Despite the rapid population growth and high demand for housing within Nairobi and its environs, there has been speculations by some developers that the current real estate bubble will burst leading to heavy losses to investors.
But since this has been just mere speculation, we have decided to dig into details and put some level of facts and figures as highlighted below;
Most Attractive areas to Invest
For the purpose of our evaluation, we shall pick 5 cluster areas, of which have a very rapidly growing population and are attractive to most Kenyans who seek to invest in real estate properties. These areas include;
- Eastland’s – Donholm
- Thika Road – Kahawa Wendani
- Ngong Road – Kabiria
- Waiyaki Way – Kinoo
- Kikuyu - Thogoto
For the purposes of our cost analysis, let us take a fictional developer called *Jumba Bora Limited* who intends to build a low rise rental flat of 5 floors.
He has engaged a fictional architect, *Mchoraji hodari*, who has come up with a drawing plan of 5 floors, whereby each floor is to have 3 number, two bedroom units, meaning the flat will have a total of 15 units on offer to rent.
The rental flat will also have a boundary wall, a cabro parking, a guard house, and will also need sewer and stormwater sytems.
Costs of Building a Rental apartment
No let us have a quick look at the what it will take to build the units to completion at different locations.
Buy Land
To build a rental flat, you will need to first buy land as it is one of the major cost items.
A development of such magnitude will need a plot of at least 100 x 100 feets.
This is because the built up area of the house will occupy 50% of the land, 100 x 50 and the rest will be occupied by amenities such as the parkings, play/rest area, guard house, septic tanks, etc.
Now, if we consider our the five cluster areas, a quick look at www.Jiji.co.ke website, the cost of 100 x 100 feet land at the areas is as follows;
- Donholm – Ksh. 26,000,000
- Kahawa Wendani – Ksh. 26,000,000
- Kabiria – Ksh 16,000,000
- Kinoo – Ksh 22,000,000
- Thogoto – Ksh.12,500,000
Permits and licenses
Although the issues an all the permits and licenses needs to be addressed separate article, you will need to pay for NEMA approvals, NCA project registration, the building-construction permit from Nairobi county, approvals for architectural and structural plans by the county. You will also need DOSH permits.
On average, it is paramount you set aside a budget of around Ksh 1,000,000.
Construction Consultants.
You will need to pay for an architect, a civil/structural engineer, an electrical engineer, a mechanical engineer, a Quantity Surveyor, and a realtor to help you market your property.
The total cost of these professionals will offset you around 10% of the construction project, which we shall evaluate at the summary of the costs.
Select a suitable contractor
Next, select a building contractor either through tendering or through a referral from a friend.
You can either choose a labour only contractor and provide material if you feel you need to save construction materials cost.
Building costs
On average, the cost of building a mid-level finishes high rise apartment costs around Ksh. 45,000 per square meter in Nairobi and Mt Kenya region.
Now our 5 floors apartment will have a total of 2500 square metres, or a 500sm per floor. So the cost of erecting the main building will be Ksh. 112,500,000.
In addition, we will need the following amounts for;
- External works such as boundary walls, guard house, sewer and storm water reticulation, parking, landscaping; Ksh. 12,500,000
- PC sums including security features such as CCTV, KPLC power installations etc. Ksh 3,000,000
- Preliminaries – Ksh 8,000,000
- Contingency sum – Ksh. 4,000,000
From the figures above, the most expensive areas to build are at Kahawa West and Donholm, at KSH.183M, followed close by Kinoo area at KSH.179M, and Kabiria at Ksh.173M. The cheapest area to build is Kikuyu at Ksh.169.5M.
The average price of building such an apartment is Ksh. 177,500,000
RETURNS
The table below shows the return of investments for 2-bedroom apartment for each of the areas;
It is clear from the table above that Donholm despite the high construction cost of 183m, it has a lower period for recovery of invested monies at 55 years. Kikuyu is the least lucrative with the time to recover your money being 75 years.
The average period for recovery of monies invested in rental flats is 65 years.
Take note that the above data is not 100% as it assumes full occupancy after construction completion and does not take account of repair charges and other charges such as land rates and caretakers fees. So generally the recovery periods might be longer.
Major Takeaway
From the above data, it is clear that, if you are an investor whose desire is quick returns of your money, the real estate is not the best for you.
But if you are looking for a long term investment that will secure your future generations independence, and can access mortgage, then it might be a viable choice.