Why it pays to build instead of buying in Kenya

Deciding whether to put up your own house or just buy a finished one is decision most prospective homeowners have to battle with.But the debate of whether to build or buy is one that has always been there, with people advancing different reasons why one is better than the other. But for those who have been nursing hopes of building their own dream houses, it seems the time is now.

"Generally, interest paid on mortgage has fallen by between one to three points across all lending institutions. This means that there is more money for construction available on better terms," says Mr Samuel Omogeni, manager at a Nairobi based building and construction company, MTL Constructors Ltd.

Although the price of land is still high, Omogeni says that the timing could be right for individual constructors because the high prices of building materials, particularly that of cement, which constructors experienced a few months ago, has also eased.

The slowdown in the real estate market also means that in many areas, experienced contractors, carpenters, and other construction facilitators are more readily available than they have been in the recent past. The result is that building your own home suddenly seems more viable than it was four months ago.

Omogeni, however, warns that it could be risky for a potential investor to jump into the builders’ bandwagon if they are not financially prepared.

To illustrate how important finance is to the overall construction business, Omogeni invited one of his past clients to this interview. The client, Mr Wilberforce Etyang’ recently completed a house in Karen, three years after the projected five months of completion had elapsed.

The initial cost of construction was put at Sh4.5 million, but because he had only Sh3 million, he went and borrowed Sh1.5 million from a lending institution for the project.

With the help of Omogeni, as his contractor, he set about building the dream house, but was a little less disciplined financially. "I kept on suggesting new additions to the original architectural plan," acknowledges Etyang’.

"The result is that my budget went wild and I was unable to finish the project according to plan. The initial budget for land and construction was Sh6.5 million, but the final cost exceeded Sh8 million," he laughs.

One way to minimise on the cost of construction is getting a good constructor.

Although there are several constructors right now, experts say that one should look out for a constructor with good management skills before settling on a final choice.

"The best way to do this is to get referrals. Talk to people who have built their own homes and dig as much information as you can about a constructor you are thinking of hiring. You also have to tour and see their past constructions because this will help you make significant decisions," says Etyang’.

If you still think that building your own house is viable, Etyang’ advises that the final process involves taking ‘sensible’ steps to minimise the risk of financial heartache.

The most important, he says, is to understand the process. "Even if you have prior experience," says Etyang’ "you should still talk to experts or those who have built their own homes before."

With a little help from a professional, it will be easier to estimate what building your new home will cost and whether you can afford it.

Experts say that building a home is more expensive than it looks, especially if one counts the cost of the time it will take, the stresses involved and the overall construction cost.

However, from a financial perspective, it is usually cheaper to build a house than to buy.

Besides the economies of scale, this allows potential investors to also save on many other fronts, including the developer’s profit.

"The construction cost is nearly the same across all estates in Nairobi because people draw building materials from the same sources," says Omogeni.

"If your budget is Sh3 million, it will be safer to spare an extra one million for unexpected expenses," he advises. But while speaking of costs, Omogeni says that one should also consider how to finance the project.

A typical route, he says, is a construction loan, but he adds that people have not been enthusiastic about this because it tends to carry high interest rates and hefty processing fees.