Kenya: There is money in investment groups

Beatrice Akoth at a 10-acre piece of land in Kamulu that her group, Embakasi Development Alliance, has bought for its members

Beatrice Akoth at a 10-acre piece of land in Kamulu that her group, Embakasi Development Alliance, has bought for its members

Forty-year-old James Mwaura visited the 17th Kenya Homes Expo with one thing on his mind: To get a large parcel of land for his group’s investment plans.

From his research and a lot of legwork, he had learnt that a group investment would save him not only a lot of expenses as he would share the costs with others, but also afford him piece of mind.

He knew that should he get the right deal, he would not be solely responsible for administrative costs such things as land rates, insurance on the property, professional fees, and material and labour costs.

Mwaura joined a group of 10 couples two years ago and together they embarked on sourcing for affordable home investment options as a unit. The expo was the latest in their forays.

“Buying a parcel as an individual would be very expensive,” he explained. “It would also eat into your time, but the cost and time significantly reduce when shared.”

A ‘good life’

Other than the time and cost savings, those who choose this route to home ownership also argue that a group investment affords them a “good life” in, say, gated communities with guaranteed security and familiar neighbours.

“This, coupled with controlled developments and shared utility and management costs, makes this a very attractive option,” said Mwaura.

Chamas, as such investment groups are popularly known, have been in existence since before independence, says Patrick Kariuki, the Kenya Association of Investment Groups chairman. They, however, became more visible during the 1980s and 1990s when the country’s economy took a dip, prompting people to come together to find ways of surviving the recession.

The concept has matured over the years to become an important development driver in various sectors of the economy. That is why today, in recognition of the fact that chamas have grown wings and flown, the government is considering collaborating with such groups to raise funds for development projects.

And there is money, lots of it, in the idea. There are currently an estimated 300,000 groups that collectively hold an asset base of more than Sh300 billion. Studies have also shown that at least one in three Kenyans is in a chama, whether the group is formally registered or not.

Peter Gitau, director at Peter’s Plots, says that although he has handled many individual plot purchases, he would strongly advise those who have the opportunity to buy land in groups that have similar interests, such as work colleagues, church members, social friends, or sacco members.

“We have to shift from solo ventures, where people struggle to break through the ceiling, yet they can pool resources and share the risks and costs,” he says. “There are many areas in Kenya where big chunks of land are sold for about Sh200,000 per acre, but in 10 years that land will be worth over Sh20 million.”

Teachers, under the Mwalimu National Savings and Credit Society, will soon be among the beneficiaries of such collective investment groups. The sacco plans to construct houses on eighth-of-an-acre plots whose price would range from Sh2.8 million to Sh4.5 million, says the chief executive officer, Joshua Ojall. The sacco is also working on an elaborate housing scheme that intents to see all its 53,000 members benefit from a multi-billion housing project.

Additionally, Mwalimu sacco has acquired a piece of land in Nairobi’s Upper Hill area to construct a 15-storey complex at Sh1.5 billion. The complex will also serve as its headquarters, currently situated along Tom Mboya Street in Nairobi, and is expected to be complete in two years.

Ojall says these are some of the major projects lined up to make teachers “comfortable”, with all members soon expected to choose from one- to three-bedroom houses in the first phase of the project to be piloted in Nairobi at either Juja or Kitengela.

Pointing to the success of the teachers’ sacco, Kariuki Waweru, a real estate consultant and author of The ABC of Real Estate Investment in Kenya, says people should, where the infrastructure is right and there is mutual understanding, invest in groups.

“The wise men said unity is strength,” he says. “They were right. Around us, even the rich are coming together to consolidate their resources and invest in mega projects.”

Waweru singles out one of Kenya’s most profitable investment companies, TransCentury, as the biggest example of where a chama can take its members if they are focused.

TransCentury, he says, started as a chama 14 years ago when a group of 29 Kenyan entrepreneurs raised Sh24 million to start an investment company. Today, that vehicle has transformed into the TransCentury Group, which boasts an estimated Sh11.2 billion portfolio and infrastructure investments across 10 countries in Africa.

Land appreciation

Kariuki says large-scale private investments also contribute to land appreciation and will keep doing so in the near future. When the government, for instance, spends money on infrastructure like roads, schools, and hospitals — or even resort cities — the value of land around such areas appreciates faster compared to what would happen if struggling individuals ventured into the same areas.

“When a private developer creates a living community, such as a private university, in a place that is far from ‘civilisation’, the value of land there starts to appreciate to cater for the students, who will study and live in the area,” says Kariuki.

Land prices and the quality and demand of everything else that is of significance in real estate are based on location. Parcels around the proposed Konza City and Kitengela are today an investor’s paradise because of the numerous new universities coming up in the area and the improved state of the Kitengela-Namanga and Nairobi-Mombasa roads.

In the same vein, areas around Thika and its environs have attracted a lot of attention because of the new superhighway, while the Athi River area, whose growth has been influenced by the presence of many factories, has maintained an up, up and up trajectory.

Kariuki says the benefits accrued from group investments in such areas are bigger and attainable over a shorter span of time. But there is a catch: decision-making when more than three people are involved takes longer and, depending on how keen the officials are, the group could run the risk of losing its cash in fraudulent deals.

Reginald Okumu, a real estate analyst, concurs, adding that the biggest challenge facing investment groups is how to multiply the cash they raise.

“Beyond savings,” he says, “chamas are good at mobilising capital, but most of them have not gone beyond the savings level. This is the reason commercial and other financial institutions are aggressively developing products to target them.”

Right on the money

Okumu is right on the money. The growth of chamas has drawn the attention of commercial banks, deposit-taking microfinance ventures, and credit unions, all of whom are today eyeing a piece of the small investor’s pie. That is why many financial institutions have in recent times developed tailor-made products to woo investment groups.

For instance, Rafiki Deposit-Taking Microfinance, a subsidiary of Chase Bank, recently launched a new product, Chama Supreme Banking, that allows clients to access up to Sh200 million for investment.

“We want to empower investment groups to own more as a means of securing their future,” Rafiki DTM chief executive officer Daniel Mavindu said during the launch. “That is why we are not limiting them to any area of investment. We are supporting interested groups in the 47 counties and are willing to reach out to wherever the chamas are.”

Speaking at the same event, Cooperative Development and Marketing permanent secretary Seno Nyakenyanya added that the government had noticed the potential of chamas and was helping in their registration process so that they can get legal protection.




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