Anecdotal stories abound of aspiring Kenyan entrepreneurs whose investments in a new office block, expansions of classrooms in their private schools or development of multiple dwelling units for rental or sale are always in limbo. Kenya’s informal sector landscape is riddled with single or multiple dwelling units, which have stalled or delayed due to non-viable financial solutions. Some entrepreneurs are known to opt for a variety of financing solutions that have proven too costly in terms of financing costs.
Housing Finance — Kenya’s leading mortgage finance institution — has developed a specialized service to cater for both small and large property developers. Housing Finance, whose 40-year expertise has seen the realisation of large housing units such as the iconic Buru Buru and Komarock estates to smaller single units, has assembled an in-house team with requisite experience to support both aspiring and established property developers.
The service, aptly known as Project Finance, refers to a type of financing based on anticipated cash inflows or income of the property being developed applied towards loan repayments. The property or the investment being the developed provides the primary collateral for the borrowing entity with an option for enhancement on a case-by-case basis.
Now you might wonder whether Project Finance is just another vehicle designed for hot shot property developers. This is a misconception especially when you understand the premise behind Project Finance. Principally, lending for projects is not based strictly on the ability of owners or strength of the balance sheet of the borrowing entity to make good the loan facility. Equally, lending is not based on security since property development is a capital-intensive venture and long-term in nature.
Project finance
The granting of finances is based on the viability of the project evaluated in the context of various risks that might visit the project. Some of the risks hinge on legal, operational, management, market and financial risks. To be precise, some of the guiding questions on risks would be; is there a market for the developed property, what are the effects of financial variables such as interest/forex, does the manager of the property possess requisite experience?
One question that might be on your lips as you read through this article is; what kind of projects can be financed? The nature and form of projects is according to the entrepreneurs’ needs however the most common types revolve around projects such as development of small restaurants, expansion of hotel facilities, development of serviced apartments, development of business premises or office blocks, building of multiple dwelling units for rental or sale amongst others.
Value and relevant support
The Project Finance service solution is offered under the following permutations of loans; a short-term construction loan of four to six months for construction of single dwelling units.
A short-term multiple development construction loan and bridging loan facilities for a period of up to 24 months is also available. Equally, a long-term financing of a wide spectrum of commercial and residential properties for rental is also available.
In addition to the aforementioned loan vehicles, experts at Housing Finance will provide value and relevant support in evaluating the construction projects proposals for project concept, commercial, technical and financial viability.
The writer is a specialist on construction finance at Housing finance.
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