Obtaining financing for development of apartment or hotel in Kenya, 2013.

There are 3 main ways that a plot owner can obtain financing for development of flats/apartments/hotels in Kenya.

1. Financing from banks.

2. Joint Venture from Banks and other financial institutions.

3. Joint venture through pooling resources from potential individual investors at www.a4architect.com Real Estate Investment Forum


1.Financing from Bank loans.

This method is whereby the land owner approaches any bank and asks for bank loan financing.
The advantage of this method is that the land owner will deal with a formal, systematic well beaten path with few ambiguities as to how to proceed.


In kenya, the interest rates are high, an average of 16%. Compared to South Africa, USA, Europe, interest rates in these developed countries is around 5% per annum hence in Kenya, cost of borrowing is high. See world interest rates comparison data below.

Most banks in Kenya require the land owner to contribute approximately 30% of construction cost. Assuming 5 storeyed flat on a 1/8th plot, the cost will be around kes 36m. The bank will require a contribution of around kes 10m of which most land owners don’t have.
When land owners are unable to raise this amount, then Joint Venture partners who will help raise this amount then move to the bank for loans become appropriate.

2. Joint Venture partners.

These are investors willing to team up with the land owner to raise the required 30% of construction cost.
The land owner transpers the land to a company which will be owned by him and the joint venture partner.
Once the joint venture partner becomes co owner of the land through the limited liability company, he then raises the 30% cost of construction. Some part of this can be raised through off plan sales from the public.
This enables the land owner raise funds for construction. There are few parties to deal with, mainly land owner, joint venture partner and bank.
In situations where the joint venture partner manages to secure enough funding to cater for the 30% using off plan sales, the land owner may feel that he could also have achieved this without the joint venture partner hence lengthy court battles as witnessed in a project near Ridgeways on Kiambu road recently.

3. Joint Venture through pooling of resources at www.a4architect.com real estate investment forum.

This is a hybrid of the typical joint venture partnership.
In the typical joint venture partnership, the joint venture partner can raise the capital contribution of 30% of construction cost through off plan sales from the public.

In the a4architect.com investment forum method, the land owner directly seeks capital from the public.
For example,a Bedsitter Guest house located in Syokimau.

The cost of construction including land purchase will be kes 23m.
If 24 people come together and contribute kes 1m each, this will construct the guest house.
If kes 1,500 per night is charged and a 50% occupancy rate is assumed, the Return on Investment will be achieved in 4 years, which is very impressive.

In this investment method, there are no bank loans, no risks as to auctioneering in case bank repayments are not met.

The land owner will be required to register a company with 24 shares whereby each kes 1m contributor will own a share . In this case, the land owner will then own 3 rooms.

It will work best when 24 people team up together, buy the land and construct so as to avoid situations whereby the land owners are emotionally attached to the land and will want maybe 50% of the units or more, as in the case of bank loans where the land owner eventually ends up owning the building alone after clearing the loan with the bank.
In a loan situation, the bank becomes a co owner for 10 to 15 years. This co ownership is to the disadvantage of the land owner in that if he is unable to pay, the bank auctions the property ad pays itself and exits form the project.
In the a4architect.com forum method, the 24 owners are joined in the hips in good times and bad times hence safer. The share holder owner can decide to sell off his share in the company at market rates if he so deems.

Francis Gichuhi Kamau, Architect.

Francis Gichuhi (692 Posts)

Architect Francis Gichuhi . B.Arch. University of Nairobi. Registered Architect, Kenya. Member, Architectural Association of Kenya. Contacts. email info@a4architect.com. Telephone +254721410684


  2 comments for “Obtaining financing for development of apartment or hotel in Kenya, 2013.

  1. shuweikha rashid
    October 16, 2014 at 12:25 pm

    keen to know how can give my plots for joint venture developer

    • October 16, 2014 at 12:36 pm

      You need to prepare a feasibility report then issue it to the potential joint venture financier.

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