How prepared are you to invest in real estate?

Kibira at a construction site. Putting up big projects costs a lot of money. If a developer does not have enough money for the construction to run smoothly, credit from construction material suppliers can be a life saver. PHOTO BY Shabibah NAkirigya

What you need to know:

  • Making the right investment decisions in the real estate sector can be difficult for a first time investor and one will need good advice from people with experience in the field. Innocent Muculezi Kibira, an independent real estate developer takes us through some basic, but important aspects that a potential investor must know

The demand for both commercial and domestic housing keeps growing. Real estate is, therefore, a fertile sector to invest in and if the right steps and precautions are taken, the returns are bound to be rewarding. There are four different types of real estate to pick from namely; commercial, residential, industrial and land real estate.

Of course, like other sectors, real estate is affected by the financial and social status of a given community. That is why one must carry out enough research and preparation before investing.

Building relationships
Innocent Muculezi Kibira, an independent real estate developer, says building relationships and trust with industry players is key. These could be suppliers of various construction materials, brokers, potential clients, banks, local council authorities, land board officers, the list is endless. Having a good working relationship with these people makes investing in real estate easier.

“Investing in real estate is an expensive venture that requires huge sums of money. Without the required money, the investment becomes remains a dream. However if house construction material suppliers know and trust you, they can give you building materials on credit and let you pay later when you can,” he says.

This takes a lot of trust from the suppliers. To develop a good relationship with industry players, one of the things one should do is always pay on time whenever you make an order and talk to the supplier when there is a delay.

“Most people think that when one sets out to build an apartment they must have a lot of money. That is the ideal situation, but even if one does not have enough money to start a building project, they can still build. This is when the relationships they have built overtime come in handy,” he says.

Kibira says if you have a good relationship with a cement supplier, then it becomes easy for them to supply you with the material even before paying them.

This is because they trust that you will eventually pay up. The same thing applies to other supplies such as iron bars,” he says.

Shamim Asiimwe, a public relations officer with Nileply Woods limited, a company that supplies building materials, explains that they, like many other suppliers extend credit to trusted real estate developers with big projects.

“We usually extend credit to them since they buy in bulk however, they must also have a good track record of payment. Those working on small projects however don’t qualify for this kind of priviledge,” she says.

On the other hand, besides one building trust with some of the players in the industry, one would also have to ensure that they have a good relationship with their clients.

“It is important for a developer to keep their word and deliver quality to clients. Once people realise that you deliver when and what you promise, they will trust you with their money next time. It takes time to achieve this, but once one is consistent in trying to achieve whatever goals they have laid then it makes it easy for them to build a reputation for themselves,” Kibira says.

Return on investment
Deliberations on return of investment are important.
“The ideal situation is to invest in a venture from which you are sure you will get returns. If one is to invest in an apartment worth Shs300m, they should be able to get at least Shs50m off the initial Shs300m?” Kibira says.

Can the land or property you want to invest in be easily sold to a client? These and many others are some of the questions to ask yourself before you dive in.

Identify potential clients
Determining who you want to sell to will influence what kind of property you choose to invest in and how much you are willing to sink into the venture.

There are different groups or social classes namely, upper, middle, working and the lower class. Knowing which of these you want to target is important.

“A Ugandan who can afford to buy an apartment of let’s say Shs300m can definitely afford to travel abroad so it means they are exposed and have a certain taste when it comes to housing. The same, however, cannot be said of the lower middle class who in most cases can only afford a house of not more than Shs60m. These two require different products with their financial abilities put into consideration,” Kibira says.

Before acquiring property
Kibira advises that before one decides to invest in a property, they must visit the property of interest.

The inspection will enable you know whether the property has the desired features for example a large compound, enough parking space, proximity to the city centre and whether the surrounding environment is conducive for human settlement and available utilities like water and electricity accessibility are some of the things you can look out for. This, he says helps one get the feel of what exactly they want to buy.

He also says that before one buying any property they would have to ensure that all documents such as titles and transfer documents are verified and signed.

Nancy Nancy Matovu, made a decision to buy an apartment to which she would return when she came back from the UK.

For real estate projects to go as planned without prolonged delays, the developer must be in touch with the construction regularly. PHOTO BY Godfrey Lugaaju

Months before the real estate developer who was helping her locate the property shared with her photos and videos of an apartment building he thought she would like. She was impressed and bought the apartment.

Unfortunately when she eventually returned, she realised the developer had lied to her about the location of the building.

“He had told me that the apartment was in Kigo, Wakiso District but it turned out it was in Makindye. I insisted on him getting me what I had paid for which he did, but after nine months of waiting,” she explains.
Inspection is a sure way of protecting oneself from fraudsters.

Kibira says property agents (brokers in this case) are usually the most resourceful people to deal with if you are looking to invest in real estate.

However be sure to vet whoever you choose to work with.

“You have to be careful with the agent you are dealing with. They have to be trustworthy. In this case they must be licensed. Most have one goal in mind, selling regardless of what they are selling because they are looking at earning commission for every sale,” he cautions.

Herbert Sande Tinka, Twed Property’s Development chief operations officer says they see many people who are fleeced by brokers. Tinka says the brokers usually lie about pricing.

“Most brokers are only after money. Actually they are paid on commission, so, the more clients they bring, the more money they get. In the process, they end up lying to clients about properties,” he says.

Questions to ask before Buying off-plan
According to Gitonga Muriithi, the head of sales and marketing at Centum Real Estate, the most accessible way to invest in real estate is to buy off-plan. This means selling or buying of property before it is constructed.

Muriithi says it is advantageous because you do not have to have massive amounts of money in order to do it and the returns are substantial.

However, it is risky because, you are buying into a dream and you have to trust a developer to make it happen. Since you want to ensure you do not lose your capital, due diligence is a must.

Mr Muriithi points out a few questions one should ask before venturing into this kind of investment.

Can you trust your developer?
The largest temptation would be to go with the one that offers you the flashiest deal. It could be ridiculously low prices, unrealistic project timelines or unbelievable returns. Do some digging about the developer. What is their track record? Have they delivered other projects before? What do their clients have to say?

If, in the course of your research, you find any alarming signs, then it is probably a good idea to stay away.

Is the construction site real?
Visit the proposed construction site from time to time, before you invest and during the length of the project. This will reassure you that it is a real development and the building is proceeding according to schedule.

What other teams are involved?
Legitimate developers will be very open about the teams they are working with. This includes the head contractor, architect and suppliers. It is worth going through their profiles to get a sense of the kind of experience they have.

Are you getting regular updates?
It should concern you if your developer is not forthcoming with information, especially after you have begun to make payments.

Does the amount make sense?
Many developers will offer discounts to try and remain competitive, but if the deal seems too good to be true, approach it with plenty of scepticism and caution.

Are you on schedule and/or budget?
If construction unexpectedly stalls for months on end, or you suddenly have to pay much more, it could be a sign of trouble. Be keen on all communications you receive from your investment partner.
Basically, you must be proactive. You cannot just sit back and passively wait for your investment to bear fruit.

Adapted from Daily Nation