In Summary
  • Also worth learning from is Migaa Estate, a multibillion gated community by Home Afrika Ltd in Kiambu, which is now taking shape after dragging on for about four years due to, among other challenges, financial constraints and the market.
  • Fear among potential investors that the project might not succeed was also a factor in the delay of the 775-acre venture, which the developers had announced would be completed by this year.
  • Kamuthi operates on a socio-economic model whereby, after buying land, members are allocated half of it at lower-than-market rates while the rest is floated on the market for the public at the prevailing market rates. 

When an investor embarks on a big real estate venture, they do everything they can to ensure that the project runs smoothl y so that they can start benefiting from their investment after a specific period.

In an effort to ensure that this is how things pan out, most developers work on the project’s designs and models, fix prices and set the timeline for completing  each activity, which they announce before, during or shortly after the launch.    

But in many instances, mega projects are never completed within the scheduled period due to unforeseen challenges, which force them to go beyond the scheduled time, or even stall them altogether. 

This is, of course, bad for business, since it drastically affect customers’ interest in projects, particularly if they have made some down payment.

The result is a cash crunch for  developers, which can be so serious that they cannot  proceed with the  project, and if they do, it is at a pace that’s much slower than planned.  Many investors have learnt this the hard way, even though some have recovered and managed to complete their projects while others have been hard hit by unforeseen hurdles, which has seen their projects become white elephants. 

The case of Kamuthi Housing Cooperative Society, which had to review its initial plans, after unforeseen developments almost killed its dream of setting up a Sh4.5 billion gated community offers some valuable lessons.

KEY ELEMENTS

The project, known as Buffalo Hills and Golf Village, is in Kilimambogo, a dry, dusty area in Thika, Kiambu County. Upon completion, it will have about 6,000 homes and commercial facilities built on quarter and half-acre plots within Golf Village, and on one-eighth acre plots outside Golf Village.

It will also feature a nine-hole golf course covering 108 acres; a clubhouse next to a man-made dam covering 9.5 acres within the Golf Village with a swimming pool, game rooms, sauna, gym and spa among others.

Also worth learning from is Migaa Estate, a multibillion gated community by Home Afrika Ltd in Kiambu, which is now taking shape after dragging on for about four years due to, among other challenges, financial constraints and the market.

The Kamuthi project, which was launched in 2012, was to be completed in three years, and began on very high note, However, the society was  hit by unforeseen challenges, which the secretary, Mr Eliud Njoroge, said  cast a cloud of  uncertainty over the future of the project, especially after they were unable to pay their debtors.

Mr Njoroge says their initial plans, which did not take “key” elements — some of which were beyond their control — into consideration, were partly to blame. However, after months of struggling, the society, which has about 7,000 members and more than 4,000 non-member clients, overcame the challenges, which almost placed its properties under the auctioneer’s hammer.

So, what are the factors the society failed to consider, and which investors planning to undertake such projects should take into consideration to ensure that their projects run according to plan? 

1. Financing

Most real estate projects require a lot of money, which many investors do not readily have, so they seek bank loans to top up what they have raised so that they can carry out their projects.

And it is in regard that Kamuthi Housing Society officials say lies a very important lesson as far as implementing a mega project is concerned.

Due to their well-thought plan, they were able to easily secure a huge loan from Sidian Bank (previously K-Rep bank), and later, from the Cooperative Bank of Kenya to undertake the project.

But  it was after most of their clients developed cold feet due to the difficulty in reaching the project site, and which drastically affected their cash flow, that Mr Njoroge says they learnt that you should not seek financial support from just any bank, but from one that believes in the your vision.

POTENTIAL INVESTORS

He asserts that, as an investor, you should take time to shop around for a bank that will walk with you in good times as well as bad times.

When the society was in financial dire straits in 2016, it owed the Sidian Bank and Coop Bank close to Sh700 million, which it was supposed to service to the tune of Sh13million a month, but could not due to lack of funds, so it began defaulting

“Were it not for the fact that the banks we owed believed in us, they would probably have attached our properties even before we could embark on a recovery strategy,” Mr Njoroge told DN2.

In the case of the Mitini Scapes  Project in Migaa, also in Kiambu County,  the chairman of the  project, Mr Boniface Kamau, said during an event at the project site last year that initially, they could not raise the necessary funds

He said financial institutions were not willing to give them loans, and few people had purchased the houses off-plan due to a number of factors, among them the general perception, that the area is  a crime belt.

Fear among potential investors that the project might not succeed was also a factor in the delay of the 775-acre venture, which the developers had announced would be completed by this year.

But they later recovered and last year, they completed their first  phase of the project known as Mitini Scapes, and  resumed work  on the other phases, which include an 18-hole golf course.

2. Pricing and cash flow

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