Month: March 2016

Joint venture financing is increasingly becoming an option of choice for most land owners and real estate financiers due to its simplicity.

The land owner comes up with the land while the financier comes up with funding to construct then after construction, the financier sells off units to cater for the construction cost and profits and the land owner remains with their units which they can sell or rent out for monthly income.

[googlemaps https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d15593.319824929515!2d36.725886001654544!3d-1.299775399215952!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x182f1a32a37fc031%3A0xb5b0e046daefe391!2sRiruta%2C+Nairobi%2C+Kenya!5e1!3m2!1sen!2s!4v1459248455237&w=600&h=450]

The proposed land size is 10 acres bordering the railway near Riruta side.

Lenana school area.

This area borders Riruta and Ngong road. Its approximately 11 km from the Central Business District of Nairobi. similar distance with Kasarani, Thindigua,Imara Daima, Donholm estates around Nairobi.

Land value. An estimated value of kes 100,000,000 per acre will be used for the calculations.

Architectural design.

The Lenana area is upper middle class zone so the construction will be estimated for this type of quality of house.
960 Units of 2 bedroomed can be constructed, costing kes 5 billion.

At a sale price of kes 8.8 million per 2 bedroomed unit, the total sale value will be kes 7.6 billion.

Profit sharing.

Out of the 960 units constructed, the land owner is set to gain at least 249 units. The land owner can choose to rent or sell their units as they with. The profits can be ploughed back into any good use as the land owner may deem fit.

Conclusion.

Joint venture for construction of high rise apartments provides a good method of utilizing vertical space . Land is a horizontal quantum, of which the vertical quantum can be utilized to infinity…or just 8 floor levels like in the proposed housing estate.
Utilization of the vertical quantum enables unlocking of vast financial resources that can go a long way in sorting out the land owner’s day to day activities. Outright sale of 10 acres will yield at least kes 1 billion. Joint venture financing will yield at least kes 2.1 billion and has the added advantage of being used for recurrent rental income of at least kes 10 million per month in perpetuity.
This brings out the beauty of joint venture financing in that the land owner only provides unencumbred land and then sits back to gain at least kes 10 million per month of kes 2.1 billion in cash as per the calculations.

Architect Francis Gichuhi kamau.
info@a4architect.com

Sample of Development Agreement between Owner of Land and Developer

ARTICLES OF AGREEMENT made at………. {City} this……day of…………., 20…. between (1) Mr. ……………. of…….{city}Indian Resident hereinafter called “Owner” (which expression shall unless it be repugnant to the context or meaning thereof, be deemed to include their respective heirs, executors and administrators) of the One Part and ……………..of………{city}, Indian Resident carrying on business at…………………..hereinafter called “Developer” (which expression shall, unless it be repugnant to the context or meaning thereon be deemed to include his heirs, executors, administrators and assigns) of the Other Part:

Whereas the Owner is absolutely seized and possessed of or otherwise well and sufficiently entitled
to all those pieces or parcels of land or ground situate lying and being at………. {City} in the
registration………. {District} and sub-District of…………… City of area ………..square meters or thereabouts and more particularly described in the Schedule hereunder written (hereinafter referred to as “property”);

And whereas the said property is vacant save and of which fact the Developer is aware, he having inspected the said property prior to the execution of these presents;

And whereas the Owner has agreed to grant to the Developer and the Developer has agreed to accept from the Owner exclusive rights of development of the said property upon the terms and subject to the conditions herein recorded;

And whereas all of the said property has been declared to the surplus vacant land by the Competent Authority under the provisions of the Urban Land (Ceiling and Regulation) Act, 1976.

NOW IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO as follows:
1. The Owner hereby grants exclusive right to the Developer of development of the said property on what is known as “as is where is basis” and the Developer accepts the same for the consideration and subject to the terms and conditions herein provided.

2. It is specifically agreed that the Owner shall through the Developer’s Architects submit plans for sanctioning of lay out for construction of buildings and/or other structures on the said property or any part or portion thereof.

3. The said plans shall be prepared by the Architects of the Developer and at the costs of the Developer and the Owner shall submit only such plans as are prepared by the Developer through their Architects and copy of the finally approved plan shall be given to the Owner.

4. Soon after the execution of this agreement, if so required, the Owner shall execute a Power of Attorney in favor of the Developer or any other person nominated by the Developer to approach all public authorities and to submit and obtain sanction of plans of lay-out and the buildings and structure/s to be constructed on the said property or any portion thereof from the Municipal Corporation and all other concerned authorities.

5. In consideration of the Owner granting exclusive rights of development to the Developer under this Agreement, the Developer shall pay to the Owner a minimum consideration of Rs. ____________/- (Rupees ________________ ______________________ only) (hereinafter called “the minimum consideration”) or an amount calculated at the rate of Rs.____/- per square foot of the F.S.I. which may be sanctioned by the Municipal Corporation of ________, whichever is higher and the said total consideration amount shall be paid in the manner following:
o Rs. ____________/- (Rupees ______________________ ____________ only) on the execution hereof being the earnest money or deposit (receipt of which sum the Owner do hereby admits and acknowledges).
o Rs. ____________/- (Rupees _____________________ _____________ only) being the balance consideration which shall be paid by the Developer to the Owner on the compliance of the following:
1. The Owner making out the marketable title to the said property free from all encumbrances and reasonable doubts.
2. The Appropriate Authority issuing its NOC under Section 269 UL(3) of the Income-tax Act, 1961.
3. The Owner handing over complete vacant possession of the said property to the Developer under an irrevocable license.
4. The owner giving irrevocable right to construct buildings on his own account and with right to sell the units in the said building/s to the prospective purchasers, on ownership basis or otherwise and to appropriate the Sale Proceeds to themselves although formal possession of the property shall be handed over to the Developer on execution of the Conveyance.

6. Notwithstanding anything contained in the preceding clause it is specifically agreed by and between the parties hereto that after execution hereof the Developer shall be entitled to put up fencing around the said property or any portion or portions thereof, for the purposes of preventing further encroachments but subject to the existing encroachments, and shall also be entitled to put up fencing around the portions of the property in occupation of the unauthorized occupation as hereinabove provided. The Developer shall also make arrangements for guarding the said property and preventing any further encumbrance or encroachment by trespassers or unauthorized persons upon the said property or any part or portions thereof. All costs, charges and expenses in respect of the above shall be borne and paid by the Developer alone. The Owner shall not be liable to remove and/or vacate the encroachments or unauthorized occupants who are already occupying portions of the said property nor shall they be liable in respect of any further encroachment or unauthorized occupation on the said property.
7. As from the date hereof, the Developer shall be solely entitled at his own risk to deal and/or negotiate with the unauthorized occupants and/or trespassers on the said property and to take any proceedings against them and/or to arrive at any arrangement or agreement with them at the costs, charges and expenses of the Developer alone. However, the Owner shall empower and authorize the Developer and/or his nominees under the Power of Attorney to be executed as aforesaid to effectively deal and/or negotiate with the trespassers or unauthorized occupants and to receive the possession of the respective area occupied by such trespassers or unauthorized occupants subject to the consideration having been paid to the Owner for the said property as mentioned hereinabove. The Developer shall also be entitled to hand over, on behalf of the Owner, any area of the said property, which falls under reservation and/or set-back and/or requisition or acquisition to the relevant authorities in the event the same becomes necessary on receiving proper notice from the authorities and for that purpose, the Owner shall grant suitable powers and authorities in the said Power of Attorney to be granted to the Developer and/or his nominee.

8. The Owner declares that:
a. The Owner is the absolute owner of the said property described in the Schedule hereunder written which is also shown on the plan hereto annexed and marked “A” and thereon shown surrounded by a red colored boundary line and that the said property is vacant save and except the portions thereof, which are at present occupied and/or encroached upon by the unauthorized occupants and portions whereof are under reservations as aforesaid.
b. Subject to the Competent Authority granting permission and/or sanction under the provisions of the said ULC Act, the Owner has good right, full power and absolute authority to grant exclusive rights to develop the said property described in the Schedule hereunder written to the Developer and the Developer shall be entitled to develop the said property subject to the terms and conditions herein contained.
c. They have not created prior to the date hereof nor shall they create hereafter during the pendency of the Agreement any right or encumbrance of any nature whatsoever in respect of the said property or any part thereof.

9. Simultaneously with the execution hereof, the Owner shall deposit all the title deeds relating to the said property described in the Schedule hereunder written with their Advocate(s) until the completion of the transaction herein. The said Advocate(s) shall after examining the title as mentioned in the previous clause, send, against an accountable receipt all the title deeds to
the said Advocates of the Developer for perusal, as and when required by the said
Advocates. On the completion of the transaction herein the Owner through his said
Advocates hand over to the Developer all the said title deeds against an ordinary receipt.
10. Upon the Competent Authority under ULC Act granting the requisite permission and/or sanction for the development of the said property and on sanction of the plans by the Municipal Corporation of Greater Bombay and all other concerned authorities as aforesaid the Developer shall after full payment of the consideration amount to the Owner be entitled to commence construction on the said property, for which license to enter upon would be given by the Owner to the Developer pursuant to this Agreement. The development to be carried out by the Developer shall be in accordance with the permissions granted by the Competent Authority under said ULC Act and shall also be in accordance with the sanctioned plans. The Developer shall also be entitled in his own right to enter into agreements on what is popularly called Ownership basis or otherwise and/or arrangements with any person or persons of their choice for the purpose of selling, allotting, and/or transferring any of the flats/shops/ premises/garages/units, etc. to be constructed by the Developer on the said property or any portions thereof in accordance with the terms and conditions laid down by the Competent Authority and in the sanctioned plans and to receive and appropriate the consideration payable in respect thereof and/or any part thereof for their own benefit and use. Such agreements and/or arrangements shall be entered into by the Developer in his own name and at his own costs and risk and no risk or liability of any kind shall be incurred by the Owner in any manner.

11. After the receipt of the full consideration by the Owner from the Developer, the Owner shall execute one or more Deeds of Conveyance as may be desired by the Developer but at the costs and expenses in all respects being borne and paid by the Developer including stamp duty and registration charges, in respect of the said property or portions thereof, as the case may be, in favor of a Co-operative Society or Societies or Association of persons or other body Corporate who have agreed to acquire flats/shops/garages/premises/units etc. from the Developer.

12. On receipt of the full consideration amount by the Owner, if for any reason the Developer does not desire to obtain the Conveyance of the said property, then the Owner shall, at the request of the Developer, simultaneously with the payment of the said balance amount, execute an irrevocable Power of Attorney in favor of the Developer and/or his nominees or nominee or representatives empowering and authorizing the said Attorneys, inter alia, to execute one or more Deeds of Conveyance in respect of the said property or any portions thereof in favor of the Developer or in favor of Co-operative Society or Societies or association/s of persons to be formed and/or incorporated and/or nominated by the Developer herein. No further consideration shall be required to be paid by the Developer to the Owner for execution of such Deed or Deeds of Conveyance.

13. Prior to the execution of one or more Deeds of Conveyance in respect of the said property or any portions thereof in the manner mentioned herein, the Owner shall produce the requisite Certificate under the provisions of Section 230A of the Income-tax 1961 for effectively vesting the said property in favor of the Developer or in favor of the person or persons nominated by the Developer. It is further agreed that in the event the said Deed or Deeds of Conveyance or any of them are not executed at the time of payment of the balance consideration amount an amount representing 10% of the total consideration amount shall be retained by the Owner’s Advocates until the production of the said Certificate/s under the provisions of Section 230A of the Income-tax Act.

14. The Owner shall pay and discharge all assessments, outgoings, taxes, etc. payable in respect of the said property up to the date the possession of the said property is handed over by them to the Developer. Thereafter, the same shall be paid and borne by the Developer alone. The Developer shall pay and discharge all outgoings, assessments, taxes, etc. for the entire property after possession of the same whether whole or in part is handed over to the Developer. If necessary, the same shall be apportioned between the parties hereto.

15. The Owner declares that no notice of acquisition or requisition issued by the Municipal Corporation of Greater Bombay or under the Epidemic Diseases Act or any other statute has been served upon them or anyone on their behalf. If however, any notice or requisition of the Municipal Corporation or other public body is issued in respect of the said property after the date of execution of these presents but before the completion of the transaction the Owner shall comply with the same at their costs and expenses. The Owner hereby declares that at present no notice or requisition has been served by the Government of Maharashtra or Municipal Corporation of Greater Bombay for requisition or acquisition or set-back in respect of the said property or any part thereof and that so far as they are aware no such requisition or acquisition or set-back is contemplated. Provided always that if the Owner has concealed any such notice issued, inter alia, under any of the Acts as aforesaid, the Developer will be entitled to cancel this Agreement and on such cancellation to receive forthwith the earnest money and all other payments made, if any.

16. All disputes and differences that may arise between the parties hereto relating to or in connection with the matter of this agreement or between the parties or their representatives shall be referred to the sole and final arbitration of Mr. _______________ or failing him Mr. ____________ as the sole Arbitrator whose decision shall be final and binding on both the parties. The Arbitrator shall have summary powers.

17. All out-of-pocket expenses of and incidental to this agreement including the expenses for Deed/s of Conveyance and other documents and writings including stamp duty and registration charges shall be borne and paid by the Developer alone. The parties shall bear and pay their respective Advocates’ professional costs.

18. The Developer shall be entitled to develop the said property either by himself and/or through his nominees including a firm, wherein he is a partner or a company wherein he is a Director, provided however, all the obligations and liabilities undertaken by the Developer under this Agreement shall remain in full force and be personally binding upon the Developer, and in particular his liability for payment of all amounts under this Agreement to the Owner.

19. The Owner hereby declares that he has not entered into with any person or persons Agreement to Sale or Lease or created any third party rights in favor of any person or persons in respect of the said property.

In Witness whereof the parties hereto have hereunto set and subscribed their respective hands the day and the year first hereinabove written.

SIGNED AND DELIVERED by) the within named “OWNER”) Mr. ___________________ )
in the presence of…………. )

SIGNED AND DELIVERED by) the within named “DEVELOPER” )
(1) Mr. ____________________ )
in the presence of ………… )
Receipt

Received this day and year first } hereinabove written from the } within named Developer a sum of
Rs. _______/- (Rupees._______________ only) being the deposit to be paid by him to us by Cheque (
Number _______, dated _________, drawn on __________)

Signature

Owner
Witnesses:
1)____________________}
2)____________________}

Registration of Agreements

Development Agreements or ‘Agreements to Sell’ can be registered with the appropriate authorities of the State Government under the Registration Act, 1908. (Read: Documents to be registered under Registration Act). Benefit of entry into Book-1 maintained at the Registrar’s office can be availed. Such entry will ensure that there is a public notice of these documents and their contents. Encumbrance certificates, if any, can be obtained on the immovable property as there will be entries recording the execution of these documents.

General Power of Attorney (GPA) given by the owner to the developer can also be registered and there will be a public notice on the GPAs. The total cost of stamp duty and registration fee payable on these documents will depend on the kind of powers given to the PA holder to deal with the property concerned. It should also be noted that the stamp duty payable on a Development Agreement is very high in case it is observed that sweeping powers are given to the developer to deal with the property under the guise of Development Agreement.

Any disputes arising between the developer and individual/company/Government are covered by the Indian Contract Act which is a Central Act and is applicable throughout India.

It has to be borne in mind that Banks and Housing Finance companies normally decline to finance houses bought by individuals in buildings developed under developmental rights and on land held by PA holders till the time the owners have been fully paid off. Similarly, developers will find it hard to obtain bank finance for their projects to be executed on land covered by such Development Agreements.

Rhapta road is located within the upmarket Westlands neighbourhood of Nairobi.

Buildings around Rhapta road are elegantly designed, with a mix of all international styles.

The typology of the surrounding buildings is high end offices and residential apartments, high rise.

Profit sharing for Joint Venture. 1.6 acre land.

Land Value.

1 acre sells at approximately kes 300million per acre in this area.

Built up area sale value.

This apartment of 200m2 is being sold along Rhapta road for kes 25,000,000. Cost per m2 for sale is kes 125,000 per m2.

40% to land owner and 60% to financier/developer.

In this scenario, total project cost including land value is kes 3.2 billion. Total project sales are kes 4.6 billion. This means profit is 1.3 billion.

At this profit sharing ratio, the land owner gets the value of the land at kes 390 million back and the developer gets the cost of construction, architectural, quantity surveying, engineering consultancy fees and bank interest rate financing back. There is no profit for both developer and land owner since the project only covers the cost of input.
The land owner takes home kes 700 million, which is the value of the land, plus half the profit, taking home kes 2billion.

30% profit to land owner and 70% profit to financier/developer.

In this scenario, we have 10 floor levels at a ground coverage of 50%.

The total cost of the project, inclusive of land value is kes 2 billion.
The total sale value is kes 1.6 billion.
At a 24% Return on Investment towards the whole project, the land owner can take home approximately kes 600 million.

50% profit gain.

This represents a 50% increase in profits , which is a good investment for the land owner. This value is set to appreciate over time as capital gain from increased property sale value.

15,600 m2 of built up area is expected to be constructed using this model.

Architect Francis Gichuhi Kamau.
info@a4architect.com

Sectional property for sale. Kahawa Zimmerman. 10 bedsitters, 1 one bedroomed unit near main tarmac road. Fully occupied. Kes 12m.

[googlemaps https://www.google.com/maps/embed?pb=!1m18!1m12!1m3!1d897.2593047707154!2d36.89577013436703!3d-1.210555610874311!2m3!1f0!2f0!3f0!3m2!1i1024!2i768!4f13.1!3m3!1m2!1s0x0%3A0x0!2zMcKwMTInMzguMCJTIDM2wrA1Myc0Ni44IkU!5e1!3m2!1sen!2ske!4v1458980816410&w=400&h=300]

Contact info@a4architect.com for more details.

28 acres next to Kasarani Stadium, Nairobi.

Owner seeking Joint Venture financier for construction of residential houses.

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Contact info@a4architect.com

10,000 acres land for sale at Taita Taveta, Kenya. Sale price is kes 180,000 per acre.

Near Voi town.

Land has 2 rivers flowing within it. Several boreholes and buildings.

Land has 2 titles each of 5000 acres.

Suitable for farming.

Email info@a4architect.com for more details.

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Land cost. kes 3.5 billion.
Construction cost. kes 8.6 billion.
Profit. kes 2.8 billion.
Ground coverage. 30%
Number of floor levels. 10.
Built up area. 10000m2.

Thindigua town is located along Kiambu road, past Ridgeways and Runda , 11km from Nairobi CBD.
The close proximity to Nairobi CBD makes it a very prime area for housing, with several housing estates coming up in the area. The typology is mostly apartment,and land close to the main tarmac road costs in the range of kes 120 m per acre.

Land Availability.

8 acres of prime land, 200m from main tarmac road, within Thindigua town, is available for Joint Venture financing for residential units. See other lands available for Joint venture financing listed here https://www.a4architect.com/land-4-sale-joint-venture/

Number of units.

The 8.3 acres can hold approximately 600 residential units, each with at least 1.5 car parking spaces.

Land owner benefits.

The land owner can benefit by ending up owning at least 200 housing units in exchange for the land. These housing units cost at least kes 1.6 billion. The land that the land owner contributed, 8.3 acres, at kes 120m per acre, is valued at kes 1 billion. Therefore, for a contribution of land value of kes 1 billion, the land owner benefits from houses worth kes 2 billion. This represents a benefit of a minimum of 100%, having doubled their initial investment of kes 1 billion worth of land into kes 2 billion worth of housing.
This makes it a very good business deal for the land owner.

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Development cost.

Land.8 acres. kes 1 billion.
Construction cost kes 3.4 billion.
Sale cost. kes 5.5 billion.
Profit at 23% Return on Investment. kes 1 billion.

Sourcing Joint Venture financiers.

A4architect.com links land owners with potential joint venture financiers and also offers joint venture financial advisory services to land owners.
Joint venture financing discussions usually take alot of time in board room negotiations until where the land owner and financier get to a point of agreement in profit sharing, whereby a4architect.com provides guidance in such negotiations. Joint Venture financiers are in several categories, with others preferring small residential projects, others preferring large commercial projects and others preferring mixed use development projects.
Depending on the initial feasibility study on the land as done by a4architect.com, a4architect can then direct the land owners to financiers who are most interested to the type of project that is envisioned.

Architect Francis Gichuhi Kamau.
info@a4architect.com

A joint Venture is a financing method for construction projects where the land owner contributes the land and a financier contributes the funds to realise a real estate project .
The land owner and financier agree on the sharing percentage based on negotiations between the two parties. www.a4a4chitect.com offers Joint Venture financing advisory for land owners who would be interested in financing their construction project through this method. a4architect.com also lists lands available for a joint Venture financing here https://www.a4architect.com/land-4-sale-joint-venture/

Special Purpose Vehicle.

A Special Purpose Vehicle limited liability type of company is formed where the land owner transfers the land to the company then the financier opens a bank account with the company name and transfers construction funds into the SPV bank accounts. This company now owns the land and the buildings being constructed and once the project is over and both the land owner and financier take ownership of their shares, the company is usually dissolved afterwords.

Land size and location.

Its important that the land owner has the land in a very prime place in proximity to a major town so as to assure the financier that the project, once completed, will attract end user buyers and renters. In most cases, joint venture financiers end up selling their share of the project while the land owners remain with hteir share and rent out, or sell part and rent out the rest.
The larger the land, the more attractive it is for financiers. For middle class housing, at least 10 acres and above is preferred. For CBD, Upper Hill, Lavington, Ngong road areas, 0.5 acres and above is preferred. For high class housing eg Karen, Runda, at least 5 acres and above is most preferred by financiers.
a4architect.com compiles land requests from joint venture financiers and links up land owners with potential financiers for joint venture projects.

Benefits.

The major benefit of a joint venture is that it enables a land owner realize income from developing their land without the land owner necessarily having to put in capital.
The average joint venture agreements usually gives the land owner around 20 to 35% of the housing units while the rest goes into financing the construction cost of the project.
Each project is different depending on the calculations that yield the sharing ratios between land owners and joint venture financiers. A4architect.com offers advisory services to land owners so that at the negotiating table with the financiers, the deal goes on smoothly without either party feeling shortchanged.

Bank loans.

Without a joint venture financing agreements, land owners are required to either raise the cash for construction from their own sources and savings or borrow loans from banks. Raising millions of shillings required to construct is a tall order for most land owners. Borrowing millions of shillings from banks also require that the land owner raise at least 30% of the construction cost, which run into millions of shillings, and also have the ability to service monthly interest, also running into millions of shillings. When land owners find themselves in this dilemma, the next best option becomes a joint venture.

Completed Joint Venture projects in Kenya.

Everest Park Apartments , Athi river.

Runda Park Apartments, Kiambu road.

Kigali Batsinda, Kigali

Westpoint Heihts, Kikuyu town.

Architect Francis Gichuhi Kamau.
info@a4architect.com