Off-plan sale of property, a preferred strategy of most real estate developers, could be counterproductive, professionals in the industry have been told.
This was an outcome of the Real Estate Finance and Investment Module, Fine and Country organised in collaboration with the Lagos Business School, recently.
Professionals took away information that would reposition their stake in the real estate industry, and this included five salient points.
One of these is that “An Off-plan sale is not necessarily an advantage, sometimes it is heavily discounted, which makes its liability equal to a loan. If the market conditions do not favour your development, you are left at a disadvantage of having to discount the price of your finished development at the cost of your interest promised to off-plan investors.”
The professionals also learned that “When seeking private investor funding, target an interest rate of 11-19%. This is because it has to be higher than treasury bills but lower than the bank’s prime lending rates which are currently at 18-25%.
“Off-takers are like shareholders in a project. You have to structure a win-win for all parties for the projects to be successful. If people are buying into an off-plan property they should enjoy dividend.
“You can access funds from joint venture partnerships, crowdfunding, credit unions or equity debt. These are secondary sources of real estate finance.
“Your land cost shouldn’t exceed 10% of your total project cost. This is an effective cost management strategy in real estate finance.”
This course enabled professionals, developers and key stakeholders in the industry to have an understanding of how finances and investment in the real estate sector work, from housing deficit, investment, strategy to financial management principles, and global practice in financing real estate projects.