Developers embrace unitisation to fund real estate
In the property market where it has become increasingly difficult to obtain long-term financing, property developers are turning to alternative funding to shore up their portfolios.
One of the new concepts being adopted is known as unitisation, which offers discerning investors easier entry into commercial real estate investment.
The model also gives investors gateway to diversify their property portfolio because of the high financial commitments required for developments such as office, retail and industrial properties.
Essentially, unitised finance vehicles provide the developer leverage to woo investors into highbrow properties and make them part owners of a project. On completion, if the property is rented out, parties share the proceeds.
For instance, if a developer is building a property with a market value of N200 million with about 10 flats, instead of an investor buying one at N20 million, the property can be broken into units to allow about 400 investors invest N500, 000 in each unit.
Commenting on the trend, the Managing Director, Propertygate Development and Investment Plc., Mr. Adetokunbo Ajayi, said the concept is like bringing real estate investment to the level of capital market, where people can buy and sell at the minimum level.
He stressed that the concept has a massive advantage to the investing public; otherwise it would not have been in existence.
“ Many investors in the real estate invest in residential property, they don’t have the opportunity of getting into the commercial because they don’t have the capacity to do that. But unitisation offers them opportunity to invest where they ordinarily could not.
“For instance, if the cost of a land is N500 million, you can enter into commercial investment through unitisation scheme.
“If somebody is doing a project, which the entire capital value is N3 billion but selling it in units, you can buy N10 million worth; you can buy N5 million worth. Some other persons will buy N50 million worth that alone. The concept allows a form of diversification of investment against having everything residential,” he added.
For the Vice President, Southwest zone, Real Estate Developers Association (REDAN) Mr. Debo Adejana, unitisation is a welcome development.
Adejana, who doubles as the Managing Director, Realty Point Limited, stressed that the real estate sector is witnessing an upsurge in unitization type of structure for property development funding and/or sales.
According to him, that is not unconnected with the economy and a show of the contractions in the purchasing power of the populace.
He stressed that, if well done, and liquidity is assured, it can be a veritable tool in sustainable real estate development.
Adejana further disclosed that many developers have been using and continue to use various models of unitisation for both the supply and demand side.
“For us, we ensure it is legally structured to mitigate inherent risks in the model. It lowers the entry point into property ownership ladder and in that sense”, he added.
Adejana, however, said that issues of abuse and propensity for ponzi schemes to masking, as property purchase or funding unitisation schemes are high, especially where regulators lag behind.
Another real estate operator, Mr. Clement Oladipupo, said unitization is the smartest thing to do because of the situation in the economy.
He stressed that research carried out on the model revealed that it is counter culture.
He said, people often prefer sole ownership of property to co-ownership, especially in the eastern part of the country.
Oladipupo, who is the Chief Executive Officer of Lifepage Group, Real Estate Investment Company, however, said with clear direction, it is a good development.
“There should be a clear direction as to how one can benefit and opt out at any point in time and the agreement is clear.
“People are really struggling financially, the percentage of people who are really doing well is very low”, he added.
Oladipupo stressed that unitization creates opportunity for people to create wealth, since there is a greater demand for housing development and the large chunk of people in the society that can afford to buy an apartment is the upper- middle class or lower class.
According to him, the active demand is in the bottom of the pyramid especially in places like Lagos, where there is over six million housing demand.