Tuesday January 26 2016

Tapping wealth by investing in low cost housing

By Paul Njuguna

In Kampala today, nearly 70 per cent of households live in rented houses, leaving a meager 30 per cent as those that live in their own premises. Well, someone once said that demographics is prophecy. Uganda’s population is said to be slowly graduating into a population of middle income earners. As such, an investment in affordable housing will continue to attract decent returns over the years. The legends in this industry include, National Housing and Akright Projects. The challenge is these legends have laid their focus on the needs of the high-end customer while laying little or no focus on low-cost housing. But just what would it take to set up affordable 100 three-bedroom units?

Cost of land
Top on the list of requirements will be the land. For 100 units, you would need up to eight acres of land. These would be single units and not storied. Your focus here would be to source for cheap land at the outskirts of Kampala. Factoring the distance from the city, say at most 20 kilometres, an acre going for Shs40m would be absolute value for money. For eight acres, the cost of the soil would therefore be Shs320m or even cheaper given the bargaining power.

Cost of building
Exclusive of the cost of land, a decent three-bedroom would, on average, cost about Shs45m to set up. As such 100 such units would cost roughly Shs450m. Due to the scale at play, you should expect the cost to be slightly less.
Cost of amenities
Once the units are ready, the estate would need such basic amenities as a well maintained road and probably a playing field. You could then invite interested parties to set up other amenities. Here you could look at setting aside a partly Shs10m.

Return on investment
Once the estate is ready for the market, there would be two options. One would be to sell off the units and the other would be to let them out on contractual basis. It would take up to five years to recoup your investment if you chose to sell off the individual units. On the other hand, it would take a maximum of three years for you to recoup your investment at rental values of between Shs200,000 and Shs250,000 per unit monthly with an occupancy rate of 90 per cent. Letting the units out would, therefore, be more attractive.
Bottom line
At the end of the day, if you are looking at investing your hard earned money, the construction sector will not disappoint you.

Paul Njuguna is a financial and cost accountant. Email:paul@paulnjuguna.com