our journey
TRANSCRIPT
(c) CMM 2006 1
PRESENTS “Low Income Housing for 21st
Century Developing Market Economies”
with KENYA, VARANASI, SRI LANKA
images
Dr DARIN GUNESEKERAOf
Capital Markets for the Marginalized (CMM)
(c) CMM 2006 2
The Worst Slum in the World
UN Habitat – worst slum and largest slum = Kibera (peers in Latin America, Africa)
Kenya background facts 850k homes short Kibera Growth; acceleration since 1998 Market driven growth of Slum
Market breeds Acquisition of Rights, unless Planning forestalls these with economics.
Unaffordability seen as transient and so diffused as an issue
No welfare Other market driven forces – Politics & Religion
Slum Sprawl
(c) CMM 2006 3
Our Future ? Wave of Change
From Latin America, Africa Changing Face of Privatized Market Driven
Slums Low income housing catchment Vice area Organized Crime Evangelists & NGOs
Abdication by Planners Fire breaks Bowser deliveries Tapping Utilities
(c) CMM 2006 4
Sri Lanka Preventive Project
675 apartments in first time ever high rise occupation by slum/ shanty dwellers in “Streets in Sky” design voted for by them.
Corresponding 8 sites (4000 persons) in same neighborhood vacated
Land/ built space market given to regeneration.
(See 5-2)
(c) CMM 2006 5
Project Results FINANCE
Total Investment = SLRs600M Outside Community Sales (Financial
Return) = SLRs1700M SOCIAL
Self sustaining 675 homes paying rates Lives transformed from Shanty to
Middle Class Regenerated Neighborhood All Children go to School
(c) CMM 2006 6
Project Results BEFORE AFTER
(c) CMM 2006 7
REIT Formation Cohesive Low Income group form base of
Trust with rent/ rent-purchase scheme of down payment, monthly contract
Shares offered to other takers Shares offered equally to investors Bargains of property exchange allowed Long Term Investment backed by land,
building and long term rental value Best with tie up with Industries (Workers –
Employer schemes) & Cooperatives
(c) CMM 2006 8
THE REIT SOLUTION
trusteesdeveloper
Land in -Certs out
Cash in-Certs out
investors
Condo Sales
market
Primary market
(c) CMM 2006 9
S-Reits II Trust is financed by investors and home buyers. Shares may convert to homes
TRUSTInvestors
Cash via
Investment Banks
Shares*
* Includes right to ownership of a specific house / flat
(c) CMM 2006 10
S-Reits III - A stock exchange
Trade via Investment
Banks *
Shares
Investors(Authority,Individual,
Institutional)
On – goingSTOCK EXCHANGE
Market:
EXCHANGE
EXCHANGE Regulates Information Flow
(c) CMM 2006 11
MARKET BASIS Open Market Forces drive every decision point. No Market
– No Business. Attract market to do business. Do not disturb the normal way in which commercial
business is done except to increase choices to lower income category
Market is fully informed of all costs and transactions through Prospectus & Reports and open accounting and booking. Price arises in open informed market.
Public Sector should agree to hand over former slum lands or new lands with utilities for this scheme on condition that it remains in low income rent range specified as percentage of income, not rupee amount.
Mortgage market opened for house/ REIT shares sales.
(c) CMM 2006 12
REIT Extinction Type of REIT Recommended:
For Livelihood Community - Permanent REIT For independent low income housing blocks
– A REIT with written-in liquidation plan. Initially – REIT will show no dividend Fairly soon – REIT will provide dividend Later years when profits grow, dividend cap will
operate. The surplus will be allocated as share purchase and transfer to tenants.
At end, full liquidation of Trust and individual ownership by tenants turned condominium owners will be accomplished.
(c) CMM 2006 13
Attractive for Investors Instead of buying real estate units at
high unit costs and stamp duty and capital gains tax, investors may buy certificates in small amounts like tradable shares.
Certificate is backed by trust land and buildings, conversion feature.
Can be made tax efficient. In spectrum from Government Bonds
to shares these closer to State issues.
(c) CMM 2006 14
The End User Loan Buyer
Home Buyer
Loan
Certs
Condo
Loan 1
Loan 2
(c) CMM 2006 15
DEVELOPERS SPECIALISE - BUSINESS EASIER
Developer is the Manager charged with construction. Yet the Trustee safeguards interests of buyers and investors through employment of Consultant Technical Managers who approve payments.
Trust has independent finance experts.
Developer is charged with Marketing. Yet the Trust safeguards other stakeholders by requirement of cash flow and sales only through Trust Accounts.
Trust has independent Financial Advisors and Accounts and audit.
Trust has independent lawyers.
(c) CMM 2006 16
•Developer does not need to be harried by Bankers to find funds for project. That is handled by Finance Advisors and Financial Underwriters and Investors and Home buyers.
•Developer does not need to be harried by Buyers who demand financing from Developer. This is handed over to the Financier market of institutions who are in the business of extending credit to individuals and home buyers.
•Developer can develop staff and expertise in MARKETING and CONSTRUCTION of HOUSING.
(c) CMM 2006 17
FINANCE – SAVINGS TO HOUSING EASIER A new route of secured
investment in housing projects by small holder investors opened.
Investment in Trust instead of Company Shares means Directors cannot use funds for any other business, no income tax on corporate entity (Full flow through to investors).
Project has flexibility of risk taking investors and buyers to maximum reducing Bank loans. No exorbitant terms, No large interest costs, No penalties, No non-competitive demands on placement of project funds and other financial aspects.
(c) CMM 2006 18
•Trust delivers condominium title deeds when available and loan agreement will allow for loan to be converted to a mortgage loan.
•Financier would have enabled a customer with lesser resources to become a home buyer and so added to industry business and national home ownership.
•Reduced cost exchange of loans for customers with special needs will be possible owing to flexibility of Certificate method of ownership. Clients who are mobile within loan period can be handled.
(c) CMM 2006 19
If the LAND-OWNERS be shareholders
Landowner transfers land into a project and realises basic price plus share of profit. This is fair.
No under the table transactions. Fair value is gained for the actual land he gives up.
Land price falsity or manipulation made public/ not possible.
Artificial land pricing stopped.
Urban land ownership as a common activity now becomes non-speculative commerce.
(c) CMM 2006 20
Varanasi – A Community Joins Varanasi Silk Weavers unanimously
form the “Varanasi Weavers Trust” SREIT. The weavers, traders, businessmen
accept a full responsibility path For them housing and livelihood are
inseparable with Capital creation foremost They accept the path of collective
strength in bargains with commerce, government, market
They open the door to investors through the REIT trust of VWT.
(c) CMM 2006 21
Driving Forces Livelihood is the highest priority driving
force amongst them This powerful economic force is utilized for
community cohesion. Awareness that housing, property basis, is
needed for livelihood expansion as an industry.
Current market forces driving them to Extinction Slum sprawl “Kibera”
REIT is understood as key to survival with growth
(c) CMM 2006 22
Appreciating your kind attention
THANK YOU
To pursue REIT option please contact Dr Darin or CMM staff at