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Rank: Member Joined: 4/19/2007 Posts: 68
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It is essential to differentiate between a home buyer and an investor. To a home buyer the decision to purchase is more emotional than rational and they have no interest in return on investment or any other ratio. See this interesting article that brings out the message http://quadrantshift.co..../a-letter-to-my-banker.
On the other hand is the investor who uses something called capitalisation to determine economic viability of the property. To the investor a property with a gross rental income of 20,000/- would at the current interest rate have a capitalised value of 960,000/-. Even if you bought the house cash (5M) the return is only 4.5% you are better giving Uhuru your money at 22%. Abby wrote:Hi Gentelemen,
Over the weekend, I met officials of Housing Finance in Kitengela where they have opened a shop.
They showed me their mortage rates, current ones. A shocker: you borrow 5M at 97k monthly for 20 years, yet that house can only fetch 20k monthly rent.
Is mortage loan under these conditions of any use really! We are in tough times.
Regards
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Rank: Chief Joined: 1/13/2011 Posts: 5,964
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stocksguru wrote:It is essential to differentiate between a home buyer and an investor. To a home buyer the decision to purchase is more emotional than rational and they have no interest in return on investment or any other ratio. See this interesting article that brings out the message http://quadrantshift.co..../a-letter-to-my-banker.
On the other hand is the investor who uses something called capitalisation to determine economic viability of the property. To the investor a property with a gross rental income of 20,000/- would at the current interest rate have a capitalised value of 960,000/-. Even if you bought the house cash (5M) the return is only 4.5% you are better giving Uhuru your money at 22%. Abby wrote:Hi Gentelemen,
Over the weekend, I met officials of Housing Finance in Kitengela where they have opened a shop.
They showed me their mortage rates, current ones. A shocker: you borrow 5M at 97k monthly for 20 years, yet that house can only fetch 20k monthly rent.
Is mortage loan under these conditions of any use really! We are in tough times.
Regards @sguru..I concur with you. Kwanza the wifey holds a gun to ur head. 
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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mzeekijana wrote: ... In the place I am one can get a loan at a rate of 5% ... Which place?
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Rank: Chief Joined: 1/3/2007 Posts: 18,124 Location: Nairobi
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mwekez@ji wrote:mzeekijana wrote: ... In the place I am one can get a loan at a rate of 5% ... Which place? GoK employees can get 5% loans... Yes, coz the Taxpayer pays the difference... Judiciary gets it at 3%... Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Member Joined: 11/21/2006 Posts: 608 Location: Ruiru
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stocksguru wrote:
To the investor a property with a gross rental income of 20,000/- would at the current interest rate have a capitalised value of 960,000/-. Even if you bought the house cash (5M) the return is only 4.5% you are better giving Uhuru your money at 22%.
Very true, am still mad at my 5m home investment that brings nothing whereas I know I can get decent accommodation @30k when my 5m can easily make 20% Home ownership is informed by so many stakeholders such that nothing makes sense at all in the end. Parents wants to see you own a home. The gang up with opposition within your household to push ideas through the throat. "..I am because we are. "― Ubuntu, Umtu,
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Rank: Elder Joined: 5/27/2008 Posts: 3,760
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Remember when you get a 5% loan you are liable to pay Fringe Benefit Tax.
FBT is computed as follows:
KRA announces every three months a deemed interest rate, currently I think it is 11%
The difference between the deemed rate (11%) and the rate your employer gives you (5%) is applied to your loan. Say if your loan is ksh 2M, the deemed interest for the month is 6%(11 - 5) of ksh 2M divide by 12 months = ksh 10,000. The 10K is assumed to be a deemed income and you pay 30% tax (ksh 3,000).
Your employer is expected to deduct the 3K and remit it to KRA together with your normal PAYE. Strictly speaking this FBT should be borne by the employer and not you, but I'm not aware of any employer who bears this expense.
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Rank: User Joined: 5/3/2011 Posts: 559
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Gordon Gekko wrote:@bwenyenye, I'm sorry I fail to get your point. Mara the banking sector is collapsing, mara it's only the mortgage sector that is collapsing, mara mortgages are the lowest risk loans (meaning that even the mortgage sector collapsing is a remote possibility)  @Abby, true the first month interest is 100k, meaning the loan will never end with a repayment of 97k .The mortgage calculator shows a repayment of 103k, this will service the principal at 2.9k in the first month. This interest regime is a short term phenomena which will pass. People, mortgages are good loans, as they secure an appreciating asset. Just hold back your buying decision until the storm passes. Mortgages are the worst loans, if one is buying for his/her family thats is ok but if someone is trying to make money off signing up for a mortgage, you need to think twice. Look at the terms, mortgage holder is the borrower, the bank is the investor!
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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VituVingiSana wrote:mwekez@ji wrote:mzeekijana wrote: ... In the place I am one can get a loan at a rate of 5% ... Which place? GoK employees can get 5% loans... Yes, coz the Taxpayer pays the difference... Judiciary gets it at 3%... Thx VVS. I was thinking mzeekijana was talking of a place that we could have access
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Rank: Member Joined: 2/27/2010 Posts: 109 Location: NAIROBI
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So now am totally lost. Which one should somebody go for between 1) Take a loan to build your own? 2) Take a loan and buy off plan? 3) Take a loan and buy? 4) Take a mortgage?
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Rank: Chief Joined: 1/3/2007 Posts: 18,124 Location: Nairobi
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mwekez@ji wrote:VituVingiSana wrote:mwekez@ji wrote:mzeekijana wrote: ... In the place I am one can get a loan at a rate of 5% ... Which place? GoK employees can get 5% loans... Yes, coz the Taxpayer pays the difference... Judiciary gets it at 3%... Thx VVS. I was thinking mzeekijana was talking of a place that we could have access He did specify... "In the place I am..." Greedy when others are fearful. Very fearful when others are greedy - to paraphrase Warren Buffett
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Rank: Elder Joined: 12/9/2009 Posts: 6,592 Location: Nairobi
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mwekez@ji wrote:VituVingiSana wrote:mwekez@ji wrote:mzeekijana wrote: ... In the place I am one can get a loan at a rate of 5% ... Which place? GoK employees can get 5% loans... Yes, coz the Taxpayer pays the difference... Judiciary gets it at 3%... Thx VVS. I was thinking mzeekijana was talking of a place that we could have access Hiyo ni swali ama jibu? Surely, do you think our selfish, mega-profit making banks would exist if there was such a place?
BBI will solve it :)
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Rank: Elder Joined: 6/19/2008 Posts: 4,268
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mzeekijana wrote:QW25081985 wrote:is there anyway we could make money with this high interest rates before they go away ? QW Tuko pamoja.....niko na 6M kwa mfuko ...I need a bank that can give me a return hata kama ni 15% ..ni wapi huko? In the place I am one can get a loan at a rate of 5% si unaona vile nita make money...Buy loan hapa and plant them huko nyumbani...Wazee tell me which bank is offering cool rates?? i understand the rates will be coming down for FDs... so if you are still holding cash, you are loosing out... Some banks are giving between 15-17% while others insist on 12-13%.... and bestest the reach is 13.75%... still good if you are getting the loan at 5%.
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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2012 wrote:mwekez@ji wrote:VituVingiSana wrote:mwekez@ji wrote:mzeekijana wrote: ... In the place I am one can get a loan at a rate of 5% ... Which place? GoK employees can get 5% loans... Yes, coz the Taxpayer pays the difference... Judiciary gets it at 3%... Thx VVS. I was thinking mzeekijana was talking of a place that we could have access Hiyo ni swali ama jibu? Surely, do you think our selfish, mega-profit making banks would exist if there was such a place? @2012, your bank is not the only institution that dispenses loans. If that is what being an elder is doing to your thinking, then i dont admire you talk mzeekijana, were you referring to GOK, or a SACCO, or an institution in kenya/another country, or ...
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Rank: Veteran Joined: 7/8/2008 Posts: 947
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Here is an interesting tool in the renting vs buying debate! http://www.nytimes.com/i...tor.html?ref=realestate
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Rank: Elder Joined: 5/24/2007 Posts: 1,805
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Rank: User Joined: 5/3/2011 Posts: 559
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I do not agree with the analysis, it just doesn't make sense, the analysis made a very huge assumption that will only apply to US and markets that have seen the housing prices bottom down so this analysis will not apply to Kenyan markets at all. Renting make more sense when the housing prices are unreasonably high.
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Rank: Chief Joined: 3/24/2010 Posts: 6,779 Location: Black Africa
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Drunkard wrote:I do not agree with the analysis, it just doesn't make sense, the analysis made a very huge assumption that will only apply to US and markets that have seen the housing prices bottom down so this analysis will not apply to Kenyan markets at all. Renting make more sense when the housing prices are unreasonably high. Like now? GOD BLESS YOUR LIFE
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Rank: User Joined: 5/3/2011 Posts: 559
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@youcan'tstopusnow,
Yes like now! And I guess it is not that easy to understand how the Mortgage industry works and my assumption here is that, one person take a mortgage to finance a house and the other one rent a house. The fact of the matter is for the person who bought the house to realize any gain, the house need to be appreciating at a rate high than the nominal interest rate of the loan and it did in US markets between 1998 to 2006, infact between 2004 and 2006, the appreciation was in double digit while the interest rates was about 6%. Now in Kenyan case, if anyone think the property prices will be able to appreciate in a rate higher than the nominal interest rates of the loans for unforeseen future, then buying make economic sense but if not then renting actually make economic sense!
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Rank: Veteran Joined: 7/8/2008 Posts: 947
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Drunkard wrote:youcan'tstopusnow wrote:Drunkard wrote:I do not agree with the analysis, it just doesn't make sense, the analysis made a very huge assumption that will only apply to US and markets that have seen the housing prices bottom down so this analysis will not apply to Kenyan markets at all. Renting make more sense when the housing prices are unreasonably high. Like now? @youcan'tstopusnow, Yes like now! And I guess it is not that easy to understand how the Mortgage industry works and my assumption here is that, one person take a mortgage to finance a house and the other one rent a house. The fact of the matter is for the person who bought the house to realize any gain, the house need to be appreciating at a rate high than the nominal interest rate of the loan and it did in US markets between 1998 to 2006, infact between 2004 and 2006, the appreciation was in double digit while the interest rates was about 6%. Now in Kenyan case, if anyone think the property prices will be able to appreciate in a rate higher than the nominal interest rates of the loans for unforeseen future, then buying make economic sense but if not then renting actually make economic sense! If you look at that tool you can adjust the property appreciation, you can even adjust the settings on how much you can earn from investing through other sources. From my many adjustments it actually makes more sense to rent and give ndungu the deposit and the mortgage monthly payments as opposed to mortgaging at 23%. The long and short of it is the tool can be used even in Kenya. All you have to do is tweak the interest rates and look at the numbers critically!
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Rank: Hello Joined: 12/22/2011 Posts: 2
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GGK wrote:stocksguru wrote:
To the investor a property with a gross rental income of 20,000/- would at the current interest rate have a capitalised value of 960,000/-. Even if you bought the house cash (5M) the return is only 4.5% you are better giving Uhuru your money at 22%.
Very true, am still mad at my 5m home investment that brings nothing whereas I know I can get decent accommodation @30k when my 5m can easily make 20% Home ownership is informed by so many stakeholders such that nothing makes sense at all in the end. Parents wants to see you own a home. The gang up with opposition within your household to push ideas through the throat. Owning a home is an emotional issue. My take on it is buy if and when you can afford it, if not for yourself for your projeny. Think about it, we use / waste money on unnecessary things, why not "waste" it on a mortgate?
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