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Future Trends in Real Estate Due Diligence Practices in Kenya

By Amrit Soar

In the ever-evolving landscape of real estate, due diligence practices in Kenya have faced intense scrutiny. 

Broadly, due diligence over land involves investigating the property details, verifying the ownership of the property, carrying out a historic and physical check and scrutinizing the legal aspects affecting a parcel of land. It aims to ensure that a bona fide purchaser makes informed decisions when buying property and subsequently safeguards the interests of a purchaser or investor with respect to real estate transactions.

Technology promises to transform real estate due diligence from a manual and time-consuming process to an affordable, agile, real-time, and data-driven process.

An example is Ardhisasa, Kenya’s digital land records platform launched in 2021 which has ushered in a new era of conducting due diligence. By digitizing land records, Ardhisasa promises to simplify due diligence over land. Buyers can verify ownership, check for encumbrances, and assess the property history with a few clicks of a button. Despite the current challenges with the platform, we anticipate that once Ardhisasa is rolled out countrywide, it will allow for full automation of due diligence over immovable properties in Kenya.

In recent years, tokenization technology has disrupted various sectors globally, and the real estate sector is one of them. Tokenization is a blockchain technology that involves the process of dividing an asset (such as real estate) into smaller, tradable units represented by digital tokens. These tokens are securely stored on a blockchain, providing transparency, liquidity, and fractional ownership opportunities. While tokenization hasn’t fully entered the Kenyan market, global trends suggest it’s only a matter of time.

Due diligence in tokenization will involve the integration of advanced data analytics to assess the performance of tokenized real estate assets, providing valuable insights into market trends and risks. Artificial intelligence will play a crucial role in automating the processes of analyzing vast datasets enabling investors to make informed decisions by predicting market behaviour of the tokenized real estate assets. As the adoption of blockchain grows in Kenya, enacting an enabling regulatory framework will also play a pivotal role in shaping a resilient and inclusive real estate sector.

Real Estate Investment Trusts (REITs) are another investment vehicle which has already been introduced into the Kenyan market.  As an example, the Acorn Student Accommodation Development REIT (“ASA D-REIT”) is one of the REITs managed by Acorn under the purpose-built student accommodation asset class. The ASA D-REIT has transferred assets valued at circa KES 5.4 Billion to the Acorn Student Accommodation Income REIT (“ASA I-REIT”). Additionally, the ASA D-REIT declared its first dividend payout to investors in December 2023, with a dividend yield of approximately 3.6 percent.

REITs operate like mutual funds for real estate. They pool capital from numerous investors in a trust and use it to acquire, operate or finance income-producing properties for beneficiaries of the trust.

Future due diligence practices in REITs will involve in-depth analysis of property portfolios, through advanced analytics to predict growth opportunities. Buyers and investors will conduct financial evaluations that go beyond traditional metrics, focusing on sustainability and utilizing predictive modeling to anticipate risks. Assessments of REIT managers, promoters, trustees, as well as property managers will be enhanced through data-driven insights, while opportunities will expand for experts to be consulted on these aspects.

Going forward, technology will take center stage in shaping the future of due diligence practices. With digitization of land records, automation of data collection and analysis, risk assessment of immovable property is likely to be simplified and made efficient, facilitating quicker and comprehensive due diligence mechanisms including accessing data on the historical root of an immovable property. With digitization and automation, robust cybersecurity measures and strict data protection and privacy policies will be crucial. A transformative change is expected in the future where technology and data will drive real estate due diligence practices aimed at accuracy, efficiency and speed.

The article was featured in the Business Daily on 8 May 2024 and can be accessed here.