Month: February 2016

Kangundo road Koma roack area is approximately 13 km form the Nairobi CBD, making it easily accesible by Nairobi city workers.

The Koma rock that is 13 km is different from the actual Koma rock, located near Kangundo town, 60 km from the Nirobi CBD. The 60km town called Koma has an actual rock hence the name Koma rock.

Koma Rock estate is named after the rock.

Plot size.
Plots in Komarock area are mostly 30 ft by 70ft in size. This very small unit enables people to easily access them through savings since most of them do not have title deeds hence not acquired through bank loans where the title deed becomes part of collateral.

Vertical construction.

Plot owners thereafter build vertically, 4 to 6 floors high so as to make use of available vertical space. Each plot can have 4 bedsitters per floor. For 5 floor levels, this makes is 20 bedsitter. The average bedsitter rent is kes 8000. This brings a total income of kes 160,000. This gives a return on investment of 6 years, which is very good for rental units hence a good investment.

Architect Francis Gichuhi Kamau.
info@a4architect.com

Investing in Real estate in Kenya is mainly in the below options.

1. Buy land then sell after a few years.
2. Buy land then build property for sale or rent.
3. Get together with other like minded investors and invest in a R.E.I.T or Joint Venture.

Easy access to Professional consultancy services.

Out of the 3, pooling resources together in a Real Estate Investment Trust or a Joint Venture is the best. The investor gets to benefit from input from professionals such as architects, quantity surveyors, structural engineers etc without the hurdles of having to physically deal with them as in the case of buying land then developing.

The investor also benefits from shared risk where property and conveyancing lawyers , land surveyors and land valuers have advised on the conveyancing process , ensuring the land is clean and without any encumbrance, ready for development.

Shared risks.

The risk of an investment that has been capital intensive e.g high rise flats which did not have proper feasibility studies done, hence low occupancy rates is also greatly reduced in the Joint Venture option.

Avoidance of bank loans.

With the joint venture option, the pooling of resources from like minded investors can help to reduce the capital required from borrowing from banks significantly, hence an easier and cost effective source of development financing.

 

Example of investment with kes 10 million capital.

 

Assuming a capital investment of kes10 million, this can be sourced from 1 person with 10 million savings or 10 people each with 1 million kes savings. The kes 10 million can be invested into an existing land to construct rental or sale bedsitters such as this investment here https://www.a4architect.com/buy-a-hotel-room-along-the-southern-bypass/. The investors can then agree to share the rental income based on the capital injected by each member, which will translate to the value on the limited liability company shares held. This way, the investors with kes10 million will be saved from the hurdle of buying land, hiring architects, quantity surveyors and structural engineers and the kes 10 million will all go into actual construction, compared to a situation where at least 1/3 of this would have gone into purchasing land for construction.

Architect Francis Gichuhi kamau.

Joint Venture financing for construction projects is a good way of financing commercial office block projects around Nairobi.

 

Land location.

The Land is located along Elgon road in Upper Hill, Nairobi, near Kadhis court.

The land is 1.2 acres in size. An estimation of the value is approximately kes 600 million, which is around 13% of the total cost of the construction project.

With a 13% contribution to the total cost of project, the land owner will eventually manage to double his return to 26% through a well structured joint venture.

Total construction cost.

The construction cost for the project is estimated at kes 3.6 billion, including cost of land at market rates. The structure is designed to be high rise, with high quality finishes similar to most buildings in Upper Hill area.

Land owner’s profits.

The land owner has been structured to gain from 9,300 square meters of built up area, valued at kes 1.2 billion. This represents 26% of the total built up area. This has the potential of bringing in monthly rental income in the range of kes 9.3 million per month.The land owner has the option of selling off the office space or renting it out for monthly income.

Comparison between Joint Venture and Outright sale.

In the case of outright sale, the land owner will bring in kes 600 million after between 6 months to 1 year. In the case of Joint Venture, the land owner will double their property value after 2 to 3 years since construction takes 2 to 3 years. In this case, Joint Venture option works better.

Upper Hill area has good prospects for office spaces and high end residential apartments. The return of investment confidence is very high for this area. Currently, most buildings are at least 90% occupied, with many building having 100% occupancy rates.

Land owners in Upper Hill areas who would like to benefit from this Joint Venture financing can contact info@a4architect.com for more information.

Architect Francis Gichuhi kamau.

 

This housing estate is located near Paradise Lost, off Kiambu road, just after Runda.

 

The land size is 40 acres.

Assuming a land value of kes 40m per acre, the total contribution from the land owner is kes 1.6 billion.

The land can hold 280 luxurious housing units , each sitting on a 1/8th acre plot. The neighborhood is dotted with high cost stand alone maisonettes such as KCB Pesnsion housing, Runda Paradise and Mhasibu sacco housing estates, which sell at a minimum of kes 25 million per unit.

Total cost of the Project.

The project costs, inclusive of land, construction cost, infrastructure costs, architectural , engineering and quantity surveying fees, bank interest, marketing costs is kes 6 billion.

Land owner’s share.

 

Out of the 280, units, 89 units will go towards compensating the land owner while the remaining 190 units go towards the cost of construction and joint venture financier share. This represents a share of 32% going towards the land owner in the joint venture agreement.

The Joint Venture financier will have a share of 32 units. In most cases, the joint venture financiers sell off their units. The land owner can choose to rent out or sell off their units .

Comparison between Joint Venture and Outright sale.

A joint venture project usually takes a minimum of 1 year for the 1st phase to bring in an income. Outright sale takes between 6months to 1 year to find a buyer.

The total profit accrued from the joint venture is kes 2.5 billion for the land owner as take home amount. The total profit accrued from outright sale is kes 1.6 billion. Therefore, joint venture option enables the land owner to increase their profits by 56%,representing an increase of over kes 900 million shillings.

 

Architect Francis Gichuhi Kamau.

info@a4architect.com

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