Case Study Series13 April 2019
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Case Study Series13 April 2019 Challenges in Delivering Afordable Housing in Kenya: The Case of KARIBU Homes Ltd Seeta Shah and Ravi RupaRel Contents 1. KARIBU Homes 1 1.2 Why this case study 2 1.3 Approach 2 1. KARIBU HomeS 2. Developer’s Perspective 3 KARIBU was founded in 2009, with the vision of “transforming 2.1 Project Planning 4 the provision of housing in Kenya by setting the standard 2.2 Land Identifcation & purchase 4 for the development of afordable, thriving communities 2.3 Project Financing 5 for hard working families.”1 The company was founded by 2.4 Infrastructure Investment 5 two entrepreneurs, Irfan Keshavjee and Nick Gilodi-Johnson, 2.5 Building Construction 6 who established the concept and were then joined by a third 2.6 Marketing 6 entrepreneur, Ravi Kohli.2 Together they set out to assemble 2.7 Pricing & Financing 6 a strong team of experienced professionals who shared the 2.8 Sales & Registration 8 passion for delivering afordable housing using commercial solutions. Their core values included “to bring afordable, 3. Buyer’s Experiences 9 safe, dignifed housing as far down the income ladder as is 3.1 Buyer History & Household Characteristics 9 commercially possible” and “using commercial disciplines and 3.2 Financing Choices 10 strategies to create social impact.” The Riverview Development (RIVERVIEW) in Athi River is the company’s frst project. 4. Key Lessons 11 5. Conclusion 14 1 http://karibuhomes.com Annex 1: GoK Afordable Housing Programme 15 2 http://karibuhomes.com/about-us/team/ Annex 2: Survey Results 16 KARIBU has been recognized for its eforts. The company was awarded Winner of Best Development in Sub Saharan Africa at the African Property Investment 3 The Kenya Government’s “Big Four” Agenda awards in 2017, and is included in the London Stock includes the provision of afordable housing as Exchange group of “Companies to Inspire Africa” in 4 one of the four key pillars. Under the Afordable 2019. KARIBU is in the process of initiating other Housing Programme (AHP), the Kenyan housing development projects. government is committed to providing 500,000 units of afordable housing from 2018 to 2022. 1.2 Why thiS caSe Study The AHP includes various initiatives such as: (i) providing state-owned land for free or at low cost Kenya has a signifcant housing gap. The World Bank, to developers through a joint venture model (ii) in its Kenya Economic Update entitled Housing – developing or subsidizing bulk infrastructure for Unavailable and Unafordable (April 2017), estimated identifed development sites (iii) coordinating and that the housing defcit was 2 million units and was 5 expediting statutory approvals from authorities growing at 50,000 units per year. and utility providers (iii) creating a Housing Fund with mandatory contributions which will allow The Kenyan housing market has seen a signifcant Kenyans to save for housing and be used to provide transformation over the last 15 years. In Nairobi, oftake undertakings to developers (iv) creating investment in residential real estate started with high an environment that mobilises private sector income townhouse and apartment developments in resources and (v) promoting the Kenya Mortgage neighbourhoods closer to the city. The development Refnance Facility which will provide long term boom pushed up land prices and drove developers to fnancing to banks and SACCOs to enable them to promote developments at the city’s edge. However the provide more fxed rate, longer term mortgages. total number of units built per annum has been quite 6 small. And most of these developments have targeted Figure 1: Overview of the Afordable Housing middle and upper income buyers. 7 Programme Source: Ministry of Housing Presentations at The RIVERVIEW project was selected for this case study stakeholder workshops as: (i) the founders of KARIBU are committed to creating afordable housing with a focus on homeownership (ii) KARIBU was willing to make time available and share their data (iii) the learnings from this project are applicable to the Afordable Housing Programme (AHP) and are likely to be useful to policy makers and implementers of the AHP. 1.3 appRoach interviews with the Directors and staf. The authors also undertook a survey of a sample of households. The Case Study was prepared for the Centre of Afordable Housing Finance in Africa by Seeta Shah8 The RIVERVIEW development process is described in and Ravi Ruparel 9 10. The authors reviewed documents Section 2. The results of the survey are summarized in provided by KARIBU and also conducted numerous Section 3. The lessons learned are discussed in Section 4. April 2019 3 https://apievents.africa-newsroom.com/press/winners-for-africas-top-real-estate-developments-announced-at-the-africa- property-investment-api-summit-and-expo-2017?lang=en 4 https://www.exchange.co.tz/london-stock-exchange-pinpoints-companies-to-shape-africa-in-2019/ 5 World Bank , Kenya Economic Update April 2017 – Housing: Unafordable and Unavailable http://documents.worldbank.org/ Series curated/en/988191491576935397/pdf/114115-REVISED-PUBLIC-KenyaEconomicUpdateFINALFINALMay.pdf 6 In 2013 only 15,000 housing units were planned in Nairobi http://hassconsult.co.ke/images/Q42013/Press%20Release%20 KPDA.pdf 7 In 2013 the average asking price for apartments in Nairobi was KES 12 million : Haas consult state of development report 2013 Study 8 Seeta Shah is a Housing Finance specialist having worked as a construction lender for Reinvestment Fund in USA and contributed to policy in Kenya including the Kenya National Housing Survey and the Nairobi Housing Policy. She has an MBA in Real Estate Finance from The Wharton School and a BA in Land Economy from Cambridge University and is a qualifed Chartered Surveyor / Property Valuer. 9 Case Ravi Ruparel is an international development advisor with over thirty years’ experience in thirty countries. He has worked on housing fnance issues with the World Bank and the Financial Sector Deepening Trust. He is a member of the Board of Directors of the Central Bank of Kenya. 13 10 The authors have previously published a Case Study on Housing Finance Group in Kenya, which is available at http:// housingfnanceafrica.org/documents/case-study-7-the-transformation-of-the-housing-fnance-company-of-kenya/ 2 2. DevelopeR’S peRSpeCtIve The Riverview development is located in Athi River, south east of Nairobi, of the main Nairobi-Mombasa Road and close to Athi River. The location is 28km from the central business district, 14km from the Syokimau Railway Station and 8km from the Athi River EPZ. Most of the residential development in the Mlolongo and Athi River area has taken place in the last ten years. The developments have consisted primarily gated estates with several apartment blocks accommodating 100-300 units . Riverview Location KARIBU’s initial aim was to serve as wide a segment The development timetable involved three broad of frst time home buyers as possible. The concept was stages (Figure 2). Construction began a full three years based on a principle of cross subsidization. Essentially after the initial detailed, market research and feasibility their plan was that higher profts from higher priced analysis, and Phase 1 (287 units) was completed in 22 units, would subsidize the lower profts from lower months. Construction of Phase 2 (285 units) began in priced units; but overall the development would be September 2016 and was targeted for completion in commercially viable. KARIBU’s research showed that December 2018 (27 months). However this has been developers generally only served the top 10% of Kenyan delayed due to the weakened market, partly caused households by income bracket. They focused their by the prolonged election cycle of 2017. Phase 2 was eforts on giving access to households in the 40th to 90th completed in January 2019. Future phases – 3 and 4 are April 2019 percentiles at a price point lower than was prevailing in expected to have an additional 516 units. the market. Early research Undertook detailed market research and feasibility analysis (undertaken part time) Developed overall concept Series 2009 – 2011 Finalized Business Plan Startup Identifed and purchased land (full time operations) Finalized masterplan and unit specifcations 2012 - 2013 Obtained regulatory approvals Study Raised equity fnancing Began predevelopment and infrastructure on land Build out Closed on debt fnancing Case (full time operations) Launched Phase 1 sales 2014 - 2016 Began construction of Phase 1 (October 2014) 13 Completed Phase 1 (August 2016) Figure 2: RIVERVIEW Development Timetable 3 The full development value chain involved nine steps Target market and pricing: When KARIBU started from project planning through to sales and registration. the project some developers were ofering 3 bedroom These are outlined below: apartments in the Mlolongo / Athi River area at KES 5-6 million (USD 50-60 000) and 2 bedroom apartments 2.1 pRoject planning at KES 3-4million (USD 30 000-40 000). KARIBU’s aim was to try to ofer 3 bedroom apartments at KES 2.7 The masterplan brief was focused on creating cohesive million (USD27 000), 2 bedroom at KES 2 million (USD and ambient communities. KARIBU’s research and 20 000), and 1bedroom at 1.3 million (USD 13 000) on focus groups highlighted the following key attributes a commercial basis – without any subsidies. KARIBU’s that were factored into the design: research showed this would be afordable to families between the 40th and 90th income percentile, with Low Density: The initial research indicated that a monthly household incomes ranging from KES 35 000 density of 50-60 units per acre (and a total of 1,000 to KES 80 000 (USD 350-800).13 – 1,200 units per development) was ideal to ensure enough space for community facilities and assets such 2.2 land identification & puRchaSe as parks and green space.