CAHF Benchmarking Research How can we use CAHF study to spur Kenyan housing sector Seeta Shah August 30, 2018
Context • CAHF undertaken cost benchmarking study across several countries in Africa • Found Nairobi is the most expensive City to deliver housing • Applicable to both for single storey houses on small plots of land, and apartment buildings • Next 4 slides summarize CAHF findings
Applicable to single storey and apartment blocks
Housing Cost Benchmarking: South Africa, Rwanda & Kenya (2018)
Housing Cost Benchmarking: South Africa, Rwanda & Kenya (2018)
Understanding CAHF psm costs for apartment TOTAL UNIT SIZE: SQM 40 • Looking at 40sqm, 2 BR, 1 bath apartment in the 2 x 5 storey walk up alone – TOTAL LAND SIZE: SQM 6,000 the CAHF study shows that it would cost $49,545 per unit or $1,239 psm. TOTAL UNITS IN DEV 240 DENSITY P ACRE 162 • Important to understand that CAHF methodology is to work with a bill of quantities for this hypothetical unit. • Market has very few 40sqm 2 BR, 1 bath apartments measuring 40sqm that APARTMENT COST we can compare psm delivery costs to. COST BREAKDOWN $ P UNIT $ PSQM % Land 1,508 38 3% • However, there are units being delivered for approx. $600 pm but mainly for Infra 1,371 34 3% larger units. Compliance 3,478 87 7% Construction 27,648 691 56% • Further, Kenya Property Developers Association, have derived that a lower end Other 3,792 95 8% 2 BR, 1 Bath unit measuring 40sqm can be delivered for $26,000 p unit ($650 Dev Mark up 4,914 123 10% psm). Refer to KPDA Affordable Housing Report, June 2018 Taxes 6,834 171 14% • Why the discrepancy? Total 49,545 1,239 • Need to ensure there is apples to apples comparison about unit being studied in terms of location (land cost), specification and finishes, gross to net building ratio, and on and off site infrastructure comparison. • Overall, developers do agree cost of delivery in Kenya very high and can be driven down by economies of scale and policy changes. • Suggested next steps: KPDA and CAHF work together to identify and apples to apples comparison – and identify how costs can come down. Eg. Taxation on input materials / lack of off site infrastructure etc. •
Data – wonderful data • While there is further work to do to cross check cost of CAHF benchmark apartment vs delivery costs suggested by KPA, the whole exercise is very useful. • The stand alone benchmarking study is particularly useful as it deploys the same methodology across 16 countries, and looks at South Africa, Rwanda and Kenya in more detail. • Conclusions have borne out what developers and policy makers have been saying anecdotally – but now validated • Benchmark stand alone house delivered at $65,000 • affordable to less than 1% of population… • Important to look at the affordability comparison as well - may show a greater disparity
Land • Land cost astronomical – driven by higher density allowances and cleaning out black money • City embraced densities of 80 – 150 units per acre! • Overall failure in planning • On site infrastructure cannot cope • Smelling biodigesters • “Fighting with neighbours over parking” • Buying water as borehole water not drinkable and spoils clothes • No sense of community • Very limited green space • No culture of participatory management – someone else will do it • Off site infrastructure cannot cope • Leaking trunk sewers • Long Commute times • Flooding even with limited rain • Policy implications: City can and should contribute land for housing developments • BUT land not the main limiting factor, as city embraced high density.
Bulk infrastructure • Actual Cost very high • But time cost even higher • Contrast developments that paid more for serviced land vs others that took calculated strategy to buy cheaper land further out, and spend more on infrastructure • Latter struggled to deliver due to time delays in being able to install infrastructure at their cost! Unclear routing for infrastructure, fragmented approval process • Policy: use stamp duty funds or any taxes raised towards off site infrastructure
Construction • Why are locally available materials expensive • Very high import duties • Higher import duties are counter-intuitive till local manufacturing catches up • Higher duties on particle board etc – which is a key component of Alternative Building technologies • Duties based on ‘benchmarked’ costs – not actual costs – so developers who have sought deals pay duty on higher expected price • Frustration by red tape: case of local ceramics – just not worth it! • Steel: • Raw material: import steel billets: no import duty but pay IDF and Railway levy, 6% cost addition • Transport from port to Nairobi is highest in world / transport costs to development site – unfortunately SGR not helped • Electricity cost for running the steel plant • How do you bring costs down • Improved logistics and finance • Economies of scale • Cheaper finance • Key area for policy dialogue: multiplier effect not appreciated • Lobby for selective reduction on import duties, for housing delivered for less than $50,000 • Lobby for rebate of VAT on housing delivered for less than $50,000 – VAT rebate should apply to much small projects as well – and not define time requirements – as the aim is to get as many houses for less than $50,000 delivered as possible.
Labour • Finding skilled labour a big problem • Importation of expensive labour not typically seen except for large projects which can absorb that higher level of management and oversight required • Local professional fees very bulky – based on scale fee of value of project delivered. • Policy implication: Scale fees for professionals should be re- considered and move towards fixed fees, as large projects have significant elements of “repeated design”. • Applies to building professionals and legal fees as well.
Land titling and approvals • Registration still complex and lengthy • Particularly partial discharge of mortgage from construction financier and registration of a mortgage purchaser • Reflected in the 10 – 20% differential in price between cash and mortgage buyers • Approval of buildings very cumbersome – need to move towards standard designs which are pre-approved
Affordability • Housing is one component • Linkages with employment – despite SEZ at Athi River, most people are commuting • Commuting cost AND time AND household sacrifices (children aged 10 years put in boarding school near family home as parents arrive home too late to pick them up)
Middle income Rental Housing – Mode A : Characteristics • Single landlord, on small family owned plots (1/2 acre or less), 20 to 40 units • Usually better located along main spine road • Financed with equity and pooling personal loans / SACCO loan etc • Poor design / lighting / cross ventilation • No common amenities Managed by owner or 3 rd party agent •
Middle income Rental Housing – Mode B : Characteristics • Large formal estates, built by developers, 100 + units • Usually peripheral urban locations • Design and amenities highly variable dependent on developer • Financed by developer equity, cash instalments from individual buyers and bank debt • Largely sold to investors (anecdotally 70% or more) Investor units enter rental pool, either with directly managed or with 3 rd party •
Prevailing rents along Mombasa Rd : Typology Size Rent $pm Mode A Rent $ pm Mode B Bedsit 15-25 sqm $ 80 - $100 $80 - $120 1 BR 30 – 40 sqm $150 $150 - $180 2 BR 40 – 50 sqm $200 $200 - $300 Rental Comparison • Would expect Mode B to command higher rents: however, differential less significant because • Mode A usually infill along main spinal transport route • Mode A has lower service charge as fewer amenities • However, these are very broad generalizations as each development rental highly sensitive to actual location - (whether Mode A or B), that is distance from work opportunity nodes and distance from immediate access from main road to particular development • Higher differentiation in rental achieved seen in 2 BR where Mode B can provide bigger sized units / more features etc, and hence can attract families to live there
Tax incentives: Part 1 Current regime / Proposed in Bills Recommendation for further policy change - Developers of low income housing get corporate tax - Implementation guidelines, incorporate mixed income reduction from 30% to 15% if build 400 houses per year schemes, and latter phases of existing schemes (100 houses?) - Reduce numbers of housing required and remove time cap: need Cabinet approval - Only 1 development achieved this - Rental tax – 10% final tax on gross rent. Capped to - 90% of urban population live in rental, lift cap to attract landlords earning less than $100,000 gross rental pa institutional capital and institutional landlords - Rebates on import duties & VAT for housing in licensed - Remove number of unist and location requirement for SEZ / minimum of 5,000 units import duties, remove VAT for all inputs not just - Current duties: imported Import duty: 25% - Even out playing field .. Certain projects delivered for Import Declaration Fee: 2.25% less than general market due to preferential incentives Railway Dev Levy: 1.5% VAT: 16%
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