November 2013 - Page 3 of 4

RETURN ON INVESTMENT FOR KASARANI ,SANTON AREA 1 BEDROOMED AND BEDSITTER UNITS.


1 bdm	area	number	rent	rent for 3 units	annual rent	construction cost	ROI
	29	3	10000	30000	360,000.00	2,175,000.00	6.041667

Bedsitter	area	number	rent	rent for 3 units	annual rent	construction cost	ROI
	19	3	6000	18000	216,000.00	1,425,000.00	6.597222

http://muthaiga.olx.co.ke/clean-spacious-1-brm-flat-15-000-iid-562086153


http://muthaiga.olx.co.ke/spacious-bed-sitter-to-let-iid-561988705

Conclusion,
The Return on Investment at an average of 6 years is impresive. This means a lowering of rent to enable competitiveness can be put in place if need and demand/supply arises.

Francis Gichuhi Kamau, Architect.

November 6, 2013

RETURN ON INVESTMENT FOR KASARANI ,SANTON AREA 1 BEDROOMED AND BEDSITTER UNITS.


1 bdm	area	number	rent	rent for 3 units	annual rent	construction cost	ROI
	29	3	10000	30000	360,000.00	2,175,000.00	6.041667

Bedsitter	area	number	rent	rent for 3 units	annual rent	construction cost	ROI
	19	3	6000	18000	216,000.00	1,425,000.00	6.597222

http://muthaiga.olx.co.ke/clean-spacious-1-brm-flat-15-000-iid-562086153


http://muthaiga.olx.co.ke/spacious-bed-sitter-to-let-iid-561988705

Conclusion,
The Return on Investment at an average of 6 years is impresive. This means a lowering of rent to enable competitiveness can be put in place if need and demand/supply arises.

Francis Gichuhi Kamau, Architect.

November 6, 2013

Analysis of sustainability of Nairobi CBD Land Prices appreciation.

Current market rate for Nairobi CBD land is kes 300,000,000 an acre.

Assuming this land price is doubkled, to kes 600,000,000 an acre, would the land still be profitable?
Will it significanlty affect rental prices?

We can answer these questions by calculating Return on Investment on an assumed land cost of kes 600,000,000 per acre for a 10 and 20 storey building.

We will use known factors such as below
1. cost of NEMA and City Council Licencing at 0.1 and 1.3% of construction cost.
2. Cost of construction per m2 at kes 60,000.
3. Cost of consultancy at 12% of estimated cost of construction.
4. Cost of financing at 15% per annum for 2 years.

20 storey building.


Cost Item	Kshs	%
Land	600,000,000.00	11.18660829
Preliminary	42,336,000.00	0.789327081
Construction	3,024,000,000.00	56.38050577
External Works	151,200,000.00	2.819025288
Contingency	60,480,000.00	1.127610115
Architectural fees	181,440,000.00	3.382830346
Quantity Surveying	60,480,000.00	1.127610115
Structural Engineering	60,480,000.00	1.127610115
Elec/Mech Engineering	30,240,000.00	0.563805058
Interior Design/Landscaping	15,120,000.00	0.281902529
Legal fees	30,240,000.00	0.563805058
Project Management fees	30,240,000.00	0.563805058
Marketing	170,100,000.00	3.17140345
Financial Charges	907,200,000.00	16.91415173
Total	5,363,556,000.00	100



Financing Plan	Kshs	%
Developer	2,142,996,000.00	39.95476136

Debt Finance	3,024,000,000.00	56.38050577
Presales	680,400,000.00	12.6856138
Total	5,363,556,000.00	109.0208809

PROFIT
TOTAL SALES FOR 20 floors	6,804,000,000.00	37800
TOTAL EXPENDITURE	5,363,556,000.00

NET PROFIT	1,440,444,000.00

% Profit Margin	26.85613798

Take home ammount.	2,040,444,000.00

Rent	56,700,000.00
Rent per year	680,400,000.00
ROI	7.882945326

In a 20 storey building with land costing kes 600m per acre, constructed at 75% ground coverage and 70% of built up area rented or sold out, the building will return its investment in 7.8 years at a rent of kes 150 per square foot. Current rents in Nairobi are close to this figure at the moment.

10 storey building.

Assuming the same factors as above, but in this case, the building is constructed on only 10 floor levels, the arithmetics are as below.

2



Cost Item	Kshs	%
Land	600,000,000.00	20.09038665
Preliminary	21,168,000.00	0.708788841
Construction	1,512,000,000.00	50.62777436
External Works	75,600,000.00	2.531388718
Contingency	30,240,000.00	1.012555487
Architectural fees	90,720,000.00	3.037666461
Quantity Surveying	30,240,000.00	1.012555487
Structural Engineering	30,240,000.00	1.012555487
Elec/Mech Engineering	15,120,000.00	0.506277744
Interior Design/Landscaping	7,560,000.00	0.253138872
Legal fees	15,120,000.00	0.506277744
Project Management fees	15,120,000.00	0.506277744
Marketing	89,775,000.00	3.006024102
Financial Charges	453,600,000.00	15.18833231
Total	2,986,503,000.00	100



Financing Plan	Kshs	%
Developer	1,376,223,000.00	46.08142031

Debt Finance	1,512,000,000.00	50.62777436
Presales	359,100,000.00	12.02409641
Total	2,986,503,000.00	108.7332911

PROFIT
TOTAL SALES FOR 20 floors	3,591,000,000.00	18900
TOTAL EXPENDITURE	2,986,503,000.00

NET PROFIT	604,497,000.00

% Profit Margin	20.2409641

Take home ammount.	1,204,497,000.00

Rent	28,350,000.00
Rent per year	340,200,000.00
ROI	8.77866843

If the rent is kept at kes 150 per square foot, the Return on Investment is 8.7 years.
This is a very profitable venture.

Conclusions.

Even if the current land price per acre for Nairobi CBD properties rise by 100%, the rent increase will be very slight if the developers construct at 75% ground coverage and keep the floor levels to 10 and above.
Ths means the land price will keep on increasing until such a time that the cost will affect the rent significantly.

Assuming a worst case scenario where land price increases to kes 1.2billion per acre, and the developer constructs only 10 floors, the Return On Investment will be within 10.5 years.

Internationally, Return on Investment of over 15 years marks the point of unviability. Such a Return on Investment on a 10 storey building sitting on a 1 acre piece of land will only be reached if the land price reaches kes 2.8 Billion.
Assuming the current rate of appreciation per year of land price at 50%, this will be reached after 17 years in the year 2030.

Francis Gichuhi Kamau, Architect.
info@a4architect.com

November 4, 2013

Construction Loan for Employees in Kenya. House Ownership using Affordable Solutions.

In Kenya, particularly in Nairobi, the cost of housing is high mainly due to high bank interest rates and high land value appreciation.
See below for details on this

http://www.a4architect.com/2013/10/18/housing-costs-in-kenya-why-cost-of-acquiring-a-home-in-kenya-is-high/”
“http://www.a4architect.com/2013/07/12/7cost-of-housing-in-kenya-kitengela-vs-south-africa-594/”

Employees in formal employment can have the advantage of huge bank interest rate discounts.

With the huge bank interest rate discount, they can then stand to gain from lower housing costs than average.

On the issue of land, ingenuine methods to resolve this problem have been sought by a4architect.com in terms of pooling resources and sharing land.
The minimum land size permitted for subdivision under Kenyan laws is 1/8th acre. This land size is quite large for a single family considering many families are currently living in flats with no outdoor space at all.

With 2 or more people coming together to share a 1/8th acre plot, the spiralling land cost issue can be resolved since this makes land more affordable.

Employees in formal employment need to be as close to urban centres as possible so as to make it in time to and from work.

The solution to majority of employees is to rent houses close to urban centres e.g. Kikuyu,Kitengela, Ngong, Kiambu etc.

With their savings, they buy land in inaccessible places where they cant use it to live and effectively make it to and from work in time. This means the plots bought in far away places like Isinya, Kamulu,Joska, Juja farm, Kiserian pipeline, Limuru,Thika etc. are unusable for lving purposes hence the money used to purchase the plot not put into good use.

To resolve this, a4architect.com assists employees to buy expensive land near tows eg Kitengela, Syokimau, whereby an average of 2 people share a 1/8th plot and construct 2 separate houses for each owner. This gives alot of privacy and room for future expansion.

Ownership.
To enable 2 people to legally won a 1/8th acre title, these 2 will need to jointly purchase the land whereby both their names appear on the title deed or they both register a limited liability company which has 2 shares then each owns a share of the company.

A4architect.com will design 2 separate houses to the design requirement of each owner then this is taken to the local authority for approval. The ownership document then comprises of the house designs , describing how both owners should live together, similar to the sectional properties act which allows people to buy apartments , common around Nairobi neighbourhoods eg Lavington.
Estimated cost of construction and initial designs can be viewed here http://www.a4architect.com/house-designs/”

Forum.

Someone can start a discussion forum topic here

Someone can put their preferred area and preferred land budget eg Kitengela 1/8th acre selling for kes 2m.
Other interested people can then also register and reply to the posting saying they are interested. Once a quorum is reached, if its 2 people sharing a 1/8th plot, they can then go ahead and purchase the plot after due diligence.
a4arhitect.com will then design the 2 houses and submit the drawings to the local authority for approval.
After approval, a4architect will then advice the 2 land owners on how to choose a contractor to build.

After selection of a contractor, the bank laid procedures of disbursement fo construction funds to the contractor shall be used and a4architect.com will supervise the construction till completion.

Francis Gichuhi Kamau, Architect.
info@a4architect.com

November 2, 2013