17/01/2016
REAL ESTATE FUNDING ARRANGEMENTS
Hii
Today TAMEG would like to share with you some issues as related to Real Estate Funding Arrangements. The discussion is divided into the following aspects:
1.The General Meaning of Real Estate
2.Why using various funding arrangements
3.Tips on some Real Estate Financing options
A: REAL ESTATE
The term real estate refers to land and all other kinds of improvements that take place on land. The kind of improvements may include residential properties such as houses, condominiums etc; commercial properties such as office buildings, retail properties and industrial properties such as factories, warehouses etc. Also things like pavements, parking lots, trees etc include part of real estate. Generally real estate will include land and all permanent features found on land.
B: WHY VARIOUS FUNDING ARRANGEMENTS
Real Estate projects are capital intensive from the initial stage of acquiring the site/plot up to the final stage of disposing the property such that few individuals can afford to fund the entire project from their equity. Raising capital then became an essential component in the entire development process thus various funding arrangements were introduced so as to enable the participation of a lot individuals in the development process in a less painful manner.
C. SOME COMMON FUNDING ARRANGEMENTS
Joint Venture:(JV)
It is an arrangement in which parties agree to undertake a development by contributing equity, expertise,experience etc. The parties exercise control over the enterprise and consequently share revenues, expenses and assets. JV enables the parties to share strength, minimize risks and increase competitive advantage in the market place.
Mortgage Financing: (MF)
It is an arrangement that pledges a house or any other real estate as a security for repayment of the loan. MF will thus enable an individual to buy a property without having the funds to pay for it outright. In case the mortgagor fails to repay the loan, the mortgagee may foreclose the property as mortgage will exist given there is an obligation to pay and pledge of property as security for the obligation.
BUILDING,OPERATE AND TRANSFER (BOT)
It is an arrangement in which private organizations undertake development and operation of a facility normally done by the government. The termination of the private sector involvement occurs at the return of the ownership of the development/facility to the government after a fixed concession period usually between 25 to 40 years.
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