Ruaka Investment Opportunity

Feb 28, 2016

Cytonn Report #6 focused on Nairobi household settlement characteristics in the satellite towns around Nairobi. We saw people in the satellite towns take on average 3 years or less to buy land, build and settle down. Given Cytonn’s key focus towards providing middle income housing, this week we focus on Ruaka, which is an attractive real estate investment satellite town. The town is close to Nairobi and has two prime commercial retail developments within its vicinity – Two Rivers and the Rosslyn Riviera mall. Research by our Real Estate team shows that Ruaka developments deliver an average rental yield of 5.1% p.a. and potential total returns of more than 21% p.a.

Following our market research on Ruaka in August 2015, highlighted in Cytonn Report #34, a supplementary study was conducted to reaffirm on the performance of the market in the last 6 months. We widened our scope of research to include one-bedroom apartments, as well as increase the number of comparable developments. The market study focused on properties built within the last 5 years along Limuru Road where Cytonn is developing The Alma.

Ruaka was historically a rural shopping centre with the hinterland being utilized for agricultural purposes. However, the on-going relaxation of zoning restrictions that is in line with strategic planning will allow for more comprehensive and high-density development of both residential and commercial properties. According to the data from KNBS on the 2009 Census, the population of the larger Karuri area stood at 129,000 from the 2009 which is a 41.7% increase compared to the 1999 census. It is projected that by 2025 the population will be 176,191 translating to an annual population growth of 1.97%. Ruaka’s population is a mix of both local middle income earners as well as foreign residents.

As per our research on uptake of housing units in Nairobi’s satellite towns, Ruaka has the highest uptake at 93% compared to an average of 73% for the other satellite towns.

Ruaka’s Residential Market Research

Demand for housing has led to an increase in land and property prices in areas around Nairobi Metropolitan Region. Land in Ruaka is priced at approximately Ksh 100 Million per acre and this is relatively expensive in comparison to other satellite towns such as Ngong, Athi River and Ruiru. Prime land with frontage to tarmac road is scarce in the town resulting to an increase in linear developments along Limuru road towards Ndenderu.

The market research focuses on the following areas:

  • Sizes of apartments: this is to be used in unbiased comparison of the rental and selling prices as well as the developments trends in the area
  • Selling prices of apartments: this will give an overview of the average exit prices of apartments in the area
  • Rental rates for various units will inform on the average rental prices, and yields for investment analysis
  • Uptake of the apartments indicates the rate at which apartments have been bought hence indicating the attractiveness of residential property in the area

 

Research Findings:

1 bedroom apartments

 

Name of Development

Year of Completion

Size of Unit (SQM)

Current Selling Price per SQM (Ksh)

Rent per SQM (Ksh)

Uptake (%)

Yield (%)

CAP Rate (%)

Junica Apartments

2013

43.0

86,047

419

94

5.5

14.7

Ruaka Ridge

2015

63.0

99,206

397

100

4.8

13.9

Makao Roselyn

2015

58.5

94,017

342

85

3.7

15.6

Ruaka Spearnet

2015

45.0

 

400

94

3.9

 

Elite Heights

2013

58.0

 

379

100

5.1

 

Average

53.5

93,090

387

94.6

4.6

14.7

Total Return

19.3

One bedroom apartments have the highest price per square metre at Ksh 93,090 as compared to two and three bedroom apartments at Ksh 91,307 and Ksh 84,214 respectively

2 bedroom apartments

Name of Development

Year of Completion

Size of Units (SQM)

Current Selling Price per SQM (Ksh)

Rent per SQM (Ksh)

Uptake (%)

Yield (%)

CAP Rate (%)

Mulberry

2013

90.0

100,000

444

100

6.1

9.5

Temus

2012

107.0

79,439

374

95

5.4

19.6

Runda View

2015

86.0

113,372

465

100

4.9

17.9

Ruaka Ridge

2015

92.0

76,087

408

94

5.8

14.8

Makao Roselyn

2014

88.9

95,613

450

85

5.1

16.6

The Pearl

2016

108.0

83,333

 

85

   

Glenwoods Gardens

2017

88.0

71,023

 

96

   

Average

 

95.3

91,307

428

93.2

5.45

15.7

Total Return

 

 

 

 

 

21.1

2 bedroom apartments have the highest yields at 5.45% as compared to 1 and 2 bedroomed apartments at 4.6% and 5.2% respectively. They are thus the best option for investors seeking to let their property in the area

 

3 Bedroom apartments

Name of Development

Year of Completion

Size of      unit (SQM)

Current Selling Price per SQM (Ksh)

Rent per SQM (Ksh)

Uptake (%)

Yield (%)

CAP rate (%)

Mulberry

2013

110

109,091

455

100.0

4.7

18.8

Runda View

2015

104

103,365

481

84.0

4.7

15.7

The Pearl

2016

123

79,675

390

58.3

5.6

19.1

The Pearl

2016

131

79,389

344

93.8

4.9

17.9

Makao Roselyn

2014

109

87,156

459

82.0

5.6

17.8

Makao Roselyn

2014

122

90,164

410

82.0

4.9

18.4

Makao Roselyn

2014

162

79,938

463

82.0

6.2

17.3

Temus

2012

107

88,785

430

95.0

5.5

19.1

Haven Park

2012

115

86,957

435

85.0

5.1

16.6

Glenwoods Gardens

2017

120

62,500

 

94.0

   

Average

 

120.3

84,214

426

85.6

5.2

17.9

Total Return

23.1

3 bedroom apartments have the highest price appreciation at 17.9% as compared to 14.7% and 15.7% for one and two bedroom apartments respectively.

Summary of the research findings can be summarised as below:

 

1 BR

2 BR

3 BR

Average

Average size (SQM)

 54.5

 95.3

 120.3

 

Average Monthly Rent per SQM (Ksh)

 387

 428

 426

 

Price per SQM (Ksh)

 93,090

 91,307

 84,214

 89,537

Uptake (%)

94.6

94.0

90.5

93.0

Yield (%)

4.6

5.4

5.2

5.1

Price Appreciation (%)

14.7

15.7

17.9

16.1

Total Return (%)

19.3

21.1

23.1

21.2

Performance Comparison – Last 6 Months:

A follow up on a research conducted in August 2015 shows that there has been appreciation of rent and price of units on the subject properties that had been used. On average, the prices and rental rates have increased at an annual rate of 6.8% and 15.5% respectively over the last 6 months. Investors who own apartments in Ruaka are likely to have an annual total return of 22.1%

Type of Apartment

Rent Appreciation

Price   Appreciation

Increase in Uptake

Total Return

2BR

19.0%

7.0%

6.5%

21.1%

3BR

12.0%

6.6%

1.8%

23.1%

Average

15.5%

6.8%

4.2%

22.1%

Ruaka is in the rising phase of the real estate market evidenced by high returns and appreciation of both the rental rates and prices. The zoning regulations are favourable to property developers who densify their developments hence reaping high returns. Ruaka is thus ideal for investment in residential apartments with a mix of one, two and three bedroom units. Developers should however differentiate their developments through provision of other social amenities.

Cytonn Real Estate has ventured into the Residential market in Ruaka through the proposed Alma. The 408-unit mixed-use development project is located in Ruaka town near Joyland supermarket. The ground breaking for the development is scheduled to take place in March 2016. The breath-taking development will offer a retail centre as well as 1,2 and 3 bedroom apartments. In addition, there will be amenities such as a nursery school, a gymnasium and elevated gardens. The development has provision for adequate parking space for both residents and visitors. For details, see the development at Alma Video  and brochure at Alma Brochure .

--------------------------
Disclaimer: The views expressed in this publication, are those of the writers where particulars are not warranted- as the facts may change from time to time. This publication is meant for general information only, and is not a warranty, representation or solicitation for any product that may be on offer. Readers are thereby advised in all circumstances, to seek the advice of an independent financial advisor to advise them of the suitability of any financial product for their investment purposes.