Athi River Investment Opportunity

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1 Athi River Investment Opportunity In 2016, we launched our futuristic master planned community Newtown, to be developed in Kinanie Athi River on a 1,000-acre land parcel, and in February 2017, we acquired a stake in Superior Homes Kenya Plc, a leading master planned communities developer whose main development Green Park, is changing the face of Athi River. This week we thus take a look at Athi River, the township in which both developments are located. We evaluate the real estate investment opportunity in Athi River based on rental yields and price appreciation over the last two years. We start with an overview of the area, then factors driving real estate investments in the area and challenges affecting development in the area. We then cover the performance of residential real estate before concluding with our investment recommendation on the Athi River market. Athi River Market Research Overview Athi River is an industrial town that has in the recent years witnessed increased development of middle income housing. It is located 26 KM South East of Nairobi. The town has grown rapidly due to a number of factors including: Its administrative role as it is the headquarters of Mavoko Division in Machakos County, improved infrastructural development with the Standard Gauge Railway (SGR) train station being based in the town, industrial activities that attract population to the area, the town hosts the Export Processing Zone (EPZ) and a number of factories in the cement and construction industry such as Bamburi Cement, ARM Cement, Blue Triangle Cement and Mabati Rolling Mills. Factors Boosting Real Estate Investments in Athi River Availability of development land - Athi River has adequate land to facilitate development unlike most suburbs in the city, where development land is in low supply, leading to congestion. The availability of development land has led to many gated communities coming up in Athi River such as Green Park in Stoney Athi, Relatively affordable land Land in Athi River is cheaper as compared to other Satellite Towns with the price of an acre averaging at 16 mn against an average of 87 mn in other satellite Towns such as Ruaka, Improving infrastructure Athi River has witnessed improved infrastructure ranging from expansion of Mombasa Road, construction of the Athi River interchange and the construction of the SGR and Athi River Super Bridge currently underway which has eased access to the town, Industrialization Predominantly an industrial zone, Athi River hosts several companies in the cement, mining and steel industries which has resulted in an influx in population and consequently housing developments to host them and retail facilities for their convenience with the latest addition being Crystal Rivers Mall by Safaricom Pension Staff Scheme scheduled for opening in 2018, Beautiful views Located near the Lukenya Hills, Athi River has beautiful views of the Hills and a serene environment making it an attractive destination especially for clients interested in serenity but with a desire to live in close proximity to the Nairobi CBD.

2 Challenges Facing Real Estate Investments in Athi River Inadequate internal infrastructure Despite the improvement of infrastructure especially along Mombasa Road, feeder roads in Athi River are mostly untarmacked making it hard to use them especially during the rainy seasons when they are muddy. Areas away from Mombasa Road such as Mutongoni and Kinanie also do not have supporting infrastructure such as sewer lines and electricity connections making development expensive in these areas due to the high costs of infrastructure needed to make the areas attractive and thus increase sales, Traffic congestion Traffic congestion along Mombasa Road makes the area unattractive for residential settlement especially for people working in the CBD hence lowering demand for residential units in that area, Zoning for industrial development in some parts makes it an unattractive area for settlement, this coupled with the fact that some of the industries have been accused of polluting the area through industrial waste and thus posing health risks to residents in the towns environs. Market Performance In evaluating Athi River Market performance, we looked at the following key metrics: 1. Plinth Area: Research on the size of the units found in the market allows us to gauge the current offering, and put into consideration the home buyer s preferences for sizes of houses, 2. Prices: Research on prices will be used in comparison of our products against the market prices, and allow us to demonstrate capital appreciation, 3. Rental Rates: Research on rental income allows us to inform potential investors on the current rental rates in other developments and also inform the investors on the rental yield they can gain from buying houses in Athi River, 4. Annual Uptake: This allows the investor to appreciate the rate at which available homes are sold over a specific period of time. This helps him/her gauge on whether it is profitable to invest in a given area.

3 The findings were as follows: (all values in unless stated otherwise) Size in Athi River One Bedroom Apartments Performance Summary Rent Current Per Price Sale Price Price Per Rent ion Returns Homes( Athi 1) 30 12, m 1.8m 60, % 8.0% 10.9% Everest Park Apartments 48 15, m 3.0m 61, % 6.1% 17.0% Moke Gardens 48 25, m 60, % 10.3% Suncity Estate m 55,000 Average 44 17, m 2.6m 59, % 8.2% 12.7% High 50 25, m 3.0m 61, % 10.3% 17.0% On average one bedroom houses have a rental yield of 8.2% and a price appreciation of 6.9% indicating that the area is a renter s market with high demand for renting and less for buying hence the higher rental yields compared to price appreciation. On average the market has a total return of 12.7% for one bedroom units however, the highest achievable returns recorded are 17.0% (all values in unless stated otherwise) Size in Rent Athi River Two Bedroom Apartments Performance Summary Initial Current Rent per Price Sale Price Price Per in ion(%) Returns Homes (Athi 2) 55 18, m 3.5m 63, % 6.2% 7.6% Homes(Tana2 ) 63 22, m 3.8m 60, % 6.9% 8.3% Everest Park Apartments 83 25, m 5.0m 60, % 6.1% 15.9% Moke Gardens 82 40, m 59, % 9.8% Suncity Estate m 50,000 Average 72 26, m 4.2m 58, % 7.2% 10.4% High 83 40, m 5.0m 63, % 9.8% 15.9% On average two bedroom apartments have a rental yield of 7.2% and a price appreciation of 4.2%, similar to one bedroom apartments, the yields are higher than the capital appreciation rates indicating preference for renting as opposed to buying, the market has lower average total returns of 10.4% with the highest returns recorded in the market being 15.9%

4 (all values in unless stated otherwise) Size in Athi River Three Bedroom Apartments Performance Summary Current Initial Sale Rent Per Price Price Price Per Rent ion) Returns Everest Apartments , m 6.5m 60, % 5.5% 14.2% Homes(Athi3) 71 27, m 4.3m 60, % 7.5% 9.9% Homes(Tana3) 91 30, m 5.5m 60, % 6.5% 8.4% Homes(Tana3 +) 91 33, m 5.8m 63, % 6.8% 9.5% Moke Gardens , m 56, % 9.2% Suncity Apartments m 59,091 Crystal Rivers Apartments m 80,000 Average 96 33, m 6.1m 62, % 7.1% 10.3% High , m 8.0m 80, % 9.2% 14.2% Three bedroom units have an average rental yield of 9.2% and a price appreciation of 8.7%, the total returns for this typology is 10.3% lower than the returns for two and one bedroom units. This can able attributed to the fact that the market is a lower middle income one and hence very price conscious with clients buying the more affordable units (the one and two bedroom apartments) over the three bedroom apartments

5 (all values in unless stated otherwise) Size in Athi River Three Bedroom Detached Units Performance Summary Current Initial Sale Rent Per Price Price Price Per Rent ion Return Pine City , m 10.5m 70, % 3.4% 14.6% Lukenya Phase , m 7.5m 77, % 6.4% 23.2% Lukenya Phase , m 7.5m 77, % 6.4% 13.0% Lukenya Phase , m 7.9m 81, % 6.1% 8.7% Gracelan d , m 12.0m 81, % 4.0% 6.2% Superior Homes Qtr Villa , m 9.6m 91, % 4.4% 12.7% Paradise Park , m 99, % 3.9% crystal park townhous e m 93,103 Average , m 9.9m 84, % 4.9% 11.7% High , m 13.5m 99, % 6.4% 23.2% For detached units, the trend is reversed with rental yields averaging at 4.9% against an average price appreciation of 7.9% indicating that the clients for this typology are more buyers than renters. The typology records total return of on average 11.7% higher than the three bedroom apartments as they have more privacy and larger unit sizes. For a development positioned properly the total returns can be as high as 23.2% and hence a good investment opportunity

6 (all values in unless stated otherwise) Plinth Area Athi River Market Performance Summary Rent Average Price 2016 Average Price 2017 Price Per 2017 Rental Price ion Return Typology One Bed Apartments 44 17, m 2.6m 59, % 6.9% 12.7% Two Bed Apartments 72 26, m 4.2m 58, % 4.2% 10.4% Three Bed Apartments 96 33, m 6.1m 62, % 3.9% 10.3% Three Bed Detached , m 9.9m 84, % 7.9% 11.7% Average 66, % 5.7% 11.4% Highest Returns 99, % 16.8% 23.2% On average the Athi River market has rental yield of 6.9% with a price appreciation of 5.7% and a total return of 11.4% with the best performing typology being the one bedroom apartments with a total return of 12.7%. The market however has pockets of value where on matching of the right product to the right market through pricing, amenities and location can result in high returns of up to 23.2% Conclusion and Recommendation The challenging operating environment in 2017 characterized by the extended electioneering period and low credit sector supply has affected the real estate market in general and Athi River market as well. Despite this, the market offers attractive returns in some segments with detached housing offering returns of up to 23.2%. These houses are mostly in gated communities with ample security and other amenities such as water and electricity thus attracting clients and leading to better market performance and are hence the ideal type of development for the Athi River market. For more on our developments in Athi River visit the websites of Superior Homes and Newtown City.