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Two roads diverged in a wood and I – I took the one less traveled by, and that has made all the difference. ~Robert Frost
Once you choose to construct a home back home, the next immediate step is to identify how to start. Most people rely on relatives or friends living within Kenya to select a site (location) , obtain designs and construct the home. In order to ensure that the building commences and progresses smoothly they periodically send money home. This arrangement has worked for some but an increasing group of diaspora get conned by their own family members because of poor workmanship or non-existent projects. Family ties prevent them from taking legal action against them. Today we advice you on how to avoid these problems.
1. Let Professionals Handle your Project:
Building professionals ensure a number of things. First, by appointing a team of professional contractors, you benefit from expert advice in design, construction, costs and all other aspects of the project including legal standing.Building professionals also ensure that the quality of workmanship in construction is upheld. They become your eyes and ears on the ground.
Letting professionals handle your project also enables you to easily acquire mortgage if need be, from lending institutions In Kenya, a registered architect and some instances, a registered engineer is required for all projects.
2. Don’t Send down all the Money at Once:
For construction projects, it is smart to remit funds gradually as opposed to in lump sums. The reasoning is this: the risk of loss of funds in unscrupulous deals is reduced.
3. Conduct due diligence
Always make an effort to verify all project details. These details include:the validity of issued certificates, the evidence of the construction site, the status of the project and the reputation of the contractors.
4. Stay connected with your local team
Keep constant communication with your local contractors. Make an effort to visit the site at least once a year, to assess the situation on the ground. Keep your eyes on your investment!
5. Retain all relevant documents
Your property documents are what you need and will stand proof of ownership in case of legal tussle or private incursions. Examples may include the title deed/settlement agreement or share certificate for the land, the architectural & structural documents and significant agreements.
You may find the paper below particularly useful.
The Cost of building works paper can be downloaded below
Tax breaks are not the usually the main motivating factor behind real estate investments. They however serve as a an excellent incentive to investors. Today we highlight the incentives available for both real estate developers and owners in Kenya.
1. Tax Incentives Available to Real Estate Developers
Under Section 20C of the Income Tax Income Act, Cap 470, the income of Real Estate Investment Trusts (REITs) is not taxable.
- A REIT is a vehicle which allows investors to pool resources together and invest in Real Estate. The shareholders of REITs acquire units which are tradeable at the stock market.
- The mode of taxation is the same as that of Unit Trusts which are tax exempt on their investment income.
b)Low Income Housing Project
Under the VAT Act, Cap 476, persons are allowed to apply for VAT remission on low income housing projects. The incentive is meant to encourage housing provision to low income earners.
- A low income earner means a person whose monthly gross earning amount to Kshs. 35,000 or less.
- A low income house means a house put up at a construction cost of not more than Kshs. 1,600,000 and of plinth area of not less than 30 square metres.
- A Low income housing project means a project of not less than 20 housing units intended for low income earners.
2. Tax Incentives Available to Landlords
a) Landlords are allowed to claim Industrial Building Allowance on the cost of construction.The applicable rates depend on; the nature, use and area the building is constructed.
The specific allowances are as follows;
- 10% on cost for building leased and used for manufacture.
- 5% on cost for rental residential building in planned residential area approved by Minister for Housing.
- 25% on cost for rental residential building in planned residential area approved by Minister for Housing where the owner has put up roads, water, power, sewer and other social infrastructure.
- Wear and Tear allowance on machinery and equipment as per the second schedule of the Income Tax Act.
- Personal and Insurance reliefs for individuals as per Section 30 and 31 of the Income Tax Act.
- Home Ownerships Savings plans for Individuals as per Section 15 of the Income Tax Act.
- Mortgage relief for Owner occupier Income as per Section 15 of the Income Tax Act.
Information is sourced from the KRA website. (Accessed 01/02/2013)
Today we talk about how to find a builder, and the key issues to consider when choosing building contractors.
Hiring the right builder is crucial to the whole building experience. People who have been involved in building or renovating a house typically report that the key factor in making it a happy experience is finding a good contractor and subcontractors.
We talked to a few home builders and they cited the following problems encountered during construction:
- Poor workmanship.
- Contractors not turning up when promised.
- No communication about variations and other issues that arise.
- Complaints being ignored and problems not being fixed.
- Phone calls not being returned by the contractors (Fundis)
- Delays which became a nightmare.
In contrast, people who’d had positive experiences reported that the builders they hired all had the following qualities:
- Honesty and integrity, i.e. someone who tells the truth, keeps promises and accepts responsibility when it is due.
- Knowledge of the housing industry.
- A personality that meshed with their own.
- Sympathy for their goals and budget.
Contractor selection criteria
When the tenders come in, don’t automatically choose the cheapest. Use a number of criteria to decide, such as:
- Price – if a tender is way above or below the others you should question it. Some builders tender low on the initial bid just to get the job – but they’ll probably be forced to cut corners, or rely on expensive variations along the way to make the job pay. They may even put their own business into jeopardy and be unable to finish the job. Expect to pay a fair price for the job – you get what you pay for.
- Examples of their work – ask them if you can talk to someone who has used them to build or renovate, and look at examples of their work.
- Qualifications – find out if they are qualified.
Finally, talk to each one and decide if you think you can work with them on a daily basis. You need to be comfortable with them, believe communication channels will be open, and confident they are capable of turning the designs into a high quality/satisfactory house.
Get an independent opinion
If you still can’t decide on which builder to choose, ask an independent person, for example a quantity surveyor, or another builder, to look at all the tenders. Remove the names of the builders and ask the independent person what they think of the quotes and the service being offered. You might have to pay them for this check but it will be a small investment to help you find the right builder.
Where can you get a good builder?
It may be part of your brief with your designer that they engage the builder and subcontractors. Usually an architect/designer works with a pool of contractors (who in turn work with a pool of subcontractors). So the architect/designer will advise you who they usually work with.
If you are going to select the builder yourself, start looking around early. If you see a house you like, ask the owners who built it and if possible talk to them about any problems with construction and what the builder was like to work with.
Ask for recommendations from friends and colleagues, your mortgage manager, the real estate agent and others in the house business. Word soon gets around about who is reliable and who you should avoid. Get a list of names and start a pre-selection list.
Group housing company Contractors
Group housing companies offer a range of standard designs and usually take care of the entire building process, including in some cases, the landscaping.
If you have chosen to build your home through a group housing company, the builders and subcontractors will often be part of the package. Unless you have objections to any of the people employed or contracted to the company, you won’t need to worry about finding and selecting your Contractor and subcontractors.
In some cases the company might insist on using their approved builders so that they can be sure the finished product meets their quality standards and therefore protect the company’s reputation. Or because the particular systems used in construction have to be installed by specially trained tradespeople.
Many companies provide project management, guidance and advice. Make use of it and avoid those companies that don’t offer this sort of support.
At Stroika, we provide full service to home builder. We undertake all tasks from design through to completion and offer expert advice throughout the project.
Q & A
What are the problems in the sector?
The construction industry everywhere faces problems and challenges. However, in developing countries like Kenya, these difficulties and challenges are present alongside a general situation of socio-economic stress, chronic resource shortages, institutional weaknesses and a general inability to deal with the key issues. There is also evidence that the problems have become greater in extent and severity in recent years. One of the charges leveled at the construction industry, as at the beginning of the 21st century, is that it has a poor record on innovation, when compared with manufacturing industries such as aerospace or electronics.
Institutional weaknesses exist where a regulating authority is unable to effectively implement the set regulations. This is a fairly common challenge in the sector where incidence, incapacity and negligence of the parties concerned results in poor building construction and associated challenges. In order to come up with a way forward, it is critical to examine the existing codes already in place.
2. Present Regulations
The regulations governing the construction sector are distributed among the following:
(a) Government policies- Building codes.( DOWNLOAD HERE)
(b) Statutory regulations
(c) Contractual regulations
(d) Law of torts
(e) Rules of equitable law.
2.1 Government Policies
Property and land policies so formulated by the government were and still are gradually being adapted in the construction sector. These policies include;
i) The National Housing Policy- aims at ensuring sustainable construction and proper administration of land
ii) The national land policy- ensure sustainable use of land
iii) The Economic Recovery Strategy for wealth and employment creation strategy- Enabled urban renewal and rehabilitation of infrastructure and previous mining areas.
iv) Vision 2030- The present government policy that aims at ensuring effective, efficient and fast socio-economic development in Kenya.
v) Building Code (downloadable here)
2.2 Statutory Regulations
These are formulated by either government bodies or the associated agencies. These include, but are not limited to, The National Housing Corporation, The Central Organization of Trade Unions (COTU), The City Councils, The Professional associations, Bureau of standards, the courts among others. Such include the following;
2.2.1 The factories acts
It defines a factory as any premises in which, or within the close or curtilage or precincts of which, persons are employed in manual labour. In the context of manufacturers in the construction sector, subsection (VI) states as follows:
‘any premises in which articles are made incidentally to the carrying on of building operation or works of engineering construction, not being premises in which such operations or works are being carried on’
This act also makes provision for the health, safety and welfare of persons employed in factories and other places of work. The Act is predominantly socioeconomic in nature and focuses on the shop floor conditions of the factory, safety devices, machine maintenance, safety precautions in case of fire, gas explosions, electrical faults, provisions of protective equipment among others.
2.2.2 Kenya Public Procurement and Disposal Act 2005
In the construction context, this act governs the procurement and disposal of public property. It defines who a contractor is, the form of tendering (open), the procedures to be applied in both the procurement and disposal of property.
Other statutory regulations include;
- Environmental management and coordination act – Which established the National Environment and management authority (NEMA) to cater for all issue affecting the environment
- The Physical planning act- established to control land use
- The Land planning act
- The water act
- The energy act
- Building codes of 1968- Established to be enacted by the local authorities. They defined the building specifications and the quality of building material to be used. Connection to common facilities such as sewers, electricity and water pipelines was also defined.
- The land acquisitions acts- dealt primarily with the procedure of land acquisitions, ownership and disposal
- The Government Lands Act (Cap 280 Laws of Kenya)-This enactment is no doubt a replacement of the 1915 Crown Lands Ordinance. It was enacted to make further and better provisions for regulating the leasing and other dispositions of Government Land and related issues. Under this Act, only the President can sign documents granting title. The President can and has delegated his powers to the Commissioner of Lands. The GLA lays down the procedures the Commissioner of Lands must follow in allocating land.
There are three essential requirements of any contract.
- Incentive: The prime aim is to provide an adequate incentive for efficient performance from the contractor. This must be reflected by an incentive for the client to provide appropriate information and support in a timely manner
- Flexibility: the prime aim is to provide the client with sufficient flexibility to introduce change which can be anticipated but not defined at the tender stage. An important requirement is that the contract should provide for systematic and equitable evaluation of such changes.
- Risk sharing: the prime aim is to allocate all risk between Client and Contractor. This must take into account the management and control of risk which materialize.
Types of Construction Contracts
There are various types of contract strategies in construction industry. Some of the main choices available are:
- Traditional Contracts
A consultant (or team of consultants) undertakes the process of feasibility, detailed
design, and contract preparation. A tender process follows and thereafter construction
installation and commissioning by the appointed contractor. The consultants who
developed and designed the project supervise these.
- Design and Build
A consultant undertakes the process of feasibility, establishing the client’s basic needs
and contract preparation. A tender process follows and thereafter the appointed
contractor undertakes detailed design, construction, installation and commissioning.
This type of contract is also known as turn key or prime contracts
- Management contracts
The client initially appoints consultants to undertake feasibility and costing and
perhaps outline design.A management contractor is appointed early in the project life and has considerable design input.
The management contractor’s responsibility is to prepare and appoints trade contracts or supply packages. Separate contracts are drawn up for independent parts of the construction project. A large amount of work is divided amongst several contractors.
- Build Own Operate Transfer (BOOT)
In its many forms a BOOT contract not only includes the initial design and
construction of the facility but a continuing maintenance and perhaps refurbishment
of over a number of years until final transfer to the client. Finance is often provided
by the contractor who recovers his cost through the life of the project. Other terms are
PFI, PPP etc
The concession agreement is the structured contract between the client and contractor.
It identifies and allocates risk.
Modes of Payments
The two main payment systems used in construction contracts are:
- Price Based: this system consists of lump sum and admeasurements. Prices or rates are submitted by the Contractor in his tender
- Cost Based: This payment system consists of cost-reimbursable and target cost. The actual costs are incurred by the contractor and reimbursed, together with a fee for overheads and profits.
- Price Based Payment System
A prime function of the contract is to allocate risk. The identification and
consideration of risk is a logical way to develop the organisational and contractual
policies for any project. Some of these uncertainties will remain whatever type of
contract is adopted and the contractor must then include a contingency sum for them
in his tender.
Different levels of risk contingencies can explain the wide range of bid prices
frequently received for admeasurements contracts. Another consequence of risk is that
fewer contractors are prepared to respond to or submit unqualified bids.
All parties to a project are at risk to some extent whatever the contract between them,
for instance that work may be frustrated by the forces beyond their control. If so, the
time lost and all or some of their consequent const may not be recoverable. The
choice of type of contract can motivate (or fail to motivate)
Any enterprise is built by wise planning, becomes strong though common sense, and profits wonderfully by keeping abreast of the facts. (Proverb)
Today we highlight the top construction trends for 2013. We also go a step further to examine the potential threats that are anticipated in Kenya.
For construction, some of the top trends are:
- Create large space by removing walls and eliminating obstructions
- Construct buildings that can be easily converted to commercial office space or residential homes. For example, when building a residential home, make sure the wall elements are non-structural to enable future demolitions. The same applies to other elements such as windows.
- Move to hardwood and/or bamboo floors instead of traditional carpet flooring. They are sustainable, affordable and easy to maintain.
- Transform areas into multi-function areas, for example open plan kitchen tops can be converted into dining/bar areas
- Use deeper sinks instead of double bowl sinks
- Add living spaces to accommodate elderly family that are not able to afford a single unit
- Install solar tiles or energy generating thin glas
- Use sustainable concrete
- Apply paper-based insulation
- Install super-efficient triple glazed windows
Location, Location, Location….
In terms of location for development, these are our top locations:
- Thika road and surrounding areas
- Ruai and Utawala areas
- Naivasha and Nakuru (For secure neighborhoods)
- Mlolongo/Syokimau area
Threats to Future Performance
Potential hazards in 2013 lie on various factors. These factors are socio-economic and political/Legal ones.
The socio-economic threats are various and are both local and international economic conditions. These may affect the interest rates and therefore the cost of construction among other factors. The political threats are largely due to the upcoming general elections in Kenya which may slow down business in general. Legal matters pertain to the approval and implementation of the new Built environment regulations (2012) which may affect general construction operations.
Worth noting, many contractors have experienced positive growth in 2012. This has been boosted in part by the reduced interest rates, influx of Foreign Direct Investments and general economic stability. These conditions lead to an increase in the number of residential units under construction. The margins may begin to shrink in anticipation of the general elections (IMF report, 2012).
Anecdotal evidence suggests contractors have been passing along a larger share of materials cost increases to project owners, a symptom of economic rebound. But if backlog begins to shrink again, pricing power would be compromised as decreasingly busy contractors begin to chase work more aggressively. The reverse may also hold true for the construction sector in 2013.
We are your thoughts on this?
There are various types of construction projects. These include building construction, heavy or civil engineering works and industrial construction work. Civil works here include the construction of roads and bridges while industrial works deal mainly with medicine, petroleum, chemical, power generation, manufacturing industries. Buildings generally require a significantly smaller teams but this varies depending on the nature of the project. Individual residential buildings require a smaller group or number of individuals compared with high rise commercial buildings. Industrial construction require larger groups of people working together to bring a project to completion.
Construction procurement is involved with the acquisition of the above mention construction works. The methods of procuring buildings rely mainly on the type of contract that has been entered into between the client and the contractor. The four basic types of contacts include:
- Separated contracts/ Traditional ( Lump sum contracts, Measurement contracts, Cost plus percentage)
- Management contracts( Management contract, Construction management contract,Design, management and construction contract)
- Integrated contracts (Design and build contract, Turn-key contract, Build own, operate and transfer (BOOT))
- Discretionary contracts (Partnership, Joint venture)
Traditional Procurement methods
Separated contract or traditional procurement systems are those in which the design and construction stage are separated. The traditional structure for project procurement is seen as a sequential method because the employer takes his scheme to an advanced stage with his professional team before appointing a contractor.
The designer/architect is employed to advise the client, design and ensure that the work is kept within the cost limit and that it complies with the standards required. A Quantity Surveyor can be engaged to give guidance on design costs and budgets, prepare bills of quantities, check tenders, prepare interim valuations and advise on the value of variations.
The contract price/sum is often based on a bill of quantities provided by the Quantity Surveyor which quantifies, so far as possible, every aspect of the works. Consultant structural and services engineers may be employed by either the client or his advisers to design the specialist parts of the project.
Generally, the separation of responsibilities for design and construction causes difficulty in ascertaining whether defects in the outcome are a result of designing or the quality of workmanship. Designing defects render the client liable for losses while workmanship and material quality liability are borne by the contractor.
These types of contracts are usually characterized by inadequate or incomplete designing before construction commences and consequently problems in the determination of the final costs of a project. The various types of separated contracts are discussed below.
Lump sum contract are consequently separated contracts where the contractor gives an estimate of the total cost of a project. This type of contract is effective where all design parameters are measurable. A lump sum contract is compiled after the project briefs, proposals; preliminary and detailed designs have been completed. This type of contract is time consuming as all the required details must be made available before tendering commences. It also has the disadvantage of uncertainty. Before tendering for this type of project, it is important to determine the buildability of the project.
Measurement contracts on the other hand rely on an item by item means of measuring quantities. The tender documents are supplied along with a detailed bill of quantities. The bill of quantities included details on the item serial number, quantity, unit of measurement and the amount required.
The cost plus percentage contract is applied in small project. It is similar to the measurement contract except that an additional cost of the percentage of actual cost is added to the gross sum i.e. after adding the price of individual items.
Management contracts involve the services of a contracted management contractor. The management contractor role ensures that a large number of small subcontractors do not send their quotations. The key roles of this individual include preparing the overall schedule, prepare the work package schedule and to coordinate with the designers in the project.
The construction management project involves a construction manager who assists in procurement, managing the project and coordinate activities. The duties of the construction manger include advising the designers, assisting in procurement and managing the building process.
Design, management and construction projects involve an individual or consultancy taking responsibility for the entire construction process. The client however, is responsible for calling for tenders. The clients also sublet the designing and building of the project to subcontractors in practice.
Integrated contracts include the design and build contract. In this case an individual usually an architect or the engineer is responsible for the entire construction project. This eliminates contractor-designer conflicts. This kind of contract is adopted where the client has no in-house design and engineering departments. The key advantage of this type of contract is the technical expertise and the reduction of unnecessary law suits.
The turnkey contract involves contractors’ roles include surveying, drawing, designing, constructing and testing the output for the client. The client simple ‘turns the key’. The advantage of the turnkey include the fact that the project benefits from a large technical capacity and that it may include on the job training on how to operate on the site.
The build own,operate and transfer (BOOT) contract involves an agreement between the contractor and the owner to the effect that after construction is complete, the contractor can operate the facility for a given duration. This type of contract takes place where the client seeks alternative sources of funding project and is common in the public sector.
The client can raise funds in the contractor’s court to effectuate this contract. Because of the long term nature of this type of contract it is important for both parties to assess the associated project risks and these may be social, economic and political risks of undertaking this kind of project. An example of this would be a BOT contract formed by hydro-electric power plants. In these cases, private companies are contracted to build a power plant and later on operate it for a given duration say 15 years after which ownership may change.
Discretionary contracts include the partnership and Joint venture. In a partnership, the contractor and the client form a partnership .construction commences after the project goals have been set. Disputes between them are settled through their stated (in the contractual agreement) means of dispute resolution.
A partnership agreement will usually define the means of operation that is how the project will be planned, designed and executed. This type of contacts can be long-term or short term. Short term partnership agreements are those that are agreed upon for say a set project period or until completion of a project.
Joint ventures are necessitated by the inadequacies of individual contracting firms. The firms merge forming a ‘mini-company’. These firms also establish a Memorandum of Understanding and internal articles for the duration of the project. The different parties to a joint venture each contribute staff to the new merged company.
The most widely used procurement method in Kenya today is the traditional system of procurement. However, the choice of management contracting is a preferred alternative especially for larger project due to the necessity of proper resource management.
Now that you have decided to build a home, the next stage is to plan for construction. The aims of cost planning are to:
- Ensure that you are provided with value for money.
- Make you, as the home-builder, and designers aware of the cost consequences of their proposals.
- Provide advice to designers that enables them to arrive at practical and balanced designs within budget.
- Integrate costs with time and quality.
- To keep expenditure minimal
LOCATION, LOCATION, LOCATION….
In real estate as in business, the choice of location has a tremendous impact on cost and opportunities. It is therefore important to select a location which will favor you as home builder.
For example the cost per meter squared of building a home in Nairobi can be Kshs. 43,000 but constructing a similar unit in Nakuru can be KShs. 40,000. That Kshs. 3000 difference counts for a significant relief on your wallets.
Generally, building costs tend can to vary between locations due to one or more of the following factors:
- materials/products available or commonly used;
- ground conditions normally encountered;
- material/product prices due to distance from place of manufacture or distribution;
- distance from labor source;
- local regulations;
- labor productivity (e.g. due to adverse climatic conditions);
- builder’s risk and market conditions;
- labor rates – In Kenya,the rates for labor especially for individual home builders, is determined by personal negotiations with the the key contractor.
Another factor closely related to location is the characteristics of the land/plot
These are the geographical influences on land, including topography, climate, soil conditions, area, availability, cost and liability to earthquakes and flooding. In the past.
- Soil or geological conditions
These may have a bearing on the pattern of land use, the density and costs of development. Foundation type and complexity for any particular building are determined by the subsoil conditions. Unstable soil conditions can and the climatic conditions can also play their part in influencing development.
This can also influence building costs. Whilst elevation and views (particularly as development moves up a hill) are generally considered desirable, it comes at a premium. Generally, the cost of building on steep slopes is greater than that of building on level sites.
As home builder, it is important that you choose a suitable location before commencing planning any further.
Contact us at firstname.lastname@example.org with your inquiries today.
Thinking of building a new home? Here are some tips…
1. Contact Local Builders
Meet with builders who construct houses that are similar in size, quality, and features to the home you want. Builders will tell you how much per square foot they usually charge for home construction. If you ask, some builders will provide you a list showing the materials they will use.
Our independent consultants offer advice on material sourcing, costing and labour fees for only 3% of the cost.
2. Count the Square Footage
Look at newly constructed homes that are similar in size, style, quality, and features to the home you want. Take the price of the home, deduct the price of the land, and divide that amount by the square footage of the home.
For example, if the home is selling for KES 16.3 Million and the land costs KShs. 300,000, then the construction cost is around KShs. 16 million. If the home is 2,000 square feet, then the cost per square foot is Kshs.8000.
Use several new homes in your area to get an approximate square footage price. After you have calculated an average square footage cost, you can multiply that cost by the finished square footage of your house plan to get a ballpark estimate.