Build , Buy or Rent. How to decide for Residential projects in Nairobi.

Build , Buy or Rent. How to decide for Residential projects in Nairobi.

To build, buy or rent a house in Nairobi requires one to make a few wise calculations .

Example. Syokimau.

Let’s take an example of A house in Syokimau, Kitengela, Rongai or Kiambu road .
Let’s assume a budget of kes 7m available in cash or mortgage from a bank.

Buy or rent.

Worldwide, the buy to rent ratio is calculated by dividing the buying price to the yearly rent.

http://www.zillowblog.com/research/2010/09/21/a-better-price-rent-ratio/

Ratio of 1 to 15 favors the buyer. Ratio of 15 and above favors the renter.
In layman’s language, this simply means that if it takes over 15 years for return on investment through rent, then its better to rent and vice versa.

BuruBuru.

A 3 bedroomed house costs 7.5m.
The same rents for kes 30k per month. This represents a buy to rent ratio of 20.
This means its better to rent than to buy for this area.

7m house in Syokimau.

Current 7m house sale adverts in Syokimau.

http://kimathi.olx.co.ke/mombasa-road-tofina-muthama-apartments-iid-525787830

http://south-c.olx.co.ke/3br-brand-new-apartments-near-syokimau-commuter-train-station-iid-513769754

http://south-c.olx.co.ke/3br-exquisite-apartments-overlooking-nairobi-national-park-iid-513767982

http://south-c.olx.co.ke/near-nation-printers-3br-upcoming-apartments-on-nbi-msa-rd-iid-510753659

From the above adverts, kes 7m will get you a 3 bedroomed apartment in Syokimau with a plinth area of between 110 to 150m2.

Current kes 40k house rent adverts in Syokimau.

http://south-c.olx.co.ke/3br-brand-new-apartments-iid-513773037

http://westlands.olx.co.ke/3b-room-aprtment-mombasa-rd-iid-505244526

Lets assume a rent of kes 40k per month.

The buy to rent ratio will be 14.5.

This is less than 15 therefore it’s a good buy. Its more prudent to buy than to rent.

Better to Buy than Rent in Syokimau.

With this, we can safely assume that with kes 7m budget for Syokimau, Rongai and Kitengela areas, its better to buy than rent.

Build vs. buy.

Lets now compare building versus buying readymade houses worth kes 7m.

In Syokimau, the 7m house is an apartment of an average of 130m2 in plinth area.

Cost of construction.

Let’s assume middle cost finishes at kes 30,000 per m2.
The Cost of building a similar sized 130m2 house is kes 30,000 x 130m2 =kes 3.9m.
The cost of a 1/8th acre of land near the road in Syokimau is kes 2m.
See land prices here

This brings the total to kes 3.9m + kes 2m =kes 5.9m.

This is is a 1.1m savings realized, a whopping 19% of savings.

This 1.1m can go into developing rental units within the same 1.8th acre.

Capital Gains.

By buying the 1/8th acre, you stand to gain from the appreciating land and property values. Currently, land appreciates at between 20 to 30% annually in Syokimau.

The apartment buyer does not have this luxury since he doesn’t own the title to the land.

Room for future expansion.

The plot buyer will have more room to develop rental units or just expand their own residence.
The apartment buyer doesn’t have this luxury since under sectional title, you can’t ammend or increase your plinth area.

Conclusion.

Its more prudent to build your own house around Nairobi for a budget of kes 7m.

www.a4architect.com can offer advisory that will enable you take the baby steps into sourcing the land, getting architectural designs and hiring a contractor to build your house.

Francis Gichuhi Kamau, Architect.
0721410684