Common things about real estate scams

Real estate developers’ failure to deliver the homes promised after receiving money are quite common on Kenya’s property scene.

Many property owners will admit to having thrown money to the wind before they eventually learned the ropes of investing in this risky industry. Most property scams have similar traits. Let’s take a look at some of them.

Too-good-to-be-true prices

Shoes are affordable, a loaf of bread is also affordable, even a car can be termed as affordable to some, but a house has never been affordable. When someone offers you an “affordable” house, take a walk and reflect before handing over your hard-earned money. Many property scams have marketed their homes as affordable.

Take, for instance, a 2015 housing scheme that turned out to be a scam. The houses were sold on a ‘rent to own’ model whereby investors would pay questionably small amounts of money in the form of rent as instalments after paying a down payment of as little as KSh350,000. The instalments were friendly enough to accommodate one’s earnings. To sweeten the pot, investors were lured with a ‘no interest’ deal. Instead of paying mortgage interest, investors would co-own homes with the company, until they completed their payments.

Similar affordability was presented by the Shangilia Baba na Mama housing scheme of the mid-90s. With as little as KSh10,000, investors would earn a ticket to home ownership.

They would then be required to pay monthly instalments of less than KSh7,000 to own the small bungalows on Mombasa Road. Isn’t that a sweet deal? To date, the small bungalows stand destitute and empty without owners after the deal went south.

When you spot a property that is within your budget, or one that you can afford, your heart melts as you imagine yourself owning a home, at last. All logic goes out the window and you forget about consulting an expert or fact-checking. Price is a magnet in real estate.

Selling promises

Many property scams tap into the psychology of discounts by using words such as ‘affordable’ or ‘save money’ to attract the attention of low-income earners. Studies show that a majority of people will always go for the cheaper or ‘fairly priced’ commodity on the market. Unfortunately, in the property industry, cheap commodities often turn out to be expensive.

The pricing of a house depends on a number of factors, its location, size, design, and at times its age. A developer will obviously need to make a profit out of a project. They will, therefore, consider the cost of buying land and building the house when pricing homes.

Before committing to buy property, check the value of land as well as the market price of similar houses in the same location.

You may also talk to a number of people who have bought similar houses or professionals such as developers or consulting structural engineers. The prices may not be exactly the same for all properties in the area, but they should be close. The ultimate professional to consult is an independent valuer, who conducts all the necessary research and presents conclusive numbers.

Scammers are often big on words but slow in action. They will promise heaven but deliver little to nothing. It is hard to find a scammer promising real houses on the ground – it is only reasonable to purchase a house or a commodity you can see. Often, property scammers advertise houses at the design stage or a greenhouse that is yet to produce its first harvest.

Perhaps it is the speculation culture of Kenyan investors that they tap into, or maybe they just dream big like the target market. The most famous property scandals are all pegged on off-plan buying, an indicator that this concept can be an extremely risky one.

Also worth noting is that some of the schemes fail to take clients for site visits while others organise site visits of bare land and promise clients to transform the land into beautiful homes.

Quick results

Images have also proven to be deceptive when buying homes. Visit the sites and ensure what is on the ground is similar to what is in advertisements. The home-buying process should not be done from the comfort of your couch or online. It is a physical process involving several experts who may include a lawyer, a surveyor and a valuer.

The get-rich-quick greenhouse scams always promise hundreds of thousands after only six months of ‘farming’. Note that you are not asked to lift a finger or soil your hands in the process. You just need to pay a certain amount, sit back and wait for the money to trickle in a few months later – since when did agribusiness become that easy?

Similarly, some off-plan house projects will promise to deliver hundreds of units in just eight to 12 months. Off-plan projects rely on investors’ deposits for construction to start.

That means there has to be rigorous advertising for many people to book and pay for units. In addition, all investors have to pay up their deposits on time and the logistics have to be favourable for a developer to deliver results within the promised timeframe.

Assuming you’re among the first to pay your deposit at the beginning of the year and the last batch of investors pay up in the middle of the year. Is it possible for the developer to construct all the units by the end of the year?

You have probably come across articles or advert headlines with titles such as “Try this and you’ll lose 10kg in seven days”. Such a concept may sound impractical and nearly impossible, but still, people will click on the links and try out the recommended method of losing weight.

This approach to marketing taps into the desire for instant gratification. Psychology and studies such as the Stanford Marshmallow Experiment show that most human beings would rather experience their rewards immediately rather than wait for a long time to gain something.

Unfortunately, the desire for instant gratification drives people to fall for unrealistic promises without fact-checking the details of a concept. You are better off with a real-estate company that tells the truth than one that promises unrealistic quick results, but disappoints in the long run.

Seemingly legit deals

Before investing in anything, take the time to analyse the concept and question its feasibility. In addition, research on projects that may have used similar concepts to establish the likelihood of success. If five greenhouse businesses have failed in the past, while only one succeeded, the chances of making money from such a venture are minimal.

Real estate scandals have shown a pattern of delivering results to the first batch of investors as a way of luring more clients and reassuring doubters. This motivates more people to invest with the company. Investors in most greenhouse projects allege to have received initial payments, but nothing came forth afterwards.

Shangilia Baba na Mama investors, too, were taken to the site and there was ‘evidence’ that the scheme was legit. To date, the houses still stand unoccupied, weather-beaten after years of abandonment and can easily be used by scammers to con unsuspecting investors.

What is worse is that first-time investors who receive the promised results will go ahead to give testimonials, which will then be published on the company’s social media pages and websites.

With testimonials and first-phase results as a point of reference, it becomes easier for people to invest in projects that may not materialise, after all, there is security in numbers and testimonials, and completed projects represent numbers. Even experienced investors will easily fall for a scammer with results on the ground.

It is hard to understand whether what follows afterwards is a case of financial mismanagement, unrealistic ambitions or pure scamming.

When cornered, most scammers will have pretty good excuses. Some will blame the weather, contractors or delayed supplies, while others will blame the economy. In addition to the excuses, angry investors will be told to remain patient. In many cases, the victims will be patient since the excuses are believable enough. Building properties is not easy anyway, and anything can befall a project.

Excellent excuses

When a developer is truly scamming investors, there will be no change on the ground. Some investors will just buy time to change agreements, disappear or scam more people. Others will rectify their mistakes and deliver, though way beyond the timeline on the contract.

Obviously, it is important to tread cautiously when investing in real estate. Many investors tend to leap onto “once in a lifetime” deals without consulting the right experts.

To evade scams, investors need to differentiate marketing from reality. Common marketing tools such as testimonials, catchy prices, enticing images and cleverly phrased words can be convincing, but real estate buying should not be an emotional affair. It should entail calculations, logic and consultations. As stated, houses are not cheap or affordable, sometimes you have to let go of a lifetime’s savings that take years to accumulate.

Pricing

Many property scams tap into the psychology of discounts by using words such as ‘affordable’ or ‘save money’ to attract the attention of low-income earners. Studies show that a majority of people will always go for the cheaper or ‘fairly priced’ commodity on the market. Unfortunately, in the property industry, cheap commodities often turn out to be expensive.