The Real Estate sector cannot achieve its highest potential in isolation. Partnerships with financial institutions, government regulatory bodies and private investors is crucial in order to create a more dynamic, resilient and sustainable real estate market. Over the years these partnerships have enabled the development of high-quality infrastructure in the industry.
One of the biggest hurdles that necessitate the need for partnerships in this industry is access to finance. Real estate is a capital-intensive venture due to the cost of materials and their transport, professional fees and land rates. The cost of construction increased from a range of KES 34,650 – 77,500 at the beginning of 2023 to KES 41,600 – 100,800 by December 2023, this is according to the Architectural Association of Kenya (AAK’s).
Real estate developers therefore need to work closely with financial institutions, government bodies and private investors in order to develop innovative financing options. Here are some of the available partnership options.
- Public-Private Partnerships (PPPs)
Public-Private Partnerships is a collaboration between the national or local governments and investors in providing services to the public. For this partnership to be successful there must exist a strong private sector and a satisfactory legal framework. The private sector develops, operates and maintains public infrastructure while the government provides land at no cost and offers tax incentives related to construction. This approach has been implemented in the affordable housing projects in Kenya.
- Real Estate Investment Trusts (REITs)
These are regulated investment vehicles that allow investors to pool funds for investment in diversified real estate assets. REITs operate in different ways: Income REITs (I-REITs) use funds to acquire properties for income generation while development REITs (D-REITs) pool funds for the development of real estate. D-REITs can be transformed into I-REITs after the completion of the development.
I-REITs are generally open to the public while D-REITs are restricted to professional investors only. In Kenya, REITs can be listed or unlisted. Listed REITs are traded on the Nairobi Securities Exchange (NSE) like any other company share, offering investors a liquid stake in real estate.
- Financial Institutions Collaboration
Collaboration with financial institutions can range from construction financing, mortgage financing and joint ventures. Financial Institutions provide loans to the developers for construction as well as to potential buyers, enabling them to purchase properties. Kenya Mortgage Refinance Company (KMRC) has been at the forefront in providing finance to Primary Mortgage Lenders (PMLs) such as banks and SACCOs.
These partnerships can be enhanced through transparency in the dealings of the stakeholders involved. By promoting clear communication and honesty, trust among the stakeholders will be enhanced. This will lead to a continued relationship between the stakeholders hence promoting development in the real estate sector. Additionally, there needs to be a reliable legal framework that provides an enabling environment for these partnerships.
