Building in Kenya can be a costly affair in the context of today’s real estate environment. Various elements work together to create costs in a project, and the resultant of this is an immense financial burden that is borne by the investor interested in construction of real estate. However with proper cost planning of projects, it is possible to have a successful building project without undue financial challenges.
Cost Challenges when Building in Kenya
All too often it is cost issues that create challenges in building projects. In the process of building in Kenya, there are several factors that must be accounted for when planning for construction. Failure to properly consider any of these issues will most likely result in cost overruns and inflated building costs in the process of creating a project. These issues occur at different stages in the lifespan of a building project, and properly putting them on a time line will assist architects and developers to know what needs to be handled at specific times during the project.
These cost issues to consider occur both at pre-contract stages as well as post contract stages of building in Kenya. In the process of preparing for these cost issues, one must be aware of how they each contribute to the overall business plan for the entire construction project. Being able to properly articulate and plan for them requires a financial plan. This allows a developer to prepare an elaborate cash flow projection that will help to articulate how money is likely to run during the cost of the project.
Financial Planning is an Essential Part of Building in Kenya
A financial plan for a project when building in Kenya usually articulates the amount of resources that have and need to be input into the project at the onset, then compares it with the expected returns that shall result from the project being executed and utilized thereafter. Properly managing liabilities of the project, i.e. their expected cost inputs, will guarantee a developer to have a favorable return at the point of reaping revenue and dividends. Having a lower input will definitely favor the developer at the point of accounting for returns and ensure more profits in the long run.
Therefore it is important that the capital and recurrent costs of a project are favorably compared with the expected revenue returns from the project. An imbalance between the inputs and expected outputs means that the project may not be viable or has not been properly optimized.
Cost factors to be considered when building in Kenya:
Some of the factors that need to be considered with regard to capital costs of a project are listed as follows
Land cost – probably one of the single largest cost factor in real estate. High land costs need to be balanced by requisite high returns, and land cost is vulnerable to overexploitation by speculators.
Cost of finance – most probably unless a developer is very well heeled, there is a likelihood that the development shall be funded through obtaining credit for the project. In most cases, this comes at a cost called interest, unless it is given via a grant. When building in Kenya, the cost of finance is summarized through interest rates that are very high and make the costs of levying credit for a project to be very challenging.
The Architectural Design – It cannot be overemphasized that an architect’s design when building in Kenya must be properly checked early to ensure that it is providing relevant and appropriate solutions. Some design concepts may be very troublesome and expensive to build, and value engineering can assist a designer to implement a project in an easier fashion.
Construction type – The cost of materials and structure merge together to form the bulk of a project’s building costs. Developers undertaking building in Kenya are able to control this by encouraging the use of sustainable building materials that are easily obtainable and simple to maintain. In addition, wise sourcing for these materials can result in the use of good materials sourced internationally from cheaper sources.
Costs of approvals – These costs are tied together with the processes of seeking approvals for construction of projects. Normally, projects are undertaken when building in Kenya after the approval of building works has been given by municipal authorities. In addition the National Environmental Management Authority (NEMA) now must provide approval of projects prior to their construction. These bodies engage with professionals in order for them to audit their works, prior to them carrying out construction works.
For a reasonably large project, the estimated sum of these costs can be substantial, and need to be planned for early. In most cases, this is one of the main costs that requires to be dispensed with very early as in most cases financiers, whether equity partners or debt financiers will demand to see these approvals in place prior to their involvement in a project.
Consultancy fees – This must be considered as a primary cost that a client needs to bear in the process of undertaking building in Kenya. It is primary because the consultants who are hired by a client for a project must manage the project astutely on behalf of the client. When properly done, the involvement of professional consultants, i.e. the architect and his team of consultants, shall save the client a lot of money in the process of construction, where the bulk of project spending actually is.
Often clients seek to repress consultants’ fees as a way of creating savings in their project. This is foolhardy, as this is not where the real savings of a project actually lie. A committed, well remunerated consultant (remunerated in tandem with statutory regulations) will act expeditiously on a client’s interests and ensure they are protected. In contrast a poorly paid consultant is unable to give required professional time commitment to a project that is giving poor returns, and is forced to turn his efforts elsewhere, giving the least he can give on a project. In the long run, the client may loose out during the management of post contract phases of his project, where money matters are at their most sensitive point.
These factors therefore require to be properly charted on a project plan, prior to them being actualized on the ground. Proper management in these factors of construction shall result in savings for a developer involved in building in Kenya.