I have always heard of a place in Nairobi’s Eastlands known as Lucky summer. I had heard that there were some high rise flats and some people I know had invested there. All this was a myth until I went to value one of those flats.
Let me give you a brief background of this area. The land was initially bought by a group of farmers called Lucky summer, from Githunguri, Kiambu County, hence the name of the estate. Due to the ambitious nature of these farmers and the demand for low income housing, most of them bypassed Nairobi City Council bylaws and planning regulations to build more floors than had been approved. The 7-9 floor flats stand on the Lucky summer land as a statement that this group of farmers are meeting a real need for the Nairobi ever growing population.
The land in this area is divided into small plots some 1/8 acre and others slightly bigger. This has not stopped the investors from squeezing many units on this small parcels.
Case study 1.
There is a flat. Let’s call it flat A. It has a total of about 280 single rooms on 9 levels (ie ground, 1st -8th floor) all squeezed on ¼ acre plot. Assuming that each single room has two parents and 2 kids, this flat hosts over 1100 people each night. The rent for each unit is Kshs 3500 per month. The total rent that this investor gets is Kshs 980,000. Less the cost of water, electricity and emptying the septic tank twice a week and you are left with about 800,000 per month in net income from this building. The net rent per year will be 800,000 x 12 = 9.6M
A typical single room in Luckysummer.
The cost of putting up this flat can be estimated at say Kshs 200,000 per single room x 280 rooms = 56 Million.
The cost of land is Kshs 12 million for ¼ acre. The total cost of this development is 56M + 12M = 68M
How long will it therefore take to get back the investors money?
Total cost / Annual net rent = 68M / 9.6 = 7 years. This is very good. Most real estate investments pay back in 12- 15 years.
If the owner of Flat A had sewer and water connected to his property he would most probably get back his investment in just 5 years.
Am sure you are already thinking that my math can’t work. It can, and it is working for these farmers.
May be you are asking, what about lifts? We will NOT provide for lifts. The target tenant for this units walks a minimum of 10 KM per day to and from work. What is climbing 8 floors? Or will we also put a regulation on the minimum distance a person can walk to work? This class of people are only interested in having a decent roof over their heads. The rest are details.
If our case study can host 1000 people on only ¼ acre plot, how many of this flats do we need to rid Nairobi of slums?
Nairobi has a population of 3 million people by night. Of these, 60% live in slums and informal settlements. This total to about 1.8 million Nairobians.
How many of these flats will we need? 1,800,000 / 1000 = 1,800
Yes, we will only need 1,800 flats and everyone in Nairobi will have a decent roof over their heads.
When you meet Kidero, what will you tell him?
- Tell him to pass laws that will allow for investors to build upto 9 or 10 levels if building for the low income earners without providing for lifts.
- Tell him to pass laws that will connect Eastlands, Mathare and Kibera to Sewer and provide tapped water in these areas then we the investors will do the rest.
- Tell him to provide leases of Council land to private investors who are willing and able to put up such houses on a build-operate-transfer arrangement. The investors can be given leases of maybe 30 years so that in this time, they have made their money and then the flats revert back to the City county and the County Government can then sell these units to the tenants in a tenant purchase arrangement.
- Tell him that Nairobi has unique problems that require unique solutions.