Equity finance project hailed as solution to chronic property shortage in Kenya

The first major equity finance real estate development project for middle income property investors has been launched in Kenya.

The Fourways Junction development in Nairobi will see the construction of 850 gated residential units complete with offices, a country club, a shopping mall and a three-star hotel on 200 acres on Kiambu Road along the northern drift of the city.

The work will start in May on the first phase of 233 houses and has been possible through a financing agreement with Standard Chartered Bank.

'The idea is to develop property that is affordable and we are working with financial institutions, land owners and property experts,' said Patrick Muraya, chief executive of developers Suraya Property Group.

Buyers seeking finance will be required to process their mortgage loans through Standard Chartered Bank after paying a 10% deposit to the property company. Cash buyers will be asked for 20% of the value of the property that is payable in five installments.

It is regarded as a landmark for Nairobi's real estate sector. Property developers say that equity financing arrangements have gained popularity in recent months particularly since the Government announced recently that it will be partnering with landowners to provide roads, water, electricity and sewerage facilities within a 70 kilometre radius of Nairobi.

'There has been an increase in the number of housing projects built through equity financing arrangements as investors diversify from the traditional bank loans,' said Maina Mwangi, the head of property at Knight Frank.

Equity financing has traditionally been an individual arrangement between developer and landowner. But real estate market players now say mortgage firms and co-operatives have recently gone big on the concept, promising a huge increase in the number of housing units available in the market.

Last month, home loans financier Housing Finance announced that it was embarking on large-scale housing projects through its building subsidiary, the Kenya Building Society.

It is estimated that the country needs approximately 150,000 property units every year against a supply of only 30,000 units, leading to a yearly shortage estimated to be at over one million units.