How Political risks affect the Real Estate Market

Political risk simply refers to the likelihood that the actual outcome from an investment will vary from the expected, due to political changes in a country. It is concerned with government policy, leadership and stability, conflicts, possibility of a coup, tension and war, political parties and bureaucracy.

Kenya is a multi-party Democracy with a unicameral parliament which creates laws which are administered by the Executive arm of the government. The Kenyan constitution protects private property and provides safeguards against expropriation of such property without compensation. In case of Commercial disputes, Kenya has a Commercial Court under the Kenyan Judiciary.

Kenya being an economic giant in East Africa maintains its rank among the top 10 largest economies in Africa. Large and growing economies are characterized by low unemployment risk, sound monetary policies as well as low inflation. As a country’s economy expands, the level of political risk declines hence the fact that large economies are less risky.

Kenya being a developing country is not immune to political risks. However, political risk globally has been on a decline.

Political risk is measured against a continuum of indicators and from these indicators, a number of them rank highly. Some of the indicators that rank highly are: The cost of living, the size of the economy, government policy and legal framework.

As measured by purchasing power, the cost of living is highly influenced by income as well as employment since employment is a major source of income. So as income increases, the pressure for political change decreases and the purchasing power increases.

Government policy and legal framework is very critical. This is simply because policies and actions by a government may lead to a war, civil disobedience or even go as further as precipitating terrorism. This will create an environment for confiscation, expropriation and nationalization of assets. The introduction of interest caps in Kenya falls under this category. This is a major finance policy and legal framework reversal.

Political risks can mainly be diminished by making short term investments. Where joint ventures are contemplated, partnering up with locals can be highly effective. In the short term, the direction of the economy is much easier to forecast.

In the same way, the effect of political change, if it happens, is more visible over a short horizon.

Partnership with the locals is recommended as a political risk mitigating measure for foreigners with interest in the local real estate market.

While real estate is a global asset, in terms of market dynamics it is affected by local factors. Partnering with someone with deep local knowledge and networks help mitigate Political risk.

While real estate is a global asset, in terms of market dynamics it is affected by local factors. Partnering with someone with deep local knowledge and networks help mitigate Political risk.

Kenya has been on a political reform path since the uproar for multi-partism and reached its climax with the adoption of the new constitution. These reforms have greatly contributed in reducing political risk and this has clearly reflected in the country’s default rating and countries risk premium rankings.

Kenya is a growing democracy with developing social and economic institutions. Accordingly market cycles are heavily influenced by political activities.

It is therefore recommended that real estate investors develop and implement suitable political risk management frameworks for their investments.

The digitization of land records in Kenya will protect individual interest of persons who have invested in real estate. This will enhance transparency and accuracy. Let Denver Group Limited help you buy cheap plots for sale in Kenya. Call: 0701 730 267.