How capital market’s low interest regime is encouraging affordable housing delivery

How capital market’s low interest regime is encouraging affordable housing delivery

Due, largely, to its low interest regime, some real estate development companies have gone to the capital market to raise bonds and, to a great extent, that has encouraged and enabled them to develop quality and affordable housing for Nigerians.

The thinking among these developers is that the capital market option is the only window open to the real estate industry to attract more capital to make affordable housing possible because it is difficult to deliver anything affordable with 24 – 30percent interest rate that obtains in the open market.

For lack of financial capacity, which is made worse by high cost of funds in the country’s money market, Nigerian developers are unable to deliver houses in large numbers, leading to the wide housing demand-supply gap in the country estimated at 20 million units.

For a country with over 70 percent of its citizens living in rented apartments, the need for decent and affordable accommodation, which has been amplified by the ravaging Covid- 19 pandemic, cannot be over-emphasised.

Read also: Real estate GDP falls by 21% in Q2, worst in 4yrs

The recent entry of Alpha Mead Group to raise money from the capital market through bond issuance was made to serve this purpose— delivering affordable housing to Nigerians, especially the middle class.

The company, early last year, approached the capital market for the Alpha Mead Funding Plc N1.45 billion Series 1 tranche A 19.76 percent Fixed Rate Bond due 2020 and repayable on June 29,2020.

“We came to the Capital Market as an underdog; raised N1.45 billion out of a N10 billion capital raise programme. We used the money for the intended purpose to build houses for Nigerians to live and invest,” Femi Akintunde, Group Managing Director, explained to Businessday at the weekend.

Akintunde explained further that the houses they built with the money had been sold and so they have fully paid back the entire fund to the lenders together with the agreed interest, adding, “we were determined not to allow Covid-19 to be an excuse not to pay back in time.”

By this action, the company has not only erased market fears and proved skeptics wrong, but also boosted confidence in the real estate sector which many would consider too risky to invest in.

Damola Akindolire, the managing director of Alpha Mead Development Company (AMDC), said that “redeeming the bond at a time like this speaks to our resilience as a company and the strength of Alpha Mead Group that has evolved from a facility management company to a total real estate solutions organization with footprint in several African countries.”

Tope Adeniji, the company’s Chief Finance Officer, added that sound resource management was key to their overall strategy of ensuring that the financial obligations were met as they fell due.

“With the negative impact of Covid-19 on the business environment, a combination of efficient liquidity management and financial prudence was deployed to ensure that obligations like the bond repayment was met as at when due,” he disclosed.

Akindolire explained that the series A programme was their first entry into the capital market, making them the third real estate company to undertake such a venture. He added that their offering did not have any credit enhancement cover like other instruments in the market, especially for a first time issuer and yet it was fully subscribed by key players in the industry.

“The full subscription of the bond was a huge statement of confidence in our business and we were determined not to disappoint our partners; we also wanted to use this programme to earn market confidence and prove that we have the right model to make affordable and quality housing possible in Nigeria, he assured.

He informed that achieving this feat in the market was made possible by a combination of factors, including their Iso-certification; selecting and working with the right partners, and their business model which has always been to focus on the middle class who are the people that drive the economy.

Riding on the success of this outing which has provided homes for over 100 families, Akindolire disclosed that they would soon be returning to the capital market to raise more funds that would enable them execute their next project tagged ‘Project 1000’ (P1K) aimed to provide affordable housing for 1000 families at low mortgage rates through access to the National Housing Fund (NHF).

The company is giving a 3-year guarantee on rental income to investors under its various rental schemes, including Rent4less, Rent-toown and GRIP which is an acronym for ‘Guaranteed Rental Income Programme’ for local and Diaspora investors.

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