Joint Venture development on a 3/4 acre plot in Kikuyu town.

The land is located next to the main tarmac road near Kikuyu town. There are nearby apartment type buildings such as Westpoint heights, selling at kes 7.5m per 2 bedroomed unit.

Total construction cost.

The total construction cost, including value of land, bank loan interest, marketing etc is kes 375,000,000.

With an assumed land value of kes 40,000,000, this is the land owner’s contribution to the kes 375m total cost, at 10%of the total cost. The Joint Venture partner has to come up with the other 90% of the costs.

Number of units.

There is a possibility of 72 units being constructed.

At least 50units will be sold off to cater for the construction costs. Out of the remaining 22 units, Land owner gets 14 units and the Joint Venture financier gets 8 units.

The 14 units that the land owner gets have a market value of a minimum of kes 90 million, which is more than double the value of their land, hence a good deal. This value has the potential of increasing further as the property value around the neighborhood increases over time. The land owner can then decide to rent out the 14 units, raking in at least kes 280,000 every month at the market rate of kes 20,000 per month for a 2 bedroomed.

Comparison with other investment opportunities.

The land owner has several other opportunities as below.

Outright sale.

Outright sale can bring in at least kes 40 million. The disadvantage of this is that with the current high inflation, this money can easily be consumed without investing, hence rendering the land owner to remain without an income.

Long term lease.

The usual land lease contracts are 5 years and 3 months. Leasing land brings in a maximum of kes 40,000 a month, compared to kes 280,000 minimum for Joint Venture options.

The lease, due to the limited time limit, and the risks associated with leases, e.g. land owner requiring to use the land before the time limit of r the lease expires, tends to construct semi-permanent structures which do not bring in huge incomes compared to Joint venture options. In Joint venture option, the vertical space of the land is utilized to bring in an income.

Conclusion.

Joint venture remains the best way to develop land for the highest income possible. The land owner becomes co-owner of the land in conjunction with the financier, giving the financier full confidence to pump in millions of shillings for both to gain.

Architect Francis Gichuhi Kamau.

B.Arch. U.o.N. M.A.A.K[A]

info@a4architect.com