Nairobi Developers Embrace Joint Ventures to Offset High Construction Costs

Kenya's property market is witnessing a surge in joint ventures as developers grapple with land scarcity, escalating construction expenses, and limited access to affordable financing. 

These partnerships, while offering a route to large-scale developments, are increasingly fraught with legal and financial complications. The high cost of land and building materials, compounded by tightening credit markets, is making independent operation increasingly challenging for developers. This situation has prompted a rise in strategic alliances aimed at pooling resources and expertise. 

Developers who lack land but possess technical know-how and market access often collaborate with landowners holding idle plots. Similarly, partnerships with financial institutions, particularly savings and credit cooperatives (saccos), are becoming more commonplace, allowing developers to circumvent the high interest rates associated with commercial loans. These arrangements enable each party to leverage their strengths: landowners contribute property, financiers provide capital, and developers bring project management and market insight.

Akuku Felix, E-Commerce and Value-Added Services Lead at SIC Investment Cooperative, notes that "Seventy-five per cent of Nairobi’s major developments have succeeded because partners share the load." 

He adds that well-structured joint ventures can reduce project costs by up to 40 per cent, making them an attractive proposition in a capital-intensive sector. These collaborations, according to industry observers, have played a pivotal role in shaping Kenya’s urban landscape. However, this proliferation of joint ventures has also led to a rise in legal disputes. 

Conflicts frequently emerge over ownership structures, profit distribution, and decision-making authority. This is a lesson Dr Martin Matu, director at Cherd Africa, knows from experience. Several years ago, he entered a partnership with a colleague to acquire a substantial parcel of land, intending to subdivide and sell it or develop residential units as the property appreciated. While the collaboration allowed them to secure prime real estate that would have been unattainable individually, the venture soon became entangled in disagreements. 

"Every time I needed to make a quick decision regarding the property, I could not because I had to consult the other party," Dr Matu recalls. 

Disputes over profit-sharing arose as the land's value increased, stalling transactions and leaving the property unused. As a result, Cherd Africa now avoids joint ventures altogether, despite receiving numerous offers from potential partners who offer land or capital. "We have deliberately decided not to engage in joint ventures, due to the potential complications," Dr Matu states.

Felix emphasises the importance of consensus in joint venture decision-making, saying, "When investing with others, most of the decisions about the property including management, sales as well as major improvements must be agreed upon by all parties involved." 

This requirement can dilute individual autonomy and force compromises that may not align with one’s strategic vision. The financial entanglement inherent in joint ventures further complicates matters. Investors are bound to each other not only by shared goals but also by shared liabilities. Unforeseen expenses, such as regulatory hurdles or construction delays, can lead to capital calls requiring additional financial contributions from partners. 

Those unable or unwilling to meet these demands risk having their stake diluted, while others may see their ownership share increase. Such imbalances can strain relationships and destabilise the venture. Taxation adds another layer of complexity. Jacob Omondi, a conveyancing practitioner, observes that many investors struggle with managing tax obligations in joint ventures, particularly those unfamiliar with shared ownership. 

Income or capital gains from jointly held property must be correctly apportioned, and failure by one party to meet their tax responsibilities can expose others to legal risk. Prior tax disputes involving one investor can also complicate filings, potentially resulting in adverse outcomes for the entire group.