Category: A4architect

Utawala area is located 22km from the Nairobi CBD.

It has close proximity to Jomo Kenyatta International Airport, hence most surrounding buildings are ground and 2 floors up, restricting vertical construction to give way for flight paths. This is the same situation in South C around Wilson airport. Notable buildings are Fahari hotel and Kinka hardware.

Plot sizes.

The land here is mostly subdivided into 30 by 60 ft plot sizes and is held through certificates as op-posed to title deed.
The Nairobi County Government planning department can approve construction based on the certificate and scheme master plan survey, unlike earlier times when approval processes were only for lands with title deeds.

Number of units.
The 30 by 60 ft plot can contain 3 number of 2 bedroomed units per floor for a maximum of 3 levels vertically.
The total number of units will therefore be 9.
Assuming a modest rent per unit at kes 15,000, this development can bring in an income of kes 135,000 per month when fully developed.
This represents a return of investment of 6.9 years, which is very impressive.

Land cost.
Land in Utawala varies in cost depending on the type of ownership. Land with title deed costs far much more than lands without title deeds, held on certificates. This is because title deeds are a safer method of owning land and can easily attract loans when used as bank collateral.

Architect Fancis Gichuhi Kamau.
info@a4architect.com

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

 

 

 

Once the land owner and financier mutually agree to undertake a joint venture, below are key points that should drive the joint venture to success.

Registration of a Limited Liability company special purpose vehicle.

This is a limited liability company where both the land owner and financier will own shares depending on each contribution.
The company should be incorporated in such a way as to enable ease of solving issues relating to tax, and enabling ease of selling of individual shares within the company.

Feasibility study with impressive off plan sales.

An indepth feasibility study that outlines the best land use for the area that yields maximum profits needs to be carried out. www.a4architect.com offers feasibility study services to enable this. Once the most feasible use is established, off plan sales through advertisements should be done to test the waters and see the market response. If the market response is good, with at least 10% successful off plan sale, this means the feasibility study is perfect and no major changes are envisioned. If the market response is not good, the buyer response is then used to alter the designs to enable it to attract potential buyers to their liking. With good offmplan sales, banks will feel more confident to lend the bridging finance that is required to construct the project to completion.

Optimum architectural design to cater for mixed use developments.
The architectural design should be optimised such that the commercial parts of the buildings dont interfere with the residential parts in the case of mixed use developments. The architects should also design such that the residential units for sale do dont interfere with the residential units for rent, due to the differences in privacy aspects for both.

Joint Venture funding negotiations.

Land owners should be prepared for lenghtly funding negotiations between them and the financiers. Use of registered property valuers, quantity surveyors and architects for advisory services in therms of land value, construction costs will go a long way in enabling smooth negotiations.

Decision making and Project Mnagement.

Use of international best practice methods in construction project management will go a long way in ensuring success. Use of FIDIC or JBC construction contracts is a good starting point. The contractor, client and consultants can then follow the contractual agreements as outlined.

Arbitration and exit mechanisms.

Use of international best practice in dispute resolutions such as expert arbitration whereby the 2 conflicting parties each select an arbiter to help find a solution should be included in the contract. The contract should also outline exit mechanisms between the two parties if either party deems fit to sell off all or part of the shares in the limited liability company.

Architect Francis Gichuhi Kamau.
info@a4architect.com

Joint venture investments in real estate around Nairobi has now become a common feature. A joint venture is a marriage of convenience between a land owner and a financier. Each one has something that the other lacks eg the land owner has land but no funds and technical know-how to construct, the financier has the funds but no suitable land to build on. They therefore meet at a point of mutual understanding and agree to work together towards a common goal.

Rental income.

The land owner has the option of selling off the raw land but with a joint venture development , he has the ability to earn more money through sale or earn monthly rent from the renting of his share of the total joint venture construction project. Its a basic fact that bare land does not bring in income unless its developed ,leased or sold.In a joint venture development, the land owner gets the advantage of having his cake and eating it, where he can opt to retain his share and rent it out or sell part or all of his share. Most financier usually opt to sell 100% of their share.

Joint venture agreements.

Its important that both parties, ie the land owner and the financier, take their time to deeply understand the nitty gritty of the agreements to enable smooth sailing. Its not uncommon especially for the land owners to realize they need to change a few aspects right in the middle of the construction phase, which if not well arbitrated, can lead to unnecessary litigation and slowing down of the construction process as witnessed in the Four Ways junction project along Kiambu road recently.

A public disagreement usually translates to a loss to both parties, therefore, prior detailed understanding is very crucial to prevent this.

Architect Francis Gichuhi kamau.
info@a4architect.com

Joint Venture financing options are a good way of unlocking land potential in Kenya, where land value keeps rising by the day.

A few incidences have been recorded where the land owners have been left holding the shorter end of the stick after a joint venture deal.
A few land owners whom i have met have said that their lawyers have advised them that they have no case since their agreements and contracts were placed clearly in black and white , so they just shoulder the loss unto themselves. www.a4architect.com offers advisory services to land owners so that by the time they sit on the negotiating table with the financiers, they can strike a good bargain from a point of knowledge and information.

Land owners need to review the below factors to ensure a win win situation.

Total cost of project.

Land owners need to know how to itemize all construction related costs . Once this is done, the land owner can then compare the land value and any other contribution to the total cost and compare this to the amount that the financier is contributing. This will come in handy on discussions as to how to spit profits later on.

Sharing of profit.
The contribution that each partner, namely land owner and financier, put on the table should ideally be a good start off point for discussions as to profit sharing. This is also the basis of the loss sharing in the unfortunate event that the deal goes towards a loss.

Project Management.
Land owners need to be cognizant of the project management and decision making through out the project. Professionals well versed with various aspects are usually the best bet, eg property and conveyancing lawyers, land valuers, architect,s,engineers, property agents, all licensed and with at least 10 years of experience, are a sure bet towards success of the project.

Architect Francis Gichuhi kamau.
info@a4architect.com

Joint venture financing comes in handy when an owner of prime land does not have the finances to construct. Usually, land is around 15 to 20% of the total cost of the project. For the land owner to fund the rest of the 80%, the huge amounts make it a Herculean task to fund, hence the need to seek a joint venture financier.

Same vision and Goals.

The land owner and financier will need to have the same vision and goals, having soul-searched and realized that without either, they cant realize their dreams of construction. The land owner will need to have at least tried to seek finances or bank loans and realized that the minimum 20% of construction cost required by most banks for them to release the 80% of construction cost, plus ability to service huge monthly interest, is a tall order for them hence the need for a financier.

Creating systems to enable arbitration.

Joint venture project successes are dependent on both the land owner and financier to resolve any upcoming issues in the best way possible. Valuation of land is best agreed when both partners hire independent certified land valuers to advice on land. For construction costs, when both partners hire independent architects and quantity surveyors, they will be able to deeply understand the science of determining construction costs, hence improving the mutual trust levels.
The reliance of certified experts for arbitration purposes, where both parties can each hire a consultant, then the 2 consultants meet at a round table and brain storm, is the best method to resolve conflicts before issues move to litigation. In litigation, our courts still need alot of new laws and precedents in regards to joint venture issues hence they are a last resort when all forms of arbitration and negotiations have failed.

Success rate.
Joint venture financing remains one of the most ingenious methods of financing construction projects in Kenya. www.a4architect.com offers advisory services on matters joint venture , from linking land owners to financiers, to managing joint venture projects to completion.

Architect Francis Gichuhi Kamau.
info@a4architect.com