Joint ventures can be an easy way to own property

BY Zawadi Mudibo

Property ownership, whether solely or in concert with others, is a dream nurtured by many. Such aspirations are especially higher today, thanks to the ever-increasing value of real estate in Kenya.

Online property portal, Lamudi says, “…the commercial space in the capital of East Africa’s economic hub Nairobi has been flooded as many developers are looking to tap into the market. Whether it is for renting or buying, the commercial space has experienced a boom in the capital.”

However, not everyone has the luxury of simply approaching a real estate agent and purchasing property or undertaking property development without financial hassles or the myriad laws and regulations that stand in the way of property acquisition and development.

Below are ways to beat these hurdles and the things to consider.

 

Formulating Joint Ventures 

With Kenya attaining a middle income status, the push for businesses to set up in the country will increase thus further congesting the commercial property market in the country. 

Accordingly, persons aspiring to make successful real estate investments may consider entering a Joint Venture (JV) to acquire property. In fact, a JV may be the second best property purchasing option as a sole proprietor. 

So what is a Joint Venture (JV) and how does it work? A JV is an entity formed between two or more parties to undertake an economic activity. In the real estate, JVs are a conduit for providing equity funding for property projects. Parties to a JV are usually referred to as venture partners or co-ventures.

It is of utmost importance that before entering any agreement, all pertinent issues that revolve around deal and timelines are addressed. Further, a JV must point out, clearly, all objectives and activities to be carried out as well as things partners need to refrain from engaging in.

That said, the JV also should always project to the future by probing possible or potential future conflicts between co- ventures and address them appropriately. As well, they should ensure that among others, issues to do with intellectual property rights are tackled. This will be critical in ensuring that the technical, legal, tax and accounting matters do not have unexpected adverse effects on the deal.

That said, Real Estate Joint Ventures may be structured in different ways. 

Reginald Okumu, a property market consultant and director Ark Consultant’s emphasises that, “a carefully structured legal framework definitely helps partners to work together on the basis of mutual trust, minimises risk and exposure and most critically plays a crucial role in the success of the Joint Venture…’’

He adds that there ought to be clear provisions to act as the guiding book for the potential risks and conflict. These measures will help ensure timely and effective decision making, which in turn reduce uncertainty and help prevent protracted delays in the functionality of the Joint Venture.

 

Factors to consider when venturing into commercial properties 

With the glut created in office space due to the on-going infrastructural developments, mineral explorations and urbanisation, one needs to tread carefully into this market.

On his part, Lamudi Kenya’s managing director Dan Karua quips: “Although commercial properties have higher returns as compared to residential, one needs to be guided before pursuing the venture.”

He shares guidelines to help you make the right decision. 

Cost implications: The developer needs to calculate the costs of construction as offices are more expensive to put up compared to residential properties. You also have to consider the building design itself as commercial building are graded as A, B and C. Grade A being the highest charges rents higher so one needs to consider on the location of the commercial office space to ensure it get the right market. The lack of proper infrastructure and parking bays are some of the hindrances for high occupancy rates. 

Rental or buy? This is a big question that you need to ask; whether you will be renting or buying the property. As the push for businesses to own premises increase, the economic implications on it become far-fetched for many of them. On the other hand as renting seems a viable option for most businesses, one can incorporate the two to ensure you are cushioned and give the business an option. 

Future expectations: The business community is always dynamic and ever-changing. Therefore, you need to prepare yourself for the changes in operations of the businesses. This will give you ground and be able to attract more businesses in addition to the technological innovations that come with it. 

Centum and Britam  have massively invested the property market. The two NSE-listed companies, have in recent months launched a series of real estate projects targeted at Kenya’s high-end market, with their sights trained on the larger East African market too.

Britam is building in Nairobi a commercial property at a cost of Sh7.1 billion ($79.2 million), while Centum is constructing Two Rivers, a real estate project that the investment firm says will be the largest in sub-Saharan Africa, excluding South Africa.

Two Rivers is expected to cost Sh15 billion ($167.45 million). Centum is also building the Pearl Marina in Uganda, a high-end real estate project that will house the region’s first inland marina.

It is widely seen that the growing demand for top-end real estate is driven by the changing consumer trends, the improving regulatory environment and the drive by NSE-listed financial service firms to cut their dependence on quoted securities, which are vulnerable to shocks.

 

The significant returns from the sector, some say, are worth the investment. Data shows, some high-end real estate projects are returning as much as 30% per annum.

Sign Up