With the high cost of loans and non-availability of long-term funds for real estate projects, developers have evolved new options to meet the needs of prospective homeowners.
Currently, real estate developments, comprising residential, commercial, and industrial are becoming more capital-intensive due to the inflation affecting building materials, making it inevitable that developers would need external support to finance their projects.
However, the high-interest rates of commercial banks of between 18 and 30 per cent have made such investments unprofitable to the operators and limiting their capacity housing production as well as contribute significantly in mitigating over 17 million housing deficit in the country.
Already, the new methods are being used in Abuja, Lagos, and Ogun states. It entails the pooling of funds together by investors for residential and hostel developments with a prospect of receiving a certain percentage as Return on Investment (ROI).
The Guardian learned that the initiative, which is an income-generating investment is assisting developers, meet short-medium term cash-flow housing financing.
A senior official of Propvest, a real estate development company, Adeola Subar, explained that the investment is guaranteed and unaffected by any event that might constitute force majeure such as natural disasters, hostilities, civil disturbances, riot, fire, or flood as the investment is indemnified.
She said that the new funding design would enable people to invest in real estate projects with a minimum of N250, 000 over a few months.
According to her, the investment option is being fully embraced by Nigerians and people in the diaspora because of the prospect of returns. She said most people preferred it to put their money in the banks.
She said, “We are currently on a building project which centres on developing 20 units bungalows, three-bedroom fully detached bungalows, and two-bedroom terrace apartment.
“When people invest, the fund will be used to build the properties and will be completed within six months and on the seventh month, they will be sold out. Investors will get their returns back with their initial capital.
“The return ranges from 40 to 45 per cent, depending on the amount committed.”
Reacting to issues of investor’s confidence in the process, she disclosed that investment agreements, which parties to the project will sign, are provided to serve as a binding document.
Subar, who is a team lead on the project, said the industry’s experts and professionals such as realtors and building construction companies involved in delivering the projects.
She also said the minimum slot prospective investors would sponsor is one slot of any project while individuals can sponsor as many projects as possible, subject to availability. Investors, she also stated are updated on activities on the project from beginning to completion.
On why the scheme has become inevitable in the sector, the Chief Operating Officer, Refin Homes Limited, Mr. Kazeem Owolabi, observed that other investment options like treasury bills are not as profitable or favourable as the cofounding alternative.
He stated that the new model helps investors to share the risks of investing in real estate projects.
Owolabi said, “There has been an increase in the number of people doing co-funding in real estate now. When you want to embark in a real estate project, single funding that could be invested may not make sense if you don’t come together with other investors. For instance, if you have an N25 million project, five investors could contribute N5 million each into the project, with the hope of getting returns.
“So coming together makes accessibility to the fund for real estate project easier. Such a model also guarantees easy delivery of real estate projects.
“When are a prospective buyer takes a large number of the flats after completion, the investors will be making good returns.”
However, he noted that there could be a challenge of parties to the deal being dissatisfied along the line with the investment because an individual might not have 100 per cent control over the transactions.
According to him, the returns might not be as high compared to when an individual funds a project alone but restated that it’s still better than what is available in other investment options in the country.
The Chairman, Faculty of Housing, Nigerian Institution of Estate Surveyors and Valuers, Adesina Adiatu, said such innovation has helped to energise real estate projects by reducing the number of abandoned projects due to paucity of funds.
According to him, if well designed, it would go a long way in mitigating the shortfalls in the housing market.