Picture this – you get a construction loan and excitedly embark on a seemingly promising real estate project. Then during construction, you suddenly discover that the project is off schedule and over budget by a long shot.
Who would you blame for the mess? The contractor perhaps?
Now, imagine you somehow happen to survive through the whole thing and the construction project is eventually completed. But, just as your new building units hit the market, you suddenly discover that your real estate project might not be breaking even anytime soon.
What am I driving at?
The Bitter Truth About Real Estate In Kenya
No, this is not one of those blogs that claim the Kenyan real estate bubble is bursting. Not at all.
The real estate market in Kenya is not even a bubble in the first place. Rather, what we’re currently experiencing now is more of a market correction, which is arguably a common occurrence in a healthy market.
The property prices in Kenya are no longer dictated by a huge demand combined with a contrastingly low supply. Demand and supply are now at a state of equilibrium, meaning buyers and renters have multiple options to choose from.
And what does this mean for real estate property developers?
Well, for starters, make no mistake about it. Real estate is still a considerably solid venture in Kenya. But, just like any other business investment, it could also go wrong for you.
Case in point – we recently wrote a feature about the failure of the English Point Marina and the subsequent lessons we learned from that.
It’s not alone though.
In Nairobi, for instance, one of the biggest real estate investment failures is said to be the much-hyped Two Rivers Mall. Many retailers are reportedly closing shop because the mall’s complex large-scale design is not particularly friendly to high-budget shoppers.
That makes sense, I must admit. Because- think about it- does the Two Rivers Mall seem like the kind of place you’d want to take your family for a serious shopping spree? I guess not.
The nearby Ridgeways Shopping Mall is not doing so well either. After years of success, it eventually lost much of its clientele and shoppers to the new Ciata Mall.
And the principal reason is, while the former is along the CBD-inbound side of the road, the latter is positioned right on the opposite side of Kiambu road. That means people find it easier to pop into Ciata Mall as they head home after work.
But, that’s not all. There are many other examples of ghost real estate developments across every major road in the city. And sadly, some of the developers are even facing the auctioneer’s hammer.
Now, whatever you choose to blame it all on, the fact of the matter is, it’s preventable. And how exactly do you prevent such an outcome?
Well, the truth is, there’s a lot that goes into preventing failures during construction, ensuring building quality, and guaranteeing positive returns from real estate projects. But, everything considered, it all begins with the initial feasibility study.
What Is A Feasibility Study?
A feasibility study is the evaluation of a project’s viability at the outset. Your project management team analyzes the technological, economic, time, and legal factors affecting your construction project to establish its potential positive and negative outcomes.
Such insights help you not only determine if a real estate investment is worth pursuing, but also identify the best project approaches, the amount of funding required, plus the possible risks at each stage of construction.
That said, what exactly should you expect from your real estate feasibility study report?
What Should Your Real Estate Feasibility Study Cover?
The proposed project is reviewed accordingly to establish the technical requirements for construction as well as maintenance.
We usually address procurement options, project programming considerations, servicing strategies, operational issues, environmental impact, surrounding buildings, traffic and access points, zoning laws, execution plans, plus all the possible technical challenges during and after construction.
Your project’s feasibility study should evaluate real estate property metrics and market indicators to comprehensively determine all the economic variables affecting your project.
This is where we typically conduct construction cost analysis, market comparison, capitalization rate analysis, operating expense analysis, and market rent assessment.
In other words, we identify your market opportunity strengths and weaknesses based on target market demographics, historical market numbers, projected market growth, the existing market size, income statistics, as well as the population surrounding the area.
The feasibility study will also review your real estate project’s market positioning, while identifying all the potential competitors, and assessing their overall impact in not just the current market but also in the future.
Highest and Best-Use Analysis
This part provides accurate insights into your construction project’s best possible use and the corresponding highest possible net income. Additionally, you get to finally determine if the proposed real estate project is indeed profitable, legally permissible, physically possible, and financially feasible.
We take into account the real estate market conditions, your project’s financing, proposed project costs, operating projections, revenue projections, the project’s location, market needs, site-specific limitations, political and policy constraints, plus the relevant legal guidelines.
How To Get Started
With these real estate feasibility study guidelines, you should be able to identify the core areas of focus. Hence, you can go ahead and conduct a quick viability review of your upcoming construction project.
In the long run, however, it’s always advisable to consult specialized professional agencies like Integrum. We have a well-experienced team of construction experts who know everything there is to know about real estate feasibility studies in Kenya. So, feel free to talk to us today about your upcoming project.