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Kenya, NHC offers investors 6.5pc return on joint property ventures

Posted In Business, Real Estate - By admin on Thursday, January 10th, 2013 With No Comments »
Houses constructed by the National Housing Corporation

Houses constructed by the National Housing Corporation

National Housing Corporation (NHC) has begun the search for cash from real estate investors to build homes on its land with the promise of offering a return of 6.5 per cent over 15 years.

The corporation Wednesday invited developers to help build 8,000 homes in Nairobi, Mombasa, Kisumu, Eldoret and Nakuru, with the state-owned firm providing land while the private investors offer cash.

Under the deal, the investors will be reimbursed their cash and the 6.5 per cent return in the 15 years will earn an equivalent interest after home buyers pay an interest of 13 per cent over the period.

The state-owned firm reckons that the model will help boost home supply and match high-net worth investors with idle land, especially after its pact with Kenya Railways Corporation (KRC) that will see the rail firm open its land for construction of affordable homes in urban areas.

Kenya Railways and NHC inked a pact two years ago that will see the rail firm provide land, the biggest costs item in housing construction, and part financing, and earn annual leases.

NHC has been relying on the proceeds from the sale of its estates and bank loans to develop new projects —a model that seen it play an insignificant role in plugging the rising housing deficit.

“Under the previous deals, we would do the designs ourselves, seek financiers who usually have their restrictions on how much can be borrowed and then look for the contractors ourselves,” said Peter Njuguna, the managing director of NHC in an interview Wednesday. He added that the model has restricted the firm from increasing supply of homes.

It remains to be seen if NHC will be able to attract high net worth investors in a market where other assets classes like equities, government securities and bank deposits are presently offering higher returns.

Last year, for instance, the Nairobi Securities Exchange made a return of 28.9 per cent while banks were offering returns of about 13 per cent, and the government 15 per cent, on wholesale deposits and bonds.

CfC Stanbic said in a 2010 report that property prices have risen 3.5 times over the past decade compared to share-price appreciation of 2.42 times.

But NHC is counting on its land bank, a scarce resource for large scale home developers, and the ability of real estate to offer higher returns over longer periods relative to the equities, bonds and bank deposits.

“We are in talks with KRC to implement the project on the Nakuru piece of land. We have had similar arrangements with them in the past at the Kileleshwa and Nairobi West projects,” said Mr Njuguna.

The rail company has about 320 acres of land surrounding the rail stations in Nairobi, Kisumu and Mombasa — which are currently idle — and has been scouting for investors to help develop office blocks, light manufacturing industries, residential homes and shopping malls.

This plan comes at a time when institutions are making deep forays into the real estate market, including Centum Investment, National Social Security Fund and Renaissance Capital, the Moscow-based investment bank.

Kenya is experiencing a property boom that has seen home prices and rental income double over the past five years on the back of rapid urbanisation and expansion of the middle class.

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