Land is one of the most valuable assets whose value always appreciates. Over the years, Kenya has recorded a shortage of land in prime areas around town or cities as well as in highly productive agricultural zones.
The greatest aspect of land is its value and price appreciation which is defined by various factors such as interest rates, demand and supply, location, and future prospects.
Estimating the value of land in the coming years helps the landowner determine its price in the near future. This estimation is dubbed as cost-benefit analysis.
“Land has one of the highest return investments, however, you choose to invest in it. For example, if you bought your piece of land in Juja at about Ksh800,000 and have it unattended, with the ongoing modernisation and development of amenities in the area, the price of land will double and you can sell it at a higher return fee.
“You can sell it at Ksh1.6 million to Ksh2 million. You can also have apartments for rent built on your piece of land and this will generate money in the coming years,” Fanaka, a real estate company, states on its website.
The key points the experts at the agency pinpoint are development, infrastructure, and probable creation of opportunities.
"You can even have a parking lot around your area that neighbouring tenants or the estate at large can pay for,” the experts further advise.
Millennium Challenge Corporation (MMC), an innovative and independent United States agency, explains how to estimate cost-benefit analysis. The factors to consider include:
Secure Tenure
This is defined as relationships of trust that is safeguarded by agreements where the rights of land users and owners are clearly assigned.
When purchasing land, analyse how likely you are to make welfare-enhancing land-attached investments. This includes constructing amenities like schools, malls, and rental houses that offer returns.
You can only make such steps if you are confident of reaping social returns. There are certain estates where commercial properties are banned.
“Increased perception of tenure security through improvement in land governance, land tenure status, land user knowledge and beliefs, and related legal resources can therefore result in an investment level closer to the social optimum,” MMC notes.
Collateral for Loans
A parcel of land that can be accepted in a bank as collateral for a loan increases an owner’s access to credit and offers an opportunity for investments. Returns, if the land is properly utilised, can exceed the loan offered.
However, this can only be guaranteed if a landowner enjoys more secure and formal tenure rights to the parcel.
The value of the land plays a key role in foreclosure. Thus, the location of the land and development is a key factor.
Land Transferability
This is the ability of land to change ownership. Experts note that individuals and entities are highly probable to buy or rent land if they are certain of their tenure of rights.
“You ought to monetise parcels to which you have rights and engage in other activities in which they are more productive.”
Investment Plan
Developing land aids a landowner in reducing costs of land administration service delivery. A landowner can ease registration, mapping and transfer of parcels. Nonetheless, this is dependent on laws and administration in the Ministry of Lands.
“Land and transfer rights are associated with longer-term investment strategies, such as the allocation of land to perennials, trees and higher-value export crops. Trees take many years to reach maturity and, therefore, require a long-term investment horizon,” MMC states in comparison to agricultural and commercial properties investments.
Public Service Delivery
Land purchased in an area that is opening up to infrastructure and development will guarantee high returns. In Kenya, such areas include satellites towns such as Ruiru, Kamakis, Syokimau, Kitengela, Juja and Ngong.
These areas have witnessed tremendous growth owing to railways and road construction and demand for houses.
How to Estimate Cost-Benefit Analysis
Specify Set of Options
Outline a range of genuine, viable, alternative policy options to be analysed.
Decide which Costs and Benefits Matter.
You cannot enjoy all benefits, prioritise which costs to incur and which benefits are important.
Identify the Impacts
Analyse what impact the costs and benefits will have on your land in the long term future.
Predict Impacts Over the Life of Regulations and Laws.
Keenly analyse if an impact can survive whether land laws change or not. The total period needs to be long enough to capture all the potential costs and benefits.
“Because of the uncertainty involved in forecasting costs and benefits over long periods, exercise caution when adopting an evaluation period longer than, say, 20 years,” experts advise.
Monetise Your Plan
Measure your costs and benefits by monetising them. Place a value over every process of development costs incurred and expected return.
“That said, monetisation can be difficult because impacts are sometimes uncertain, some are difficult to value in dollar terms, and some are both uncertain and difficult to value.
“A detailed analysis should be supported by as much evidence and data as possible to assist you in decision-making,” experts detail.
Discount Future Costs and Benefits to Ascertain the Present Value
Discounting in this context is comparing the present value of money to the present value of money in the future, taking inflation and returns into account.
“The need to discount future cash flows can be viewed in terms of the opportunity cost of the cash flows, whether this is the cost of delaying use of the land or foregoing alternative investment opportunities.
“Most of the costs and benefits of investment plans are spread out over time, and their value depends on when they occur,” experts state.
