Real Estate; to Rent or Buy in Nairobi

The headline of the Business Daily today is "Low rental incomes hit real estate investors" It reports that in the last 5 years residential house prices have doubled as incomes from rent have stagnated. Counsel well received; buying a house to rent out and make money is a dumb investment.

I was disappointed that the Business Daily article does not offer comprehensive analysis of this situation. For example is it a wise decision to buy a house to live in or should you just rent.

As I navigate mid-life I have been feeling immense pressure to own a house. Partly to satisfy those that suggest that if I do not own my house I cannot claim to be successful (whatever that means) but also because it feels more responsible to buy than rent.

I am given to analyzing and thinking critically about issues and confess that right now I am stuck; afflicted with the paralysis of analysis with regard to owning a house.

The two things have surprised, actually shocked me;

Huge mismatch between rent and mortgage 
For a house valued at KES 8,000,000. I would pay a mortgage of KES 100,770 each month for fifteen years, at an interest rate of 15%. This would be after I paid an initial down payment of KES 800,000. The monthly rent for the same house would be approximately KES 40,000.

Bear with me and allow me to, in a simplistic way, forecast what the situation would be in 2025 at the end of the mortgage period. I will have paid KES 18,138,600 to buy the house or KES 10,357,711 to rent it,  assuming an annual increment of 5%.

There are only 20,000 mortgages in Kenya! 

Martin Oduor, the CEO of KCB, confirmed this at Mindspeak on October 30, 2010. The tried and tested path to home ownership in Kenya seems to be, buy land then build your house. You may take many loans in the process but very few take a mortgage to buy a house in one fell sweep!

Perhaps I should muster courage, overcome peer pressure and keep renting. Save as much as money possible. Then when the kids have moved on decide whether to build or buy a retirement home or just keep renting. Who knows what amazing new estates there will be in Kenya in 2025...