Working out the returns from a housing project

By Mungai Kihanya

Mike Maingi writes in to say that his investment club (chama) is considering putting some money in a housing project. But the deal sounds too good to him and so he would like me to see if they are missing something.

The project involves leasing a piece of land for 10 years at a monthly rent of Sh10,000 per month. The club will then build temporary houses using timber and iron sheets for the walls and roofs.

A block with 10 units will cost them about Sh1 million to construct and the market rent in their target area is between Sh2,500 and Sh3,000 per unit.