Real Estate Development Cost in Kenya: A Complete Guide
As an aspiring developer, you may be wondering how much more is needed outside the actual construction cost to fully develop a property. There are several additional costs that also count whether a project becomes profitable or financially stressful.
Many first-time developers in Kenya focus only on the cost of building, yet the actual development cost goes far beyond material, labour and equipment.
Before you even proceed to design, a suitable site must first be identified and secured, whether on leasehold or freehold land tenure. Once the land is acquired, the planning and design process begins, requiring the involvement of various construction professionals.
As you map out the land, prepare designs, and conduct planning, you will require architects, engineers, quantity surveyors, surveyors, environmental consultants, and project managers. After the designs are completed, they must be reviewed and approved by the relevant local authorities before construction begins.
Even after construction, additional approvals may still be required, such as occupation certificates, utility connections, compliance inspections, and applications for sectional titles in the case of apartments and mixed-use developments.
There are 2 main factors that impact the additional development costs aforementioned and include:
- Location – directly impacts land price, cost of labour and statutory fees as they are not the same per county.
- Taxes & Government Incentives – where taxes are waived such as what we have seen with the AHP, helps in reducing the overall development cost.
Development Costs:
- Cost of Land – largest contributor and can contribute up to 40% of the total cost. This is why where budgets are tight, developers explore joint ventures, land leases or sale and lease back option as alternative to upfront purchase.
- Cost of Statutory Approvals – They make up the smallest margin, less than 2% of the total cost, but carry extra hidden costs as a consequence of delays. For example, if approvals are delayed, ground breaking is delayed yet the bank loan interest is already accumulating.
- Professional Fees – This is basically what is charged by the professional team from Surveyors to Project Managers, Architects, Engineers, Quantity Surveyor etc. Their fee is about 15% of the total cost and unfortunately, this is the section which is rarely taken seriously. Some developers remove them from site after approvals in order to save on supervision cost and its part of the reason we have seen collapsed buildings or buildings having low occupancy rates because of poor quality of construction.
Financing Cost – Developers financing using bank loans will have a facility worth an interest of about 17% per annum. A project completed on time and occupied quickly stands a better chance of generating returns early enough to offset financing cost.
Contingencies – Outside all these cost, you should always plan to have reserve funds. They will be helpful in the event of; material price fluctuations, slow unit sales, unprecedented maintenance amongst others.
For many developers in Kenya, especially small-scale investors, the biggest financial losses often arise not from construction itself, but from underestimating the hidden costs surrounding the project lifecycle.
In conclusion, construction cost alone is never enough to determine project viability. Land acquisition, approvals, associated taxes, professional consultancy, financing and operational reserves all play a major role in the success or failure of a development.
There are several additional costs that also count whether a project becomes profitable or financially stressful.
For more information, reach out to us via info@rickfes.co.ke
At Rickfes Construction Ltd, we help developers and property owners properly structure projects from feasibility study and budgeting to approvals, execution and project delivery while making informed and profitable investment decisions.
