MODELLING RESIDENTIAL

CROSS - SUBSIDIZATION
Mukuru Sinai Greenfield Housing Project

RESIDENTIAL CROSS-SUBSIDY MODELLING

RESIDENTIAL CROSS-SUBSIDY MODELLING

Challenge:
Oil pipeline people
displacement
Private Land to
be sold
Developability of
Quarry Site
Affordability
levels
Accommodating
maximum
existing residents
No Govt Support

Project Objectives
To house for the maximum number of existing residents
affected by the relocation
To develop a self-financing delivery model that is
sustainable and replicable where no subsidy is
available
To develop a model that increases housing options for
to the poorest
To provide a range of secure tenure options
To create a sustainable urban neighbourhood with a
suitable social mix and a range of facilities

RESIDENTIAL CROSS-SUBSIDY MODELLING

9.5 Ha 2/3 Developable

RESIDENTIAL CROSS-SUBSIDY MODELLING

Planning Parameters
Mixed tenure - Range of housing opportunities to
promote a social mix
Affordable Rent Market Rent
Affordable Sale Market Sale

Mixed use Commercial facilities to provide services

and employment opportunities
Living Environment ensuring design promotes social
cohesion, engagement and recreation.

RESIDENTIAL CROSS-SUBSIDY MODELLING

Housing Precedent: Vertical Incremental

KAMBI MOTO, Huruma, Nairobi

GITATURU, Nairobi

RESIDENTIAL CROSS-SUBSIDY MODELLING

Housing Type Precedent: Multi-storey/Mixed Use

SUNNUDUGUDU, Bangalore, India

RESIDENTIAL CROSS-SUBSIDY MODELLING

Housing Layout: Type/Mode of Construction

CBO Build
Houses

Incremental Housing
(1370)

Flats

47m! Constructed to
Frame and sold

GROUND FLOOR

FIRST FLOOR

Contractor Build

47m! - Govt. Sale (430)

47m! - For Rent (0)
110m! - Market Sale (350)

SECOND FLOOR

RESIDENTIAL CROSS-SUBSIDY MODELLING

RESIDENTIAL CROSS-SUBSIDY MODELLING

Financial Appraisal Summary

Housing Costs
INPUTS

UNITS

COST

SALES

SURPLUS/
DEFICIT

Total Units:

2,150

Affordable Sales (Flats)

430

3,790

2,615

- 1,175

Market Sales (Flats)

350

17,700

32,258

+ 14,558

Incremental/ Self Build

1,370

1,589

2,228

+ 639

Infrastructure Costs

1.300,000

Borrowing:
FUNDING
Max Borrowing

2.5million

Facility Required

2 million

RESIDENTIAL CROSS-SUBSIDY MODELLING

10

MUKURU PROJECT FINANCIAL MODEL INPUTS SHEET

MUKURU PROJECT FINANCIAL MODEL

RESULTS
Net Present Value (NPV) For the Project
Internal Rate of Return (IRR) (Nominal terms)

32.84%

Breakeven Year

COSTS

PASS/FAIL
PASS

51,600,791

PROPERTY & LAND DETAILS

Infrastructure Costs

170,400,000

Inf Costs/unit
Trans Costs on Sale Units

PASS

Year 2

ALL PROPERTIES
Max Monthly Borrowing Req (Dev Period) Ksh

306,871,819

LONG TERM ASSUMPTIONS

% NOMINAL WEIGHTED AVERAGE COST OF CAPITAL
INFLATION RATE
REAL DISCOUNT RATE
RESIDUAL VALUE MULTIPLIER

0.00%

P.A
MUKURU PROJECT Management
FINANCIAL
MODEL
Maintenance P.A

Total Inflated
Inflation
Rent Inflation
Compounded Rent Inflation

Year 1
-668,407,485

5.00%
0.00%
0.00%
0.00%

5.00%
5.00%
5.00%
5.00%

5.00%
10.25%
5.00%
10.25%

5.00%
15.76%
5.00%
15.76%

Year 1
2011/12
KSh

Year 2
2012/13
KSh

Year 3
2013/14
KSh

KSh

COSTS
Land Cost
Infrastructure Costs
Construction Costs
Development period Cap Interest costs
Voids - Affordable Rented Units
Voids - Market Rented Units
Transaction Costs -on outright sale reciepts
Management - All Rented
Maintenance - All Rented
Major Repairs - All Rented
Total Costs

Annual Cash Inflow/Outflow

Inflation Rate

Year 4
Year 5
Year 6
Real Weighted
Discount 0Rate
-17,564,083
0

32.84%

Cap Int Market Rent

5

Cap Int Aff Sale Govn

Self Build

0
0

0
0

0
0

0
0

0
0

0
0
0
0

5.00%
40.71%
5.00%
40.71%

Year 2

0
0

1,067,463Opening number
0
of units0
0
0
0
Aff Rented 0
0
0
0
0
Market Rent0

457,515,224

549,349,577

541,987,636

214,192,207

1,067,463Closing number
0
of units 0

189,993,167

20,281,790

Net Capital Cost

(319,383,202)

152,478,282

206,550,258

189,993,167

20,281,790

NPV

51,600,791

11

Constr Costs/unit in Ksh

Constr Costs
465,000TotalLand
Cost

2,467,300

Land/unit

PASS

32,897

Grant & Other subsidy

32,000,000

Net Costs

48,000,000

2,467,300

16.00%

Constr management (/month)

5,555

50,000

16.00%

Sales Value in Ksh

14.75%

Total Sales Value

Floor Area/unit

47

4444

3,525

15.75%

16.00%

6%

PASS/FAIL

Void %

PASS

Transaction Costs in Ksh

32.84%

PASS

Long term Loan rate %

Year 2

Weighted Average %

1%

0%

306,871,819

5 Year Surplus/(Deficit)

-220,998,726

-465,795

Total

Year 0

Year 1

Year 2

Year 3

75

75

75

75

75

Year 1
-668,407,485

75

Year 2
-678,945,935

75

Year 3
-349,150,523

75

Year 4 75
-17,564,083

MAJOR REPAIRs PATTERN PROFILE (RENTED UNITS)

NET PRESENT VALUE CALCULATIONS (NPV)

Total Inflated
Inflation
Rent Inflation
Compounded Rent Inflation

Total Annual Major Repairs costs per unit Ksh

Year 0
2010/11
0

Year 3
2013/14
0

Year 0
2010/11
KSh

Year 1
2011/12
KSh

Year 2
2012/13
KSh

Year 3
2013/14
KSh

Year 4
2014/15
KSh

REVENUE
Grant/ Other Income
Sales reciepts from Market/Aff Sale Units
Rents - Affordable Rented Units
Rents - Market Rented Units

32,000,000
106,132,022
0
0

0
701,827,859
0
0

0
748,537,893
0
0

0
404,185,374
0
0

0
21,349,253
0
0

Total Revenue

138,132,022

701,827,859

748,537,893

404,185,374

21,349,253

Modeling Tool: Variables and Viability

5.00%
15.76%
5.00%
15.76%

Year 2
2012/13
0

5.00%
5.00%
5.00%
5.00%

CASHFLOW

5.00%
10.25%
5.00%
10.25%

Year 1
2011/12
0

5.00%
0.00%
0.00%
0.00%

RESIDENTIAL CROSS-SUBSIDY MODELLING

Sales

0
80,000,000

16.00%

51,600,791

Year 0
-106,132,022
0

May-10
75

Total floor area

0
0
0
0
0
0

20,209,269
0
0
0

206,550,258

Rent P.U.P.W in Ksh

0
0

37,426,895
0
0
0

152,478,282

9
Apr-11
Jan-12
Apr-10

Number of Units

16%

RESULTS (from IRR cashflow)

35,091,393
0
0
0

(319,383,202)

100

Grant Date

5.00%

14.75%

0
0
306,871,819

5,306,601
0
0
0

Sales Profile - Aff Sales & Market Sale units

Jun-11

Practical Completion

16.00%

Year 7
2017/18
KSh

NPV
701,827,859
748,537,893
404,185,374
21,349,253
0
0
LONG 138,132,022
TERM ASSUMPTIONS
IRR (Nominal Terms)
% NOMINAL WEIGHTED AVERAGE COST OF CAPITAL
21.29%
Breakeven Year
88,609,800
0
0
0
0
0 borrow req
0
Max monthly
INFLATION
RATE 14,941,335
5.00%
156,301,584
0
0
0
0
183,623,333
445,432,000
450,727,300
172,830,550
0
0
REAL DISCOUNT
RATE
16%
23,673,906
53,884,849
53,833,441
21,152,388
0
0
RENTED UNITS
PROFILE
0
0
0
0
0
0 11
RESIDUAL00 VALUE MULTIPLIER
0
0
0
0
0
0

SALES PROFILE

Apr-10

Build prog (months)

15.75%

Year 4
Year 5
Year 6
Cap Int Aff Sale Comm
2014/15
2015/16
2016/17
KSh Market Sale
KSh
KSh

32,000,000
0
0
0
0
Max Monthly
Req
(Dev404,185,374
Period)
Ksh
106,132,022 Borrowing
701,827,859
748,537,893
21,349,253

47m2 unit

PASS/FAIL
PASS

51,600,791

5.00% CAPITALISED
5.00% INTEREST
5.00%
21.55%
27.63%
34.01%
Cap Interest
Land
5.00%
5.00%
5.00%
21.55% Cap Interest
27.63%Aff Rent 34.01%
4

Oct-10
6

21.29%
Year 7
0

Residual Value Multiplier

Internal Rate of Return (IRR) (Nominal terms)

Year 0
Breakeven
Year
2010/11

Total Revenue

Year 3
-349,150,523

RESULTS
Net Present Value (NPV) For the Project

CASHFLOW

REVENUE
Grant/ Other Income
Sales reciepts from Market/Aff Sale Units
Rents - Affordable Rented Units
Rents - Market Rented Units

Year 2
-678,945,935

Apr-10

Sales/Handover Start date

Sales/Handover End date

% Nom Weighted ave C of C

Sales Profile - Aff Sales & Market Sale units

Year 0
-106,132,022

Apr-10

Start on site
Build rate per year

LONG TERM ASSUMPTIONS

SALES PROFILE

Name
Purchase
Lag to 1st units (months)

Real Rent Increase P.A.

21.29%
5.00%
16%
11

Aff Rented

Land

76,584
5%

11

5.00%
21.55%
5.00%
21.55%

Financial viability of the project driven by the success of property

COSTS
sales. Delayed sales changes
viability dramatically
Land Cost
88,609,800
0
0
Infrastructure Costs
156,301,584
14,941,335
0
Sales off Plan enhances183,623,333
viability substantially
Construction Costs
445,432,000
450,727,300
Development period Cap Interest costs
23,673,906
53,884,849
53,833,441
Design and Pricing of Units
Voids - Affordable Rented Units
0
0
0
Voids - Market Rented Units
0
0
0
Long term affordability of the
options being
presented
Transaction Costs -on outright sale reciepts
5,306,601
35,091,393
37,426,895
Management - All Rentedfor rent and sale is required. 0
0
0
Maintenance - All Rented
0
0
Level of internal subsidization0possible
Major Repairs - All Rented
0
0
0

Affordability

Programming critical - project

period/ project
phasing
457,515,224
549,349,577
541,987,636
Project Total Costs
affects costs / borrowing
Programming/
Unit delivery delays affects sales and viability
Annual Cash Inflow/Outflow
(319,383,202)
152,478,282
206,550,258
Management
professional supports important
Extended contract
NET PRESENT VALUE CALCULATIONS
(NPV)
Net Capital
Cost
Financing/
Cost
NPV
Management

Unit/ Layout
Design

0
0
172,830,550
21,152,388
0
0
20,209,269
0
0
0

0
0
0
0
0
0
1,067,463
0
0
0

214,192,207

1,067,463

189,993,167

20,281,790

189,993,167

20,281,790

period increase peak borrowing

(319,383,202)
152,478,282
206,550,258
Interest Rate impact sensitivity
/ negotiation
Mobilizing subsidies (land/
infrastructure/ entitlements)
51,600,791

Unit Cost Parameters

Unit Type Options (Attached/detached, Own/Rent/Sale
Layout options (greater yield / lower cost)

RESIDENTIAL CROSS-SUBSIDY MODELLING

12

Delivery/Orchestrating institution Key Issues

Legal Structure

Key questions to be addressed are around the development,

ownership and management of assets and how these relate to
governance, risk management and raising of finance.

Housing and Estate

Management

The financial viability and scale of operations

Rental Housing management model UKHA model
transfer potential
Effective governance requirements vs desire
community ownership and control.

Project Management

Development Finance
Management

Setting out the project management structure for

delivering the project and the resources required to put it
in place.
Securing and blending of funding utilising commercial loans
and softer loans.

RESIDENTIAL CROSS-SUBSIDY MODELLING

13