Property syndication taking root

By Ferdinand Mwongela

Kenyans have been praised as resilient and this is reflected in the real estate sector where, in the face of sky rocketing prices that have put many properties out of the reach of millions, investors are now exploring the relatively new concept of syndicated properties.

Francis Kihanya,Chief Executive Officer, Manyatta Investments International

Over time, real estate has progressively become one of the most stable local sectors for investment compared to others including the stock market. Consequently, properties prices have shot to the stratosphere such that securing a good land or home is out of reach for many Kenyans. For those fortunate to secure property, returns are guaranteed within a short time.

Initially, fears of the property bubble bursting as a result of the global crunch got investors hoping for a drop in prices. Some investors feared they would be left holding onto overpriced properties. Instead, the reverse has been the reality. The real estate sector continues to flourish, and part of this boom has been blamed on money laundered from questionable sources, including happy go lucky fellows in Somalia who are making easy billions from ransoms.

Therefore, in order to own a piece of this profitable pie, Kenyans are slowly gravitating towards alternative forms of investment. Property syndication, which is a somewhat new concept locally, is one of the alternatives being touted as the next best investment forum.

Francis Kihanya, the chief executive officer Manyatta, a local based company of international marketers, says he works mostly with Kenyans living abroad who want to invest back home. One of its latest initiatives was to partner with the Atlanta-based ERA Executive Realty to market Hacienda Eco-city, a property development at the Coast.

"Some properties are selling for as much as Sh50 million, which makes it very difficult for a single investors to purchase and own. In such cases, the best alternative is to sell shares to various investors, much in the same line with joint ventures,’ Kihanya says.

Easy way to invest

In property syndication, one can easily buy and sell their share, often at a profit. "Some people shy away from investing in property because it is a long term investment, but this gives them an easy way of investing and enjoying the returns," he adds.

A plan of the Mimi Apartments, Nairobi.

Nonetheless, in order to ensure investors don’t get in and out of a project, a minimum time line is indicated that dictates the period between when investors express interest to sell and the time they desire to dispose of their shares.

Currently, Manyatta company is working on a project, which is selling at only Sh10,000 per share. "We are encouraging people to buy about 100,000 shares," says Kihanya. In which case one would have to put in Sh1 million, which is relatively low especially now when properties below Sh3 million are virtually impossible to find.

Property syndication, however, has its downfalls, the key one being regulation which at the moment is lax. Kihanya hopes investment laws will soon be passed to guide the concept and "seal the whole structure". Currently, investors are syndicating based on trust with a bit of caution.

Complex ownership

"The people we have approached are asking for legal documents," says Kihanya. For the moment, his company is drafting legal documents that detail what is being bought and the exit strategies should a buyer feel the need to do so.

In South Africa, the property syndication market is relatively developed. However, the sustainability of this investment alternative was recently put to doubt following the discovery of poor management by a major property syndicating firm. This has raised questions on the complex ownership structure where investors are not wholly involved in the running of a project.

Haydock Industrial Estate, UK.

For local investors, financing is also a dilemma. "All the properties that we finance must possess a title," explains Lucy Njogu, the public relations manager at Housing Finance. This presents a dilemma as a syndicating company mostly manages the property on behalf of the buyers who only own shares.

Elly Ongoma, the general manager at Eldon Developers, says for such a project to succeed, a special purpose vehicle must be put in place. Any financing is then paid to the vehicle and not to individual investors. In this case then, financing is possible since the agreement is between the financing institution and the special purpose vehicle, which oversees the whole project. Individual investors, however, still have to find cash to buy the shares.

Syndication does not only involve properties. According to Ongoma, this investment avenue is widely practised in different fields including in the banking sector where several banks partner and simultaneously take one huge loan.

"This is shared equity participation and because of the scope, no one developer can complete the project," he explains, adding that this principle is similar to a multiple joint venture.

Eldon Developers plans to launch a syndicated property in Dar-es-Salaam, Tanzania once approval is granted.

Closer home, a development dubbed Mimi Apartments is being erected at Nyali Estate in Mombasa and is being sold along these lines. One share is currently selling for Sh1.75 million. The marketers promise guaranteed returns of 22 per cent or more within a year upon redeeming of the share. An email from the estate marketers, Regent Management Limited, urges investors to buy as many shares as they wish.

The problem with syndicated properties lies in the distribution of shares. Investors fear that individuals holding majority shares could dominate how the property is managed or utilised without consulting the other shareholders. Further, the participation of investors owning lesser shares may be disadvantaged when their participation is neglected.

Parkway Business Centre, Sheffield.

Government checks

In any case, although seen as a high risk venture, property syndication allow investors to possess a share of a lucrative real estate, which has pushed its popularity across the world. It is, however, yet to become established in Kenya. A quick survey of local property companies shows that very few have dealt with syndication and do not know how the system works.

As the market grows, newer ways of cashing in on the vibrant sector are bound to spring up. It is, therefore, imperative that the Government checks and regulates all new investment options to safeguard the interests of investors.