Three real estate developers are building low-cost houses along Mombasa Road targeting first-time buyers with prices starting at Sh1 million per unit.
The developers — Rogam Investments, Karibu Homes and Peninsula Development Company — are pitching to buyers that the monthly mortgage payments for the units are equivalent to their current rent.
At an interest rate of 15 per cent per year, a Sh1 million house would require Sh12,000 a month for a 20-year mortgage while a Sh2.5 million house would require Sh31,000 a month at the same interest over a similar period.
Rogam Investments is undertaking the project as a mixed development of studios and apartments in Mlolongo, Machakos County. The project, dubbed First Homes, has a sale value of Sh500 million.
The firm said that it was aiming at attracting first-time home buyers such as working recent graduates.
Mr Aaron Gitonga, a director at Rogam Investments, said the firm chose to serve the low-end market because it is under-served unlike the high-end one which has signs of saturation.
“This is a market where there is a lot of demand but not many developers are looking at it,” Mr Gitonga told the Business Daily.
First Homes has studio apartments that go for between Sh1.5 million and Sh2.7 million, one-bedroom units at Sh2.5 million and two-bedroom ones at Sh3.6 million.
Rogam Investment began building homes in January last year and the first ones are expected to be ready for occupation by September.
The firm is financing the project through a mix of equity and loan from Co-operative Bank.
Availability of less costly, large tracts of land is the main reason attracting developers to Mlolongo and neighbouring Athi River towns. A large pool of employees from factories and offices along Mombasa Road and the Export Processing Zone is another reason.
Karibu Homes is putting up a Sh3 billion estate in Athi River. The apartments are priced at between Sh1.6 million and Sh5.25 million. The estate will have 1,082 units.
Peninsula Development Company plans to roll out apartment blocks worth Sh1.5 billion by the end of this year targeting first-time home buyers with units costing from Sh1 million.
The firm has a mixed development in Mlolongo and another one on Ngong Road, also targeting first-time buyers.
Mr Gitonga said that land prices are the biggest barrier to putting up more low cost units. “The price of land should be less than 10 per cent of the total construction cost,” said Mr Gitonga. Currently the price is about 25 per cent of the overall cost of a project.
Property consultants say that land prices are still on the rise in most satellite towns.