Housing: Will Property developer Home Afrika rise from ground zero?

Friday, August 16th, 2019 00:00 |
A home under construction in Migaa estate, Kiambu county. Photo/John Ochieng

Property developer Home Afrika has ventured into selling of smart plots to help them raise enough funds to accelerate completion of its projects.

This comes after the firm recorded a 58.5 per cent decline in its project percentage-of-completion based revenue from Sh263 million in 2017 to Sh109 million last year.  The loss for the year amounted to Sh346 million, up from Sh181 million. 

Actual sales plummeted from Sh921 million in 2017 to Sh582 million in 2018 owing to slower growth in the real estate sector amid constrained credit access and the general slowdown in spending power among plot and house buyers.  

“Under smart plots, the company is developing affordable plots for people to buy so that they can build their own houses. This idea was born after we restructured our business to get more liquidity,” says Dan Awendo, Home Afrika Managing Director. 

The company is grappling to complete various capital-intensive real estate developments, with plans to raise billions of shillings from debt and equity sources having stalled several times. Lenders have been wary of the firm’s financial strength, with some sidestepping its debt calls and others providing funding at steep interest rates.

Several projects

Listed on the Nairobi Stock Exchange in 2013, the loss-makers share price has since collapsed from a high of Sh25 at the listing to Sh0.55 currently. Assuring investors, Awendo says although the company looks like it is running into huge losses, this is not what is on the ground. 

The firm uses a revenue recognition model guided by the International Financial Reporting Standards (IFRS), where most of the revenues are booked on the balance sheet as liabilities until a plot owner completes payment, the title processed and the project is completed.

“People out there have the wrong information about our financial strengths and this has affected us. This has also seen some lenders step aside,” he says. 

Home Afrika is involved in several projects under its Go-County Initiative. These include Migaa, a 774-acre integrated golf estate, Mitini Scapes a premier housing development within Migaa in Kiambu county, Kikwetu 1,000 acre middle-income housing project in Machakos and Lango in Tiwi Kwale county.  The firm also owns land in Nakuru and Kajiado counties, but Kikwetu, eyeing 20,000 homes, was a non-starter.

In an interview with Boma, Awendo said the idea of selling plots without developing houses was born two years ago but they are not doing it on a large-scale basis yet. However, they now want to introduce bigger and more projects in the market to get more revenue.

So far, they have sold five projects fully (some fully sold others partially sold) and by the end of the year, they are targeting to sell five more projects in different counties such as Nakuru and Kajiado. 

The book value of the group’s sellable land and other inventory increased from Sh3.6 billion in 2017 to over Sh3.7 billion in 2018 and this signifies continued investment in the various projects.  “These investments have helped improve the market value of the land as it becomes more desirable,” he says. 

Profitability statement

Awendo says they are looking for strategic investors to raise about Sh2 billion to accelerate completion of their biggest project, which is Migaa Golf Estate. “Talks are underway with a serious individual investor. A financial investor will offer a short-term loan, which is too expensive in an unstructured manner, unlike an investor who is not in a hurry to get their money back,” he explained. 

Further, the firm has set aside 40 acres at Migaa for construction of affordable houses targeting the middle-class Kenyans; the market for such houses is readily available. “Migaa is a 10-year project and currently we are at 46 per cent completion. With the road and golf course works at the estate on high gear, finishing the project will see all of the deferred revenue and deposits from sales of plots translate to revenue in the profitability statement soon,” Awendo added. 

He blames the revenue recognition model (Sh2.6 billion stuck in deferred income), capping of interest rate as major challenges to the firm. Rising costs of building materials is also a problem. 

“We are keen on new sales, collections and restructuring of debt to improve our cash position. We are currently engaging three financial institutions that are owed various debt facilities and negotiations on restructuring and reorganisation of the facilities are at an advanced stage,” he says. 

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