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Tread carefully when buying into land schemes

Some of the houses in the Shangilia Baba na Mama

Some of the houses in the Shangilia Baba na Mama

Cases of eager clients buying into land and housing schemes cloaked in controversy are not new. Many will remember the Shangilia Baba na Mama low cost housing scheme of the 1990s where thousands lost their money.

As it is with such schemes, the base of the pyramid always bears the brunt if something goes wrong.

Phillis Walubengo would know having lost all her life savings in the Shangilia Baba na Mama scheme. She was part of thousands persuaded to purchase already allocated plots.

Sitting with a forlorn look outside her shanty in Korogocho, Phillis, a single parent of three, recalls joining a group of other eager prospective homeowners back then while she worked as a civil servant. “We were picked in a mini-bus marked with the scheme’s logo and driven to site in Syokimau,” she recalls. “Everything simply seemed legitimate,” she adds.

After years in a rented house with never ending run-ins with her landlord, Phillis had finally found a way of emancipating herself when she caught wind of the low cost housing scheme. It came in the form of Samuel Ndiba Kihara and Joseph Muturi Gitau’s noble brainchild of erecting 6,000 low-cost housing units at a cost of Sh3.5 billion pooled from willing low income prospective home owners.

Payments

After paying a Sh400 registration fee, Sh10, 000 for the plot certificate, Sh8,500 for the title deed as well as other detail fees that did not exceed Sh10,000, one was well on the road of owning a house, or so they thought. The three-bedroom house cost Sh1.17 million but what made it even more achievable for Phillis was the possibility of monthly instalments of  Sh6,722 over a period of 19 years.

That was in 1996 and by 2015, she would have been a proud home owner of a three-bedroom stone house. Unfortunately, a corrugated iron sheet shack, whose roof leaks every time it rains and walls that let in the sun rays every morning through the gaping holes, is what she calls home.

Closer to present day, Home and Away caught up with Simon* (name withheld), a lecturer at Kenyatta University who says his dream of owning a plot close to the newly completed Eastern by-pass is turning into a mirage.

In early 2011, members of staff at the university were introduced to a deal of a lifetime. A company had come up with an investment scheme that made it possible for interested members of staff, for a little as Sh280,000, to own a 50 by 100 feet plot.

Strategic

The land was strategically situated close to the institution as well as major roads, Jomo Kenyatta International Airport and the planned Konza City. To further sweeten the deal, they were granted secured individual loans to purchase the plot with the group title as collateral.

The idea sold fast and by October 2011, when Simon bought in, the cost of the plots had almost doubled to Sh500,000 even as other non-staff individuals were introduced.

As fate would have it, protracted wrangles played out in court  between directors keen on share holding of the company have ensured that Simon and hundreds more who had invested their hard earned money only sit and wait in bated breath with nothing to show for it.

Faith Waigwa, a property lawyer intimates there are two popular housing schemes in the country. One where individuals believe that real estate business is very profitable and would want to venture into it, yet they do not have the necessary capital. What these individuals do is to formulate a limited liability company and allow other members of the public (investors) to purchase shares in such a company for investment purposes.

The other type of housing scheme is where people come together to pool finances and build houses for themselves. In this kind of scheme, houses are not sold to third parties.

Financial institutions

Faith recommends that the first thing an individual keen on investing in a housing scheme does is to carry out due diligence on the scheme he or she purports to join before putting their finances in the project.

Investors should also strive to unearth how much capital the company carrying out the housing scheme has and whether the same is sufficient to complete the project.

If the capital is not sufficient, it then means that the company will have to borrow from a financial institution, which in essence might culminate in no profit being realised because the profit may go into liquidating the financial institutions interest, which will have accrued on the principal amount borrowed by the company.

Of equal importance, according to Faith, is finding out who the directors of the company and its shareholding truly are. This helps gauge whether the company will be run in a transparent manner or not.

Also of relevance is whether the scheme falls on an election year or not. Faith says that during an election year, there are many scams involving public money to enable politicians finance their campaigns.

Management agreement

It is also vital that an investor ensures that there is a project management agreement present that addresses the interest of the investor. With such agreements, remedies are made available to an investor in the event the scheme encounters difficulty.

Faith says that in her experience spanning, litigation in courts can take quite some time. Very few, if any, petitions by investors, she adds have culminated in them (investors) being awarded the project or a refund. Again she asserts: “The best help would be a clause for arbitration is put in place in the project management agreement to enable speedy disposal of disputes when they arise.”

Lucy Ringera, a director of Tofina Rom Builders empathises with Kenyans who have run into scams disguised as genuine housing schemes.

She says that many of her clients who hail from the Diaspora approach her scarred after most of their savings sent from abroad and meant for housing projects are squandered by family and friends they entrusted to oversee their projects.-Standard

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