housing proposals

Goldia Consultants – Property Proposal

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Project management

The Project Management Service will include:

Co-ordination of input by consultants appointed by the State Government including architects, quantity surveyorsand engineers

Development of detailed project proposals and lenders as required for the procurement of the works and lenders.

Liaison with lenders and investors

Development of the funding agreement and related documentation

Procurement of the construction works

Setting up of the model Housing Association including its inaugural business plan and capacity building,training and development.


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Project plan

The key project milestones are as follows:

Outline Project Proposal Sept 2009

Memorandum of Understanding Oct 2009

Preliminary Funding Prospectus to Lenders Oct 2009

Shortlist of Lenders Identified Nov 2009

Detailed Scheme Proposals and Costings Nov 2009

Selection of Lender and Funding Agreement Jan 2010

Start on Site Jan 2010


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Management proposal (continued)

We propose that the Local Management Company will be in the form of a Housing Association. We believe that this will beforerunner of similar organisations across the State and Ghana generally who will lead the delivery and long term management ofaffordable housing.

To ensure success, the Housing Association will receive extensive support to develop appropriate capacity and expertise tosucceed. The consortium has established contacts with the National Housing Federation and the Chartered Institute of Housing(both UK based world class organisations responsible for training and development) to provide assistance.


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Management proposal

Although the key focus of this summary report is to outline the broad financial modelling principles, lenders will need to seeproposals for protecting the investment in assets. This is to ensure that the properties retain their value and continue to provideadequate (and hopefully increasing) security during the mortgage term.

Housing Association

It is proposed that the IB set up a locally accountable management company with adequate skills on its Board to oversee themanagement of the estate. The constitution of the company will ensure that the IB or the lenders retain “step in” rights in the eventof non-performance. Given that capacity will be an issue, the management company is able to outsource parts of its work e.g.payments collections, maintenance of common spaces etc.

The Local Management Company receives a 10% management charge set against the gross monthly payment. At the assumedlevels this is equivalent to about C7.5m/annum with provision for a 5% inflation annually. In addition the revenue model provides fora 4% sinking fund (for use to carry out cyclical repairs and maintenance to common spaces to retain value) and a 5% rent lossallowance.


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funding structure(continued)

Completed homes are sold to pre-qualified purchasers (where possible, as much marketing as possible will be done off plan tominimise development finance interest. The model assumes that buyers will make an initial capital payment of 10% of the value ofthe homes.

On completion, construction finance net of receipts (sales receipts) is converted to long term funding. Long term funding will beprovided primarily through an offshore partner with whom discussions are on going working with a local originating bank. A furtheroption under consideration is the promote a bond issue to finance the project drawing a wider net of investors. Upon agreement ofa Memorandum, the Consortium will test both vehicles with the market to determine which offers the best value.


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Funding structure

Funding Structure

The funding model proposed for the project aims to leverage private finance alongside public investment to createaffordable home ownership for people on medium income. The model has the following key objectives:

Deliver housing at an affordable cost to the client group.Provide private investors with an attractive proposition and return.Secure a return on government investment.Provide a model which can be rolled out on a larger scale.

The funding framework is described below:

The Accra State Government sets up an Investment Body (IB) to “host” the project.

The IB enters into a funding agreement with appropriate lenders to secure short and long term finance for the project. For theproposed pilot project, about C2.85bn of construction financing is required, convertible to a C2.5bn long term finance on completion

Upon completion of a funding agreement and project plan, the IB secures contracts for the construction of the works. All efforts willbe made to ensure that costs are kept within the limits established by the funding agreement to maintain investor confidence.


Housing

Houses Completed

50units

100 unit

500 uni

750 uni

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output

2009

s 2010

ts 2011

ts 2012


Financials-key highlights 3

SPV structure to allow for flexibility and tax efficiency

Development Profit - 9%

IRR - 21%

Projected Return on Equity - 36%

Net Asset Valuation (25yrs) - C53bn @ 7% gro
w th
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Financials-key highlights 2Summary Cons

Initial Purchaser De

Gap Funding

Mortgage Funding

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truction Funding profile for Phase 1 is as follows:

TOTAL SALES(PHASE 1) UNIT SALES %

posit C0.62bn C 1.03m 20.00%

C 0.53bn C 0.88m 17.20%

C 1.93bn C 3.22m 62.80%

TOTAL C3.08bn C5.14m 100.00%


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Financials-key highlights1

Summary Construction Financing figures for Phase 1 comprising of 600medium cost units is as follows:

Gross Development Value - C 3.1bn (C 5.13m/unit)Total Development Cost - C 2.8bn (C 4.71m/unit)

Funded by:

Initial Sales Receipts - C 615.6mConstr Finance - C 1931.9mGap Funding - C 530.5m


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financials-debt

Banking Partners to provide short and long term debt

Short term debt financing (Construction Finance - Phase 1) = C2.8b.

Term is 36months.

Long term take out senior debt required to support long term

mortgages (Phase 1) = C1.9bn. Term is 25years

Debt is secured with a first charge over properties.

Debt (Phase 1) does not exceed 60% of asset value providing strong

security cover.

Positive indications from Capital Market (Locally and Regionally)


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Financials-equity

3 shareholders initially on SPV.

Initial equity (Phase 1) - C100mAccra State Government - 25.5% (C25.5m)Banking Partner - 49% (C49.0m)Local Originating Bank - 25.5% (C25.5m)

Initial equity to fund working capital and pre-development costsestimated at C80m


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SPV-equity stakes

STATE25.5%

BANKINGPARTNERS 49.0%

LOCAL BANK

25.5%


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Delivery– roles

Special Purpose Vehicle

FINANCE

DESIGN + CONSTRUCT

ASSET + LEASEMANAGEMENT

MORTGAGEFINANCE

Housing Association

Contractor Partner

Nominated originating bank


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Delivery model

ACCRAINVESTMENT CO

SPECIAL PURPOSEVEHICLE

BANKINGCONSORTIUM

PURCHASERS

MORTGAGEPROVIDER

HOUSINGASSOCIATION

DESIGN ANDBUILD PARTNER

PROJECTMANAGERS


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Pilot project

Phase 1 (Medium Income)

House Type No of Blocks No/Block Total

3BR 2W Bungalow 80 2 160

4BR 2W S/D House 100 2 200

3BR Flats 30 8 240

600

House Type No of Blocks No/Block Total

3BR 2W Bungalow 40 2 80

4BR 2W S/D House 40 2 80

3BR Flats 40 6 240

400


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Capital Choice (cont)

Affordability(1st Phase)The primary driver for this proposal is to implement a sustainable model for delivering high quality home ownership to local peopleat a price they can afford without significant impact on their quality of life. The benchmark adopted for the Accra CHOIS Scheme isthat people on medium income do not spend more than 50% of their gross earnings on housing.

The initial financial appraisal suggests a total cost (loan + bullet payment) of about C 36000/month or C 432,000/annumrepresenting 43% of gross household income. The consortium will work in partnership with the Accra State Government to securethe most competitive rates from foreign investors to further improve affordability.

Long Term ManagementThe funding structure underpinning the proposed scheme is based on a long term debt. Lenders will expect to see a robust longterm management arrangements to ensure that the properties (against which the debts are ultimately secured) are well maintainedand retain their value.

To deliver this expectation, the Consortium will work in partnership with the Accra State Government to set up a Local ManagementCompany to take on the long term management of the estate. The Company will work to an agreed Estate Management Plan andits rules will include step in rights by to effect improvements in the event of poor management. The LMC on this pilot scheme will beone of the pioneers of a wider initiative promoted by the Federal Housing Authority to develop housing management capacity andexpertise in Ghana using a Housing Association model


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Capital ChoiceThe CHOIS model proposed has the following key features:

Client GroupThe first phase of the project comprising of 600 homes is aimed at local people particularly civil servants on medium income. Thequalifying income range will be agreed with the Accra State Government. The initial project appraisal has assumed a minimumgross household income of C1000000 pa. A second phase comprising of 400 units is aimed at local people on low income earningbelow C 100000pa.

TenureThe scheme is a low start home ownership programme aimed at ensuring that the client group who are generally unable to buytheir own homes on the open market are able to do so through the use of innovative funding structures. The second phase is for aflexible scheme allowing people on low income to rent there homes initially with an option to purchase at a later date.

The Purchase Scheme (1st Phase)Completed homes are sold on a joint ownership basis to qualifying buyers. Buyers will be free to purchase an initial “equity” ofbetween 25 – 40% in the property. The balance “equity” will be held by a designated investment vehicle.

Buyers will need to fund their initial and subsequent “equity” purchase through a mortgage, loan or from personal funds. Assumingan average cost/unit of N5m, buyers will need to purchase a minimum initial equity of C1250000. This can be sourced through amortgage or personalsavings or loans. Monthly cost of a mortgage for C1250000 over 15years is estimated to be about C11000/month based onaverage interest rate of 7%

Buyers will have a period of up to 15years to “buy back” the unsold share of the scheme through a series of fixed annual bulletpayments. The bullet payments can be financed through individual savings, further advances from mortgage institutions or personalloans. Using similarassumptions as those set out above, average annual bullet payment is estimated to be about C 25000 per month granting a ROCEof 5% to theInvestment vehicle.


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IntroductionThe need for good quality affordable housing in Ghana, particularly among people on low and medium income is significant. This ismore so in Accra where high housing costs mean good quality homes at a price they can afford is outside the reach of most people.Over the last 30 years, there has been various government intervention in the housing market to meet this need. In most cases,these have had positive effects but have been unsustainable leading to decline and a reversal of initial gains.

The following proposal offers a new way forward. Based on a public private partnership it seeks to introduce a new framework withfour elements:

Attract local and foreign private sector participation to mass housing provision. This is in recognition of the fact that publicmonies alone cannot underpin investment needed housing to meet demand.

Elevate the quality of housing in terms of design, layout and infrastructure provision. This is a departure from the notion that masshousing needs to be cheap, regimental and poorly built. This proposal envisages high quality homes set in neighbourhoodspeople will be proud to live in and investors happy to invest in.

Put in place a robust and sustainable management infrastructure to ensure that the homes retain their attractiveness and thereforevalue, not just over the first 10 years but over 50years creating wealth for the owners and investors.

The aim of this proposal is to secure interest and commitment from the Accra State Government in relation to the proposeddevelopment of 1000 affordable homes for local people on medium income to demonstrate these new approaches with a view to awider roll out across the state.


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Executive summary

The proposal is for the construction, financing and management of a housing scheme comprising of 1000 homes for localpeople on low and medium income in an attractive estate setting through partnership with the Accra State Government.

The proposal is for a home ownership model (CHOICE) with the following objectives are to:

Affordable homeownership for people on medium income. Average Total Cost/annum is C432000/annum; This is about 43% of the grosshousehold income of the target group i.e. those earning C1m/annum.Affordable home for people on low income to rent with a future option to purchase.Develop a replicable funding structure capable of attracting foreign investor participation including long term funding;Develop a long term management strategy which will ensure that the homes retain and enhance their value creating wealth for buyers andinvestors.Procure the construction of the homes in an effective way to deliver high quality homes people will be proud of.

The proposal aims to achieve these objectives through THREE interrelated STRANDS:

Innovative Funding Structure involving an equity share arrangement between the buyers (and mortgagors) and the Accra State Government.Long Term funding to underpin the State Government equity is provided by foreign partners with debt secured against cash flow from buyers.

Sustainable Long Term Management Model using a Housing Association organisation to provide locally accountable property and estatemanagement service with support from the FHA and international housing organisations to ensure that it develops the capacity to provide thisservice effectively.High Quality Design and Construction


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CAPITAL CHOICEA COOPERATIVE HOME OWNERSHIP SCHEME

FOR

THE STATE GOVERNMENT

housing proposals

Documents

local management company

accountable management

management charge

shortlist of lenders

model housing association

housing associationit

national housing federation

funding agreement