JOINT VENTURE FOR CONSTRUCTION OF HOUSES IN KENYA.
The concept of Joint Venture for construction of houses is relatively new in Kenya. This method works well for properties designed for sale.
HOW IT WORKS.
In a Joint Venture, the Land owner contributes the land as part of his/her contribution, then the Financier contributes finances for construction. The profits are then split on a pre-agreed ratio with the land owner usually getting over 50% of the net profits.
ARCHITECTS AND PROJECT MANAGERS.
Architects and Project Managers can also agree to contribute their professional services as part of the Joint Venture and get paid at the end of the project when the profits are being split.
Here, most land owners and property developers are used to older methods of financing construction projects which involve raising capital by either selling of part of the land or borrowing a loan from a bank or both.
With the onset of Joint Venture concept, land owners can now be able to finance their construction more easily.
1. The land owner reduces the risk associated with bank loan repayments such as sudden increase in interest payments which result to the project cost escalation.
2. Land owner is able to easily access funds for construction since he/she will not have to undergo the rigorous bank loan application appraisal process.
3. Land owner is able to tap resource and obtain services from consultants such as architects, engineers, quantity surveyors without having to pay initial consultancy fees since the consultants offer their services as part of the Joint Venture contribution.
Once the construction process starts, land in the general area of the construction increases in value. This increase in value is supposed to be well-captured in the Joint Venture contract so that the increase can be well-spread to all Joint Venture partners i.e. land owner, financier and consultants. This will avoid land issues such as the once recently witnessed between Suraya and the land owner in the Joint Venture.
FINANCING OF JOINT VENTURES.
In Kenya, Shelter Afrique bank finances Joint Venture projects. For the projects to be eligible for the financing, a Feasibility study carried out by a registered architect, quantity surveyor or valuer must be present. This feasibility study should show critical minimums such as Return on Investment, target market and land value ratio to the total project cost. These critical features will be used to check if the project is viable for the joint Venture.
Everest park, along Mombasa road opposite KMC is funded on a Joint Venture by Shelter Afrique bank. It consists of 380 units and the total project cost is KES 1 Billion.
Land owners with prime land are encouraged to contact consultants who are willing to partner with them on eligibility for Joint Venture financing from Financiers. www.a4architect.com conducts feasibility studies for such land owners for financiers to make their recommendations. You can get more detailed info by contacting the below:
Arch. Francis Gichuhi Kamau
B. Arch U.o.N. MA.A.K.[A]