyo
Real Estate
Another example of these failed offplan
schemes is Ekeza Sacco, chaired by
charismatic self-proclaimed Bishop cum
politician David Kariuki alias Gakuyo.
Gakuyo marketed land and housing,
convincing members of Ekeza Sacco to
register with Kshs 20,000 to be eligible for
a three-bedroom house at Ksh 3.5 million
and Kshs 10,000 for two bedroom houses
with a price tag of Kshs 1.5 million at Joska
Estate. He failed to deliver the homes
despite collecting monumental amounts
of buyers’ monies. The initiative, Gakuyo
Real Estate, is under investigations by the
Directorate of Criminal Investigations
after clients accused the preacher of
dubious land deals and embezzlement of
funds.
Mr Kariuki was accused of luring the
public to his alleged con trap with creative
advertisements on popular Kikuyu radio
stations. A report by the Commissioner
of Co-operatives indicated how the
preacher spent millions to market Gakuyo
and Ekeza activities. First, Kariuki mixed
Gakuyo and Ekeza’s marketing activities
with his political campaigns to become the
Kiambu Governor in the 2017 elections.
He spent Kshs 6 million in 2015, Ksh 50
million in 2016 and Ksh 78 million in
2017 on vernacular radio and TV stations
marketing campaigns that the media aired
live.
He had promised to hand over the homes
in March 2017 but failed to do so. Instead
the management began taking members
in circles, giving new pledges that the
housing projects would be relocated to
Nakuru and other places because the Joska
development was no longer viable. Most
of the investors are yet to get title deeds
for their pieces of land leave alone the
houses they have already paid for.
Simple Homes, Simply A
Con
The worst of the three cases highlighted
here was Simple Homes. There was
nothing simple and no homes in this
scheme - pun intended. This was a con
scheme right from the word go.
The scheme promised people that by
paying normal house rent, they would
be able to own their homes. The victims
were only required to state the amounts
of rents they were paying then and
Simple Homes would quickly work out
affordability schemes and payment plans
for them to own new homes. The starting
point was a down payment by each of the
potential homeowners. The sweetener was
that potential buyers could also buy a slice
of the Simple Homes Company through
purchase of shares.
A number of people fell victim to the
scheme, paid down payment for their
homes and bought shares into Simple
Homes. Long queues were seen outside
Simple Homes offices in Nairobi’s
Kilimani area as potential home owners
lined up to be looted of their hard earned
incomes. The story ended in tears.
Like stuff of folklore, one-day, people
went to Simple Homes offices as usual to
pay their money for home ownership only
to find that neither Simple Homes nor
their offices were there. The scammers had
closed their offices and vanished in thin
air. It is estimated that they disappeared
with over Kshs 500 million handed over
willingly to them by their victims.
The alleged architect of the scam, Mr.
Argwings Kodhek alias Yasin Abubakar
Kodhek with his comely consort, Nuzrat
Sharif, were seen enjoying sun and
beach in some coastal resort as their
victims, haggard with sorrow from their
loss, moved to the Director of Criminal
Investigations to try to salvage their
investments. They did not.
Unlike most African folklore the story had
a sad ending; the victims never recovered
a single cent and Argwings Kodhek and
his lover Nuzrat are still roaming free
somewhere in the universe.
Conclusions
The stories of off-plan sales in Kenya
are stories of greed, indiscipline, theft,
enabled by poor state regulation and
failure to act on the con cases. This realm is
characterised by colourful con-characters
whose only interest is to loot their victims;
and gullible, equally greedy victims, who
are easily lured with schemes that promise
heaven and deliver hell.
Meanwhile the state has failed to enforce
existing laws that apply to off-plan sales
or to develop regulations for the same.
The moral of this story is: it is important
to undertake due diligence and use
professionals in all matters housing,
especially off-plan sales. The adage is clear:
“The investor is not your friend and the
government will not protect you. If you
decide to navigate this mine land without
help, chances are that your story will be
told on these pages with buckets of tears”.
Prof. Alfred Omenya, B.Arch,
M.Arch, PhD is an Architect and
Urban Development Expert and the
Chief Executive Officer of Eco-
Build Africa. You can engage him
on this or related matters via email
at: [email protected].
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