In Kenya, Nairobi city and its suburbs, property for sale and rent is readily available. Along Mombasa road, there are various housing estates that were developed to sell.
We can look at a few of them and see how much the sale price has appreciated since 2011.
These were being sold at kes 3 million per 2 bedroomed unit in 2011. The unit now sells at kes 4 million. This is 7% annual appreciation for the last 5 years.
Bank Interest rate has been an average of 15% for the same period. This means that in the next 10 years, the house repayment total cost will be approximately 6 million. In the next 10 years, using the same appreciation rate, the house will be worth approximately 5 million. Here, capital gain is not enough to balance out the interest rate in the case of a buyer having to have borrowed money from the bank for 10 years.
A 2 bedroomed unit here rents out for kes 18,000 per month. It will take 15 years for a buyer who bought the unit in 2011 to pay back, which is witihin the limits of good return on investment.
Tamarind Meadows, Delta Plains Estate, Mlolongo.
In 2011, these houses costed kes 9 million. They now cost approximately kes 13 million.
This represents 9% annual rate of appreciation.
This is still lower than the 15% bank interest rate in case someone bought the property through a bank loan.
Rent is in the range of 40000 to 50000 per month, bringing the total to kes 15 million after 15 years. This is a good return on investment.
Greenpark Estate, Athi River.
In 2011, this bungalow costed kes 10 million. It now costs kes 23 million.
This represents a 26% price appreciation. This is far higher than the average interest rate of 15% in case the money was borrowed from the bank.
This means if someone borrowed from the bank, he would have made a profit over and above the value of the property hence a good buy.
Rental income here is in the range of kes 70 000 per month. This will repay in 12 years from 2011, making it a good business deal.
3 bedroomed house on 1/8th acre land, Kitengela.
In 2011, 3 bedroomed bungalows sitting on a 1/8th acre land in Kitengela costed kes 4.5 million. They now cost approximately kes 8 million. This represents a 16% annual rate of appreciation.
This is at par with the average bank lending rates in the case of borrowed money.
From the above, its clear that the more the size of the plot, the more the capital gain derived from the property. Capital gain on built up area is much less compared to the gain on vacant land.
Architect Francis Gichuhi kamau.