17/11/2020
The Basics...written by Bwalya Masabo
Having a house designed, let alone actually building it, is a serious investment that most people do not take time to critically analyze. Like every investment, it is important not to go with the flow but look at your unique circumstances when ready to venture in this as land is heterogeneous in nature, immobile with fixed supply and so no 1 solution fits all. One needs to do a localized investment appraisal and consider a number of factors.
It is important to understand if the property is meant for personal use or rental. There should be no confusion on this.
If rental, the house size matters. This is directly related to the amount of investment needed to commit to this venture. The amount of money invested has to be commensurate to the projected rental returns, which are heavily influenced by plot location and house design, amongst other factors.
It is important to know that location has a serious bearing on returns. Certain locations have a ceiling rental and no matter how big or how much aluminum and harvey tiles you subject your building to, the returns will not be proportional to the amount invested. A good investment should bring back a return OF capital in about 8 years, plus a return ON capital thereafter. However, it is unfortunate that with the high inflation and depreciation of the Kwacha, this return of capital period remains a moving target as the rental values keep deprecating.
Additionally, most first time investors fall into the trap of trying to project their personal preferences in a rental house design which some times tends to push the construction price up. This syndrome in its entirety is not a bad approach but needs to be critically managed.
If the house is intended for your occupation, and cost and time is an issue, its important to carefully think through the facilities you actually need in the house and have a targeted completion period for the project. This in turn informs you of the financial requirement over the projected period and allows you to adjust the design accordingly. It is not prudent to embark on a project with no time frame, as the money you will hold up in the construction could have been invested elsewhere and could be generating a return..., let alone the rentals you continue paying. However, this is a contentious statement in an environment where "building at my own pace" with no financial appraisal attached to the project has become a norm.
Ultimately, real estate is a long term and less risky investment if all the factors are managed well - starting from the land purchase.
All the best in that project.
