Author: A4KENYA

How to obtain financing for Real Estate Projects in Kenya.

There are 3 options.

Option 1. Joint Venture.

1. Joint venture.
This method as advantages in that you will not require to put any monetary input apart from the land and consultancy fees.
The disadvantage is that the JV partner will take in a huge amount of profit compared to the amount of money they put in. This depends on how adept your negotiations with the JV partner is.

For example, if the JV partner puts in kes 150m, and the profit is kes 350m, the JV partner will try to squeeze in a 49% profit sharing of KES 175m depending on how thorough your negotiating skills are.
With good negotiating skills, the JV partners can be compensated in a % commensurate with their contribution. Assuming they contribute 15% of total project cost, then the % gain in profit can be pushed/negotiated to 15% of total profit=kes 50m.

Option 2. Phasing the Project in smaller sized chunks.

The total project can be phased in chunks that are commensurate with your 15% of contribution. For example, if the 15% of your contribution is say kes 5m, this translates to kes 33m for a complete phase. Assuming the project costs kes 1 Billion, these represents 30 phases. The number of phases can be adjusted depending on the % contribution as per negotiations between the Bank and land owner.

Usually, once the first phase commences, potential buyers are able to gauge the quality of construction and gain the required confidence whereby they can begin to put in deposit of between 10 to 20% of purchase price.
Assuming a purchase price of kes 18.5m for the 190m2 houses within the 1/8th acre, this translates to kes 1.8 to 3.6m.

The actual construction cost for this unit is kes 40,000 per m2 x 190m2 =kes 7.6m.
This translates to 25 to 50% of the total cost of construction.

Therefore, if you manage to squeeze in a considerable amount of pre sales, this means the construction is funded at between 25 to 50% by the potential buyer and the balance will be borrowed by the bank.

This method has a disadvantage in terms of time. It takes a long time to attract pre sales and the number of presales will determine the number of units constructed concurrently.

This method is the best and most secure since the number of new units to be constructed will be directly proportional to the number of presales.

To achieve this, the design will need to be very unique and the marketing strategy needs to be well funded to afford billboards, promotional expos, tv, radio, newspaper and magazine ads and such advertising media on a very regular basis.

Option 3. Sectional Land sales.

In this method, the land owner will enure the land is subdivided into small portions for resale. The minimum subdivision size for issuance of title is 1/8th acre. For plots smaller than 1/8th acre, the architectural plans needs to be approved then the land owner applies for sectional land title ownership which can be resold as a gated community concept.

This method requires unique architectural designs and 3 D walkthrough and flythrough models so as to allow potential buyers visualise the finished look after houses are constructed since they will buy vacant land.
The disadvantage of this method is that the total profits will be reduced since there is no construction.
The advantage of this method is that the land owner only needs architectural services to come up with the architectural plans for subdivisions and 3D reality images and videos.

Francis Gichuhi kamau, Architect.
info@a4architect.com
0721410684

Green building materials available for residential houses in Kenya are as below.

1. Green roof. The roof can be designed to incorporate live plant material.

2. Green walls. The exterior walling and fencing can be designed to incorporate green plants such as creeping ivy.
Wall support for flower pots and planters can be introduced to various strategic positions along the wall.

3. Wall exterior renderings. These can incorporate cobble stones cladded on to machine cut walling to bring out the rustic looks.

4. Window and door frames. Natural wood can be used to make the frames. Off cut wooden planks can be joined together to form the doors in an organised design.

5. MDF and HDF block boards that contain cancer causing formaldehyde can be completely avoided.

6. Natural materials for roof such as clay tiles or wooden tiles can be used instead of manufacture roofing materials such as as stone coated roofing tiles, iron sheets which can contain paint chippings which contain Lead.Lead causes diseases such as High blood pressure in adults and brain malfunctions in children.

7.Timber trusses can be replaced with poles as opposed to sawn timber where possible.

8. Interior wall finishes. Instead of the usual plaster and paint, hand dressed natural stone and fired clay bricks can be used .

9. Floor finishes. Natural floor finishes such as mazeras stone and fired clay bricks can be used instead of the usual manufactured floor tiles .

10.Building orientation. The building can be oriented in such a way that natural light and ventilation is ble to flow in and out of the rooms.

11. The overall shape can be such that the inside is incorporated to the outside through creation of internal gardens complete with sky light views and introduction of water streams and ponds that link the inside with the outside.

Francis Gichuhi kamau, Architect.
info@a4architect.com
0721410684

For small plots such as the usual 50 x 100 ft or 1/8th acre plots, maisonettes are good in terms of reducing the horizontal spread hence freeing up the ground floor space to enable a lawn.

Assuming a 200m2 luxurious maisonette, the plinth area on the ground can be 60m2 then the building stretches upwards into 3 levels i.e ground floor, first floor and second floor.

Foot print reduction.

A 1/8th acre plot is roughly 450m2 . A 66m2 plinth area building will effectively free up 85% of the ground floor area for a landscaped lawn.

A 100m2 plinth area on ground floor building will use up to nearly 25% of ground space but will only go 2 levels up to make it to 200m2 in total plinth area built up space.

Positioning of the building.

The building should be positioned in such a way that it allows for a feeling of more space within the plot.

In Senegal, most residential buildings usually have a vertical orientation whereby you find a building with the bedrooms in the fourth floor. Now that land in Kenya is becoming scarce and the need to be environment conscious is increasing, we hope to see more of vertical oriented buildings as opposed to the current situations whereby we have bungalows and maisonettes with a foot print area of 100m2 and above.

Francis Gichuhi Kamau, Architect.
info@a4architect.com
0721410684

A 60 ft by 60ft plot can fit a maximum of 8 large 5m by 5m shops per floor.
The cost per floor for this, assuming Embakasi falls within middle class type of buildings, will be kes 25,000 per m2.
This translates to kes 25,000 x 230m2 = kes 5.75m per floor.
Since Embakasi area has a height restriction due to the flight path, the maximum number of floors possible is 2.This brings the total cost to kes 11.5m.
Shop rent.
Assuming a modest rent of kes 10,000 per shop, this will be kes 10,000 x 8 shops x 2=kes 160,000.

Return on Investment.
The return on investment will be kes 11.5m/kes 160,000/12= 5.99 years.
This is a very good return considering majority of construction projects return between the 10th and 12th year.

Consultancy fees is at 6% of the total estimated cost as shown here.

Francis Gichuhi Kamau, Architect.
info@a4architect.com
0721410684

NAKURU 1 ACRE FOR SALE OPPOSITE STATE HOUSE.

This 1 acre land for sale is located in a prime area of Nakuru town directly opposite Nakuru State House.

Here is a link the the google map https://maps.google.com/maps/ms?msid=205617053586273466800.0004dd1fc97f0b9bb2d1f&msa=0&ll=-0.285043,36.083114&spn=0.005407,0.010203

This land can be developed to a number of commercial usages such as hotel, shopping mall or offices.

Return on Investment as Hotel.

If developed into a hotel, the returns will be as below.

Assuming a modest accommodation charge of kes 2,000 per room per night, Only 20 days per month occupancy rate and the profits accrued from the sale of beverages and food to offset the running costs such as salaries, maintenance, cleaning etc, the hotel project will pay back in 3years.

Also, we have assumed construction cost per m2 to kes 40,000 .This ensures the highest possible quality of construction to take place without any compromise to workmanship and quality of materials.

A charge of kes 2,000 per night in Nakuru is still quite modest and low considering most hotels situated in such prime areas charge kes 3,500 and above per night. This ensures that the highest chance will be the rates increasing to the usual kes 3,000 to 4,000 or 100% occupancy as opposed to the assumed 20 out of 30 days occupancy rate.

With the numerous tourist attractions in Nakuru such as Lake Nakuru, Menengai crator, Lake Naivasha,Elementaita etc, this will surely attract a huge amount of visitors willing to spend at the hotel.

Use of the space as an office block.

Assuming kes 50 per square foot rent, the rental income for the 1600m2 per floor x 5 floors will be kes 48m per year.

The construction cost reduces to kes 35,000 per m2 since offices take less construction costs than hotels.

The return on investment is 7.3 years as tabulated below.

Conclusion.

Hotel investment for this plot is better than office block investment with a return on investment of 3 years compared to 7 years.

Francis Gichuhi Kamau, Architect.

info@a4architect.com

0721410684.

A 40 x 60 plot translates roughly to 13m by 20m.
This can have a potential of 6 bedsitter units per floor.

Rent.

Average rent for a bedsitter in Membley area is 5 to 6 000kes per month.
Assuming 3 storeys are constructed, the rent collected will be kes 6000 x 6 units x 3levels=KES 108,000 per month.

Construction cost.

Each floor level will have a plinth area of 72m2.
Construction cost per m2, assuming low to middle class finishes, will be kes 25,000 . The construction cost will be kes 25,000 per m2 x 72m2 =kes 1.8m per floor.
For 3 levels, this will be kes 1.8m x 3=5.4m

Number of Years to pay back.

It will take 5.4m/108000=4.17 years to return back the investment. On average, construction projects take between 10 to 15 years to return back their investment.
Therefore, this is a very profitable venture since the return is very quick.

Architectural fees.
Consultancy fees are as per CAP 525 of the laws of Kenya as described here.

Potential Tenants.
Along Thika road, bedsitters are rented by Kenyatta University and Jomo Kenyatta University JKUKAT students who share the bedsitter two students per room. Also, a large number of single working class young adults working in Nairobi are potential tenants.

Francis Gichuhi Kamau, Architect.
info@a4architect.com
0721410684

AMOUNT OF CEMENT USED IN AN AVERAGE 3 BEDROOMED HOUSE IN KENYA.

Cement cost takes an average of 35% of the total cost of construction of an average house basing on a low cost finish overall estimate of KES 20,000per m2. This is approximately KES 7,000 per m2.

The amount of cement used in total for an average 3 bedroomed residential house of 100m2 in plinth area is 958 bags at a cost of KES 691,000 basing on a price of KES 720 per 50kg bag.

A square meter of building in Kenya will use 9.6 bags.

2 BEDROOMED FLAT.

The average 2 bedroomed house in a middle class area such as Ruaka, Rongai, Kitengela, Ruai is approximately 60m2 in plinth area. This translates to 60m2 x 9.6bags=546bags costing KES 414,000.

A block of 2 bedroomed flats in the middle class neighborhoods standing on a 1/8th acre can contain 20 units. This means the total cement used will be 20 units x 546bags per unit=10,920 bags costing 7,800,000 KES.

SHOPS AND SINGLE ROOMS 1Oft by 10ft.

The average 10ft by 10ft room used as a shop or single room residence is approximately 10m2 in plinth area. This translates to 10m2 x 9.6bags=96bags of cement costing KES 69,100.

The breakdown is as below.

Foundation.

WALLING. Ratio of 1.4

BEAMS AND COLLUMNS. Ratio 1.2.4

FLOOR PLASTER. Ratio 1.3

WALL PLASTER. Ratio 1.4

EXTERNAL KEYING. Ratio 1.4

ACTUAL SITUATION ON THE GROUND.

In most small scale residential projects, the house owners usually rely on the local Fundi expertise on the mix ratio of cement. The usual tools used to measure the volumes are spades, wheel barrows and 20 liter water buckets.

8 wheelbarrow of sand/ballast make 1 tonne.

Four wheelbarrows are used to mix 1 bag of cement to 8 bags of ballast.

I bag of cement has 0.035 cubic meters in volume.

1 wheelbarrow has the below volume.

Assuming sand has a density of 1600kg/m3 and 8 wheelbarrows make 1 tone, 1 wheelbarrow has 1000/8=125kg.

1 wheelbarrow of sand has 0.08 Cubic meters in volume.

This sand volume per wheel barrow when compared to cement volume per bag gives a ratio of 1 cement volume to 2 sand volumes.

LOCAL FUNDI MIX.

The usual mix used by local fundis of 1 bag cement to 4 bags sand is actually 1 cubic meter cement to 8 cubic meters sand to 16 cubic meters ballast.

A ratio of 2 bags cement to 4 wheelbarrows sand to 8 wheelbarrows ballast is 1 to 4 to 8 which is still low for concrete works such as foundation footings and beams which require a ratio of 1 to 2 to 4 or 1 to 3 to 6.

This type of mix works well for single storey residential houses.

BUILDING COLLAPSE.

In the event that the ratio of 1 bag cement to 4 wheelbarrows sand to 8 wheelbarrows ballast is used for a building that is several storeys high, serious risk of collapse is imminent due to a very weak cement ratio. This could be the reason for the various building collapse being witnessed in Kenya and recently in Tanzania and India.

Francis Gichuhi Kamau, Architect.

info@a4architect.com

0721410684.