NHC promises investors 6.5pc return on joint property ventures

NHCThe National Housing Corporation (NHC) is looking out for cash from real estate investors to construct houses on its land with the promise of offering a return of 6.5 per cent over 15 years.

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

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

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

Kenya Railways and NHC had made a deal two years ago through which railways will provide the land, the costliest item in housing construction, and part financing, and earn annual leases.

National Housing Corporation has been depending on the proceeds from the sale of its lands, and bank loans to develop new projects and help in plugging the rising housing deficit.

Peter Njuguna, the managing director of NHC, said that in previous deals they would have done the design themselves, seek financiers who usually have restrictions on the amount to be borrowed, and then look for the contractors themselves. He also said the model had restricted them from increasing supply of homes.

It has to be seen if the NHC will be able to attract high net worth investors in a market where other class of assets such as equities, government securities, and bank deposits are offering higher returns.

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 percent, on wholesale deposits and bonds.

In a 2010 report, Cfc Stanbic said that property prices had gone up 3.5 times in the past decade while share-prices have gone by 2.42 times.

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

Mr. Njuguna said that they were holding talks with KRC to implement the project at Nakuru as they had similar arrangements with them earlier at the Kileleshwa and Nairobi West projects.

KRC has about 320 acres of land adjoining the rail stations in Nairobi, Kisumu, and Mombasa which are now idle. The Railways have been looking out for investors to help develop office blocks, light manufacturing industries, residential homes, and shopping malls.

This move comes at such a time when institutions such as Centum Investment, National Social Security Fund, and Renaissance Capital – the Moscow-based investment bank – were making entry into the real estate market. Kenya is experiencing a property boom because of which home prices and rental incomes have doubled over the past five years along with rapid urbanisation and expansion of the middle class.

Image courtesy: FreeDigitalPhotos.net

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