Topical Feature: Sub – Letting: Understanding the Dynamics

Subletting occurs when an existing tenant rents all or part of their home to someone else who is commonly referred to as a subtenant. In order to sublet, the best course of action is to seek permission from your landlord who can either accept or reject your request within reason. In Kenya, a tenant can sublet with written consent from their landlord.

From the perspective of the landlord, it is important for them to protect themselves against any potential risks.

The main benefits of subletting are:

• It is very attractive and as such opens up the landlord to a new pool of renters and potentially better income from their property.
• As a landlord it is key that your rental property is not vacant at any particular point for you to continue earning a good return on the investment, some tenants would only be renting for short period of times and as such would require a short term lease. However, there are some tenants who would not want to end the lease or re-sign a new one if they did come back to the area so allowing them to sublet will enable you lower your turnover rate and keep your rental property rented close to 100% of the time.

The main disadvantages of subletting are:

• The land lord will be unable to exert some sort of control depending on how the subletting agreement has been structured. This is in reference to the kind of people your tenant sublets to. In effect of your tenant subletting your property, they become the landlords of the sub tenant and thus are the ones in control of what happens to your property this cuts you out of the picture to the extent of your subletting agreement.
• If the landlord is dissatisfied with the tenant and wants to evict them then the landlord has the difficult challenge of not only evicting one tenant but two! This would be a very challenging process to do and in effect may be stressful.
• Legal issues are also another disadvantage to subletting. As a landlord you are protected though your tenant of any wrong doing to your property from the sub tenant. However, taking legal action is another tedious process as you try and prove fault and recover what is owed to you in the event of property damage.

How to make sure you have a reasonable tenant policy:

• Weigh the pros and cons first before deciding whether you would like to pursue subletting.
• Make sure existing tenants understand their responsibilities with regards to subletting.
• Retain control in initial screening process of potential sub tenants.
• Have a gel professional go over the tenant policy for validity and accuracy.

Global Trends

Launch of a global real estate network

News Corp launched a global real estate network during the last week of July in an effort to create the world’s largest source of properties. This offers real estate investors and enthusiasts to have the ability of participating in global real estate with just one click.

This network will comprise of real estate available on digital platforms in Australia, Western Europe and Asia with the US real estate. This will provide consumers and realtors’ access to more than 3 million listings from 56 countries and it is estimated by REA that the network will attract in excess of 200 million visitors.

This has proven the importance of the digital space in the real estate market. This is through the importance of the fast growing online classified advertisement market which provides a way for consumers to explore property through sites they know and trust. To put this into perspective, the realtor.com since the year 2014 has become the second largest real estate website by audience with revenues up 35% as at quarter 2 2016.

The ability for people to search with confidence for real estate properties and information is an important step forward in the evolution of real estate.

Punitive tax on foreign property buyers

Vancouver, Canada is going to be the first city in Canada to impose an additional property transfer tax on overseas property buyers at a minimum 15% of the property price. This will be an additional tax to the general transfer tax that ranges between 1% and 2% of the property value. This tax will apply to foreign corporations and individuals which want to purchase residential properties.

This punitive tax reflects the fears that foreign buyers have been contributing to inflated property prices pushing middle class families out of the market making them unable to buy up local properties. Foreign buyers account for close to 5% of all buyers with the Chinese being the biggest segment of foreign buyers.

The debate remains whether placing a punitive tax on foreigners will make the real estate market either better or worse. With the case of Singapore, they imposed its own additional stamp duty on foreign and corporate buyers in the year 2011. Transaction volumes initially fell but later recovered and continued to rise this just showed that the foreigners found their way around the tax and continued to buy into the market and as a result real estate prices continued rising.

Kenya Trends

The ‘losers’ in rapid urbanization

It is no secret that Kenya is rapidly urbanizing from end to end. With the massive infrastructure projects such as the SGR and the different by-passes into Nairobi which reinforces the fact that it is the heartbeat of Kenya and its environs are benefiting from the easier access into the city under the sun. Residents of Nairobi looking for more affordable housing have found a home in the satellite towns that are too modernizing their infrastructure so as to attract people and businesses into their areas.

Devolution was a key factor in contributing to modernization and urbanization of these satellite towns that have become hubs in their respective counties. To cater for the rising demand for affordable housing and the abundant supply of affordable land in these areas, apartments have been the most built up structures.

One such place that has greatly benefited from this urbanization is Kitengela town located in Kajiado county which is about 30 km south of the capital of Nairobi. Private developers scrambled to have pieces of land in this town which is primarily ancestral Maasai communal grazing land. This has left many Maasai pastoralists with little to no land to graze their cattle leaving them with no choice but to walk long distances so as to find pasture. Private developers are said to be in cahoots with unscrupulous Maasai elites or clan leaders and to an extent Politian’s in an effort to convert the ancestral land into private land.

On top of pastoralists losing their ancestral land, Kitengela faces infrastructure constraints like piped water, interior estate roads and sewerage systems. This has however, not deterred developments and this is set to balloon in the coming years.

This week in the Kenyan Real Estate Market

According to popular real estate site Lamudi, these are the current trends in Nairobi for the week:

Rental Property:

Property for Sale:

Interest Rate Watch

Subscription rates have increased to close to 89% as investors flock short term risk free Treasury bills as they continue to exhibit improved returns over the past month. Investors may be biased towards short term Treasury bills due to the uncertainty in the current macroeconomic environment.

An increase in Treasury Bills is an indicator of higher interest rates in the Kenyan macroeconomic space.

Market Data (Weekly Average)

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