I am torn in between buying my first car or buying a plot to either construct a house to either move into or rent out. I have asked my colleagues at work who mainly seem to encourage me to buy a car – as they did – arguing that I am still young and not employed on a three-year contract as other staff. I would appreciate your thought on which of the two investments is better before I make up my mind.
Tom, Nairobi
Several factors may need to be considered before settling on either buying a car or land. There are some people who may argue that buying a car would help them earn some passive income by using the vehicle as an online taxi. However, real estate is durable and has better returns on investment compared to owning a car, which after seven years may have depreciated slightly over 40 per cent of its initial value. A car also has several running costs which include regular maintenance after every 5,000 kilometres and replacing of worn out parts. Cars are generally depreciating assets with the biggest depreciation recorded in the first year!
Majority of employed Nairobians who buy cars on loan spend several months paying up, which makes them slaves to landlords as income seldom remains to either buy a plot or a house on mortgage. Moreover, the fast and flashy life in Nairobi pushes middle-income employees to change vehicles regularly to maintain their social status. The rate at which Nairobians are buying classy vehicles, which are parked outside rental houses, where they are perpetual defaulters, is mind boggling.
For some Nairobians who kissed their landlords goodbye, they took a leap of faith and bought plots in the outskirts before constructing modest homes on salary. Construction of home is also a sure way of future investment – upon retirement, you may either live in or rent it out.
There are, however, several factors that should be considered before opting to buy the popular one eight-acre plot to either construct a house. For instance, purchasing a plot next to major infrastructure developments like along super highways or strategic by-passes may make you summer-sault to the bank. Nairobians have also of late developed a habit of avoiding going to the busy Central Business District unless it is very necessary. Therefore, residential investments with proximity to malls would guarantee ready tenants.
The ongoing construction, re-carpeting and expansion of roads in Nairobi is pushing a rise in property prices forcing many prospective investors to seek options in satellite areas – Kagundo Road, Joska, Juja, Malaa, Ruiru, Limuru, Kitengela and Kamulu are among the areas on the radar of may first-time real estate investors.
-Ayodo is an Advocate of the High Court of Kenya