Owning a rental house in a slum is one of the most profitable businesses in the city, according to a new UN-Habitat report.
In 2004 alone, tenants in slums paid Sh2.35 billion to their landlords, but the owners of the houses were unwilling to reinvest the huge sums to improve the quality of the houses.
Kibera, the largest slum in Nairobi, is the most profitable although the other slums are equally attractive.
According to the UN–Habitat study, the cost of building a single room is about Sh13,000. The room can be let at about Sh1,300 a month, which means that an investor can recover the initial investment in 10 months.
“It would seem quite possible that unauthorised housing is the most lucrative investment in Kenya today,” says the UN report.
Another study, “Slum estate: The low-quality high-price puzzle in Nairobi’s slum rental market and its implications,” carried out just before January, but published in Science Direct journal last July, makes similar conclusions.
However, it says that the recovery period is twice as high as that given by the UN-Habitat report.
A team led by Prof Sumila Gulyani of the Columbia University in New York, US, had conducted a study of 1,755 households in Nairobi slums and concluded that the business was lucrative, though not as profitable as the UN report suggests.
Gulyani carried out the research on behalf of the World Bank.
“The pay-back period for a housing investment for a single room, would take as twice as the UN report had indicated but is still a very lucrative business,” said the researcher.
The study said most of the houses in Kibera were illegal, of low quality and crowded. Yet the rents remained high.
“Unlike in many other cities of the world, an extraordinary 92 per cent of the slum residents are rent-paying tenants rather than “squatters” who own their units,” said Gulyani.
The Kibera paradox has been blamed on corruption in the allocation of building rights. In the 1980s, land in the area was allocated to civil servants and Provincial Administration officials through political patronage.
A 2002 UN study sampled 120 landlords and found that 41 per cent were government officers, 16 per cent were politicians, and 42 per cent were other absentee owners “who visited Kibera occasionally”.
“Only a handful of the structures belonged to people who lived in the slums,” the report said.
This was unlike the situation in Mathare and Pumwani where landlords “lived at a level fairly similar to their tenants and demonstrated a keen interest in maintaining the community and improving it,” says the UN report.