Developers key into property bond investments amid shrinking fund

Following commercial banks’ lack of commitment to real estate developments, property developers have continued to seek new avenues to bankroll their projects and one of these new ways is property bond.

Under the concept, retail investors can invest as low as N500, 000 through lending platforms and can achieve regular income through the bonds. In recent years, there has been an increase in the bond investments as it allows investors to finance projects.

The investment structure allows investors to invest in property to receive a specified income while bridging the gap left by banks and traditional lenders in the wake of the financial crisis triggered by COVID-19 pandemic.

Experts say, the bond proves crucial in addressing the nation’s housing crisis by supplying much needed finance to small and medium sized developers.

Bonds, also known as fixed-income securities, are one of the three major asset classes and common type of investments. It comes with legally binding agreement between the investor and the property developer.

Providing insight on the investment, the Managing Director, Tobykemsworth, an estate management/development firm, Mr. Adekunle Raphael-Monehin, said the firm went into it because of liquidity crisis due to the COVID-19 pandemic, which encouraged innovations and better ways of providing homes to their clients.

According to him, property investment bonds are not new in the country as some property firms had been involved in projects associated with it. He said, only few players in the industry have the capacity to engage in bonds.

He said with a minimum of N500, 000 investments, potential investors can be grouped together so that everybody can benefit from it.

According to Raphael-Monehin, with this arrangement those that do not have N5 million, N10 million, N15 million or N20 million can share from the profit no matter their percentage of investments at maturity in five years.

“Based on our projects’ turnaround, our target is to generate N5 billion from the public. We are looking at Ibeju- Lekki, Ewekoro, and Agbara axis because these locations.

“These are dry lands, cost of construction is minimal, these are locations where affordability is on the rise since our project provides shelter for all. Our project is making citizens own their homes at affordable cost; We want to see how much homes can we create for the people in a year. We are not looking at the luxury projects,” he added.

The Managing Director, Realty Point Limited, Debo Adejana, said his firm has also adopted a variant of property bond investment, where investors come through its cooperative society.

At present, he said, the firm is raising N100 million and may need about N300 million as they have already spent half a billion naira to support the interests of investors.

He said they are raising bond for the Cedar Homes, Lekki-Scheme II (flat apartments) in Lagos State. The project is valued about N4 billion.

Adejana explained that the firm had earlier raised N40 million from the market and had paid back investors. He said the investment would give a particular return in two years’ period for investors of Cedar Homes, Lekki-Scheme II.

According to him, “there is another arrangement where people do not actually pay money but come in through the cooperative to buy into their property, while the firm manages them for them. In this case, they get rents from the property and after some years, they are sold and proceeds shared.

“For investors, coming with N500, 000, we are giving 18.5 per cent per annum. We also have one for 17.5 per cent, that one you can get interest two times in a year. The 17.5per cent is divided into two once you start investing.

“In six months, you get your first interest, within the two years, you get interest four times, but in the one of 18.5 per cent, you get interest once in a year that is twice within the two years’ period.”

Adejana, who is the chairman of the Real Estate Developers Association of Nigeria (REDAN), South-West Zone, said the property is with a custodian so that the investment can be secured; in this type of arrangement, the money can be used for any of the projects.

He said his firm invests the fund, where they need funds and will raise funds in other places when the need arises.

“We have projects, we have need for funding for specific project, which we come to market to raise money and we have done that for projects in other areas.

“We are looking for about N200 million, it is just a fraction and not all the money we need for the project or else we will not be able to pay. Just to clear some things on site,” he said.

“The other option is to go to the bank and we will still pay interest. For us, it is like rewarding our partners in the cooperative, so if you want to give us that money, you have to come in through cooperative,” he added.