1/8TH LAND -DEVELOPMENT FOR ONE BEDROOMED AND BEDSITTER FLATS-RENTAL.
Rental property is considered one of the most stable forms of investment since the risks are low and it offers a constant supply of income which increases annually.
An eighth acre of land measures approximately 50 ft [15m] by 100ft [30m].
The dimension varies slightly from plot to plot. A few years ago, Local Authorities were allowed to approve subdivisions smaller than 1/8th of an acre such as 40 ft by 80ft, 33ft by 66ft. Now, most Local Authorities in Kenya have set a minimum size of plot to be 50ft by 100ft.
Land on the surface of the earth is a constant. The size does not increase. The world’s population is currently at 7 billion and increasing at a rate of 1.1 percent. This necessitates that areas zoned for residential use are built to the maximum possible and habitable floor area extended vertically. This way, areas zoned for agriculture will be utilized to their maximum.
ONE BEDROOMED UNITS IN 1/8TH ACRE PLOT.
An eighth of an acre can comfortably fit 5 units of 1 bed roomed typology per floor. If the plot is in an area where the Local Authority can allow for 4 stories i.e. G+3, the units will be 20 in total.
The total floor area per floor will be 200m2. For G+3 i.e Ground + 3 levels, this will be 800m2 of built-up area.
COST OF CONSTRUCTION-ONE BEDROOMED UNITS IN 1/8TH ACRE PLOT.
Construction can be low cost, middle cost or high cost.
See here for the difference between the above 3.
LOW COST CONSTRUCTION-ONE BEDROOMED UNITS IN 1/8TH ACRE PLOT.
For low-cost construction we can safely assume a figure of KES 20,000 per square meter for construction.
This will bring out a total of KES 20,000 X800M2 =KES 16,000,000. This cost includes professional consultancy fees.
Rent per unit is KES 10,000 per month. There are 20 units in total hence total rent is KES 10,000X 20=KES 200,000.
Return on Investment.
The construction project will pay itself after 6.67 years without the cost of land included.
Assuming the money is borrowed from a bank at 16 % interest, the interest will increase the payment term to 7.73 years.
Any construction project that pays itself within 10 years is very viable.
MIDDLE-COST CONSTRUCTION-ONE BEDROOMED UNITS IN 1/8TH ACRE PLOT.
We will safely assume a construction cost of KES 25,000 per m2.
800m2 will cost KES 20,000,000. This cost includes professional consultancy fees.
Rent per unit will be higher than for low-cost –KES 12,000 per month.
For 20 units, this will be KES 12,000X20=KES 240,000 per month.
The construction project without the cost of land will pay itself back after 6.94 years.
Assuming the money is borrowed from a bank at 16 % interest rate, this will push the repayment period to 8.06 years.
Since the period is less than 10 years, again this is a very viable option.
HIGH COST CONSTRUCTION-ONE BEDROOMED UNITS IN 1/8TH ACRE PLOT.
Assuming a construction cost of KES 30,000 per square meter, this brings the construction project without the cost of land to KES 30,000X800M2=KES 24,000,000. This cost includes professional consultancy fees.
Rent per unit will come to KES 15,000. This totals to KES 15,000X20 =KES 300,000 per month.
The construction project without the land cost will pay itself back after 7.73 years if money is borrowed at 16% interest. If money is not borrowed, the repayment period will be 6.67 years.
Again the period is less than 10 years so the project is very viable.
Also, rents increase every year so the repayment period is reduced proportionately to the increase of rental income.
BED SITTERS ON 1/8TH ACRE PLOT.
A 1/8th acre plot can comfortably fit 6 units per floor.
If the Local Authority allows for G+ 3 constructions, this will be a total of 24 units within the 1/8th plot.
The total built-up area is 800m2 for all the 4 levels.
COST OF CONSTRUCTION.
LOW-COST-BED SITTERS ON 1/8TH ACRE PLOT.
Assuming a cost per m2 of KES 20,000, this will total to KES 16,000,000. This cost includes professional consultancy fees.
Assuming rent of KES 5,000 per unit, this totals to KES 5,000X 24 units =KES 120,000 per month.
This construction will pay itself back after 11.1 years without bank loan interest and after 12.8 years if 16% bank loan interest is included.
This is a very viable option since low rents are sure security in that a unit will never lack a tenant. Also, with the possibility of rental increase over the years, the repayment prod will be much shorter.
MIDDLE COST-BED SITTERS ON 1/8TH ACRE PLOT.
Assuming a construction cost of KES 25,000 per m2, the total construction cost will be KES 20,000,000.00. This cost includes professional consultancy fees.
Assuming rent pr unit of KES 7,000, the rental income will be KES 7,000X24 units =KES 168,000 per month.
The construction will pay itself back within 9.92 years without any interest and 11.51 years if the money is borrowed at 16% interest rate.
This is a viable option considering that the project will pay itself back within +- 10 years since rental income increases hence a reduction in total time taken to recoup investment.
HIGH COST-BED SITTERS ON 1/8TH ACRE PLOT.
Assuming a construction cost of KES 30,000 per m2, the total construction cost comes to KES 30,000X800M2 =KES 24,000,000. This cost includes professional consultancy fees.
Assuming rent of KES 9,000 per unit, this will be KES 9,000X24 units =KES 216,000 per month.
The construction project will recoup in 9.26 years if the money does not have interest and 10.74 years if an interest of 165 is charged to the money.
Since rental income increase annually, the repayment time will eventually be shortened to less than 10 years. Therefore, this project is viable.
The largest factor in determining whether to construct a plot in low, middle or high cost finishes is the distance form tarmac road. Plots very close to tarmac [700m or less from tarmac] are definitely zoned for high cost construction since the convenience of staying near a tarmac road will easily attract high rents.
Another factor is proximity to a large town. Plots close to the large town will attract a higher rental income hence a justification to construct with a higher standard of finishes so as to be able to charge a higher rent.
With the exchange rate of the KES to USD dollar rising, the effect can be minimized by specification of locally produced materials. Locally produced construction materials are not greatly affected by the exchange rate since they are not imported hence bough t using USD currency. Locally produced materials also have a lower transport cost since the distance from their source to the construction site is minimal compared to imported materials that have been transported for over thousands of Kilometers.
For example, instead of using stone-coated steel roofing tiles[kes1600 per sq.m], this can be replaced with clay roofing tiles[kes450 per sq.m] which are equally aesthetically appealing and cost 2/3 cheaper. Same applies to doors, wardrobes, walling, paint, ceiling boards and wall/floor finishes.
Click here to read more on tips to reduce cost of construction.
Its time now to Buy Kenya Build Kenya.
Architect Francis Gichuhi Kamau