By Morris Aron
Tuesday, December 07, 2010
A year ago, Internal Security PS Francis Kimemia ordered provincial administrators to carry out a property census.
The audit aimed at profiling property owners after concerns that piracy money from Somalia was fuelling a rise in property prices in the country.
Then, there had been concerns that proceeds of money laundering had led to inflation of land and house prices in the city much to the chagrin of Somali professionals who termed it unfair and backward.
A year later, it is not even clear whether the exercise ever kicked off. In fact, there has not been any mention of such a report ever being compiled.
The concerns, however, continue to reverberate beyond the property market. In a report mid this year, the Central Bank of Kenya touched off debate when they alluded to entry into the economy of huge amounts of money whose source cannot be traced.
But some observers disagree. Property Conveyance Lawyer Yunis Mohammed says those he is helping buy properties in the country are not just Somalis..
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In a report mid this year, CBK touched off debate on the role of pirate money when they alluded to entry into the economy of huge amounts of money whose source cannot be traced. |
"The perception that it is only Somalis - Kenyan or otherwise - buying property using proceeds from piracy on the high seas is at best a widely held fallacy and at worst an scorn at the prudent investment model that the Somali use whenever they invest."
Property players agree with Mr Mohamed’s statements.
They say piracy money or not, demand for properties has been on the upswing as the percentage of the middle class grows with the economy rebounding.
To capture the interest of the emerging middle class, financial institutions have in the recent past developed innovative ways to assist people own homes. This has inadvertently led to increased demand for houses.
Industry statistics support this school of thought, especially with returns on property investments being higher than that of stocks.
Over the last 10 years for example, individuals who invested in real estate earned higher returns compared to those who traded at the Nairobi Stock Exchange (NSE). As a result, for profitable long-term investments, the property sector holds key.
Leafy investment option
A recent industry analysis by Stanbic Investments Management Services — one of the largest fund managers in East Africa with a property portfolio worth Sh20 billion— and HassConsult indicated that on average, earnings from the real estate sector since 2000 were three times more than stock market returns.
In addition, earnings from the property sector were consistent and inflation-proof compared to the bourse that has seen its shares go up and down.
"With this data, it is our belief that property is a strong asset class, which has been inflation-beating yet it is under exploited," says Mr Anthony Mwithiga, chief investment officer at Stanbic Investment Management Services.
Another report by CBK, in conjunction with the World Bank, indicates that investment in real estate residential sector grew to Sh61 billion as of May this year, compared to Sh19 billion five years ago.
"The report confirms a trend of increased level of interest in people owning houses, as opposed to renting," says Frank Ireri, the managing director of Housing Finance, a mortgage financing company.
"It is our estimation that actual figures on the ground, if remittances from the diaspora, Sacco loans and personal saving investments are tallied, would be much higher."
But even as the documents indicate that interest in real estate has grown, could it be possible that piracy money is still finding its way and contributing to higher property prices?
"There is suspicion that some of the money that is being collected in piracy is being laundered by purchase of property in several countries, Kenya being one of them," said government spokesman Alfred Mutua at the beginning of the year.
Kenya shares a 500-mile border with Somalia. In addition, the country has large Somali community of up to 200,000 people.
It has been claimed that millions of dollars in ransom money paid to Somali pirates are being invested in Kenya, Somalia’s southern neighbour and East Africa’s largest economy.
Pirate booty
Intelligence reports have in the past indicated that piracy money along the coast of Somalia is re-routed to Kenya with beneficiaries investing in real estate, transport and Shylock.
It is thought that pirate money could also be finding its way to other African real estate markets as well including Dubai.
Such intelligence reports have indicated that the pirates use the money to buy villas and cars at home in Somalia.
However, several UN staff have continuously been quoted in international press saying the money could be flooding the Kenyan property market ‘because of the sheer amount of money the pirates have.’
Statistics of ransom payments indicate that Somali pirates have been paid more than $100 million (Sh8 billion) in ransoms in the last two years.
In 2009 for example, it is estimated that income from piracy reached a staggering $40 million (Sh3.2 billion).
Unfortunately, investigators have been unable to link the money to piracy and terrorism.
According to Mr Mohamed, there is no denying that some part of the piracy money could be entering the country from Indian Ocean waters.
"Of course we cannot absolutely say that there is no piracy money entering the Kenyan economy just like drug money and other forms of ill gotten wealth," says Mr Mohamed.
"However, if such is the case, there are relevant arms of State charged with checking such vices and their inability to deliver should not be borne by hard working investors."
Hassan Guleid, the chairman of the Somali business community in Nairobi, says Somalis living in Kenya have acquired property by pulling resources together and borrowing from banks.
"Somalis here also depend on money sent by a large Somali population in Europe and America who cannot invest in those economies because of religious beliefs," Guleid said.
And there are examples to this.
One of the largest malls in Eastleigh is owned by over 200 investors in a special arrangement where individuals buy shares in the company undertaking the development, and based on trust, the investors leave it to the person managing the property to distribute the profits.
Ali Abdi, a Somali businessman who has been living in Kenya for the past 10 years told the Financial Journal on the investment style of Somalis:
"Somali people come together. They gather the money. They invest everywhere. That’s why they make more money than Kenyans."
But even as the debate as to what is fuelling property prices continues, there is a school of thought that the increasing sentiment against Somalis is stemming from general concerns that rentals in their neighbourhoods have been rising in tandem with property prices.
Hefty payments
Somalis — like those from South Sudan and Ethiopia generally tend pay large amounts or in lump sum whenever buying or renting houses.
As a result, the neighbourhoods bordering Somali communities in the city tend to be more pricey compared to what the locals pay.
Rents in such neighbourhoods tend to double almost every two years as Somalis in the diaspora send support money to their families living in Kenya.
Experts say the fact that many Somalis do not have access to the formal banking system is also partly to blame for the perception that it is all piracy money.
Somalis use hawala, informal money transfer institutions where payments are made by word of mouth and which are rarely registered and in principle operate as legal currency exchange bureaus.
"In all these accusations, there is really no proof to link the piracy money to rise in property prices as we have seen in the country," said Mr Mohamed.
Source: Standard