Faced with the challenge of more than 17 million housing units demand-supply gap, Nigeria has a lot to learn from Kenya’s ‘your land, their building’ housing delivery model.
This joint venture model in East Africa’s largest economy is gaining ground as the market begins to recover after a slowdown last year.
‘Your land, their building’ model allows a developer to lease a parcel of land from the owner for a long period of time, say 10-15 years, then build apartments and during the lease period, the developer takes 70 percent of the rent whereas 30 percent goes to owner of the land, and after the agreed period of time, the owner of the land gets back his property.
An example of a real estate developing company in Kenya that is into this kind of joint venture is SamPesa, a local real estate firm dealing with the development of property and real estate management.
Samuel Murigi, SamPesa director, said in a statement that the company develops land leased from individuals.
“A joint venture assists the community in investing in real estate by providing funding for building houses and drilling boreholes by bringing professionalism in the venture,” he said in a statement.
In a situation where the property developed does not get tenants, the SamPesa director said feasibility studies have cushioned them against incurring losses as they acquire land in strategic locations.
However, he said, “even if they fail to get their money back during the lease period, they still exit the property and leave it to the owner of the land.”
He explained that despite its popularity, the model needs a lot of care so that there is no loophole that can be exploited by either party, and so government intervention as a regulator would spur the growth of the initiative.
Reacting to this model, a Nigeria developer, who asked not to be quoted because of his current position, said “this model can work in Nigeria but it can also be adjusted to fit in the country’s property industry. So it can take other forms that take into consideration the unique needs of the parties involved.”
Other industry experts affirmed that the concept was likely to help provide affordable housing in Nigeria, considering that the source of patient capital and land for constructing affordable homes is one of the industry’s biggest challenges.
Experts and industry stakeholders had told BusinessDay earlier that joint venture arrangements, crowdfunding and off-plan sales were some of the viable alternatives to funding real estate projects in Nigeria where cost of funds has made bank credit inaccessible, unaffordable and unattractive.
Commercial banks are not ideal or suitable source of financing real estate projects because whereas commercial bank deposits are short-term in nature, real estate is for the long term which is usually vulnerable to the vagaries in the economy such as changes interest rates, exchange rates, and the rate of inflation.
Andrei Ugarov, partner at PricewaterhouseCoopers (PwC) says “Nigeria is still a viable market. Capital is a challenge but deals are happening. It means funds are available. Players in the industry are making use of other financing options to fund real estate development projects.”
In Nigeria, real estate is among the least attractive sectors to commercial banks as it got one of the smallest portions of loan in the 3rd quarter of 2018.
Figures compiled by the National Bureau of Statistics (NBS) shows that the property sector was able to attract only N710.2 billion in the third quarter of 2018 as against the N744.56 billion and N784.2 billion is got in Q2 and Q1 respectively in 2018.
Endurance Okafor
