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Goldia Consultants – Property Proposal

Project management The Project Management Service will include: Co-ordination of input by consultants appointed by the State Government including architects, quantity surveyors and 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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Goldia Consultants – Property Proposal

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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Goldia Consultants – Property Proposal

Management proposal (continued) We propose that the Local Management Company will be in the form of a Housing Association. We believe that this will be forerunner of similar organisations across the State and Ghana generally who will lead the delivery and long term management of affordable housing. To ensure success, the Housing Association will receive extensive support to develop appropriate capacity and expertise to succeed. 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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Goldia Consultants – Property Proposal

Management proposal Although the key focus of this summary report is to outline the broad financial modelling principles, lenders will need to see proposals for protecting the investment in assets. This is to ensure that the properties retain their value and continue to provide adequate (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 the management of the estate. The constitution of the company will ensure that the IB or the lenders retain “step in� rights in the event of 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 assumed levels this is equivalent to about C7.5m/annum with provision for a 5% inflation annually. In addition the revenue model provides for a 4% sinking fund (for use to carry out cyclical repairs and maintenance to common spaces to retain value) and a 5% rent loss allowance.

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Goldia Consultants – Property Proposal

funding structure(continued)

Completed homes are sold to pre-qualified purchasers (where possible, as much marketing as possible will be done off plan to minimise development finance interest. The model assumes that buyers will make an initial capital payment of 10% of the value of the homes. On completion, construction finance net of receipts (sales receipts) is converted to long term funding. Long term funding will be provided primarily through an offshore partner with whom discussions are on going working with a local originating bank. A further option under consideration is the promote a bond issue to finance the project drawing a wider net of investors. Upon agreement of a Memorandum, the Consortium will test both vehicles with the market to determine which offers the best value.

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Goldia Consultants – Property Proposal

Funding structure Funding Structure The funding model proposed for the project aims to leverage private finance alongside public investment to create affordable 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 the proposed 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 will be made to ensure that costs are kept within the limits established by the funding agreement to maintain investor confidence.

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Goldia Consultants – Property Proposal

Housing output Houses Completed

50units

2009

100 units

2010

500 units

2011

750 units

2012

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Goldia Consultants – Property Proposal

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% growth

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Goldia Consultants – Property Proposal

Financials-key highlights 2 Summary Construction Funding profile for Phase 1 is as follows: TOTAL SALES (PHASE 1)

UNIT SALES

%

Initial Purchaser Deposit

C0.62bn

C 1.03m

20.00%

Gap Funding

C 0.53bn

C 0.88m

17.20%

Mortgage Funding

C 1.93bn

C 3.22m

62.80%

TOTAL

C3.08bn

C5.14m

100.00%

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Goldia Consultants – Property Proposal

Financials-key highlights1 Summary Construction Financing figures for Phase 1 comprising of 600 medium cost units is as follows: Gross Development Value Total Development Cost

-

C 3.1bn (C 5.13m/unit) C 2.8bn (C 4.71m/unit)

Funded by: Initial Sales Receipts Constr Finance Gap Funding

-

C 615.6m C 1931.9m C 530.5m

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Goldia Consultants – Property Proposal

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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Goldia Consultants – Property Proposal

Financials-equity 3 shareholders initially on SPV. Initial equity (Phase 1) - C100m Accra 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 costs estimated at C80m

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Goldia Consultants – Property Proposal

SPV-equity stakes STATE

BANKING PARTNERS

25.5% 49.0%

LOCAL BANK

25.5%

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Goldia Consultants – Property Proposal

Delivery– roles FINANCE Special Purpose Vehicle DESIGN + CONSTRUCT

ASSET + LEASE MANAGEMENT

Housing Association

Contractor Partner Nominated originating bank

MORTGAGE FINANCE

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Goldia Consultants – Property Proposal

Delivery model ACCRA INVESTMENT CO

SPECIAL PURPOSE VEHICLE

BANKING CONSORTIUM

PURCHASERS

PROJECT MANAGERS

DESIGN AND BUILD PARTNER

HOUSING ASSOCIATION

MORTGAGE PROVIDER

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Goldia Consultants – Property Proposal

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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Goldia Consultants – Property Proposal

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 people at a price they can afford without significant impact on their quality of life. The benchmark adopted for the Accra CHOIS Scheme is that 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/annum representing 43% of gross household income. The consortium will work in partnership with the Accra State Government to secure the most competitive rates from foreign investors to further improve affordability. Long Term Management The funding structure underpinning the proposed scheme is based on a long term debt. Lenders will expect to see a robust long term management arrangements to ensure that the properties (against which the debts are ultimately secured) are well maintained and retain their value. To deliver this expectation, the Consortium will work in partnership with the Accra State Government to set up a Local Management Company to take on the long term management of the estate. The Company will work to an agreed Estate Management Plan and its rules will include step in rights by to effect improvements in the event of poor management. The LMC on this pilot scheme will be one of the pioneers of a wider initiative promoted by the Federal Housing Authority to develop housing management capacity and expertise in Ghana using a Housing Association model

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Goldia Consultants – Property Proposal

Capital Choice The CHOIS model proposed has the following key features: Client Group The first phase of the project comprising of 600 homes is aimed at local people particularly civil servants on medium income. The qualifying income range will be agreed with the Accra State Government. The initial project appraisal has assumed a minimum gross household income of C1000000 pa. A second phase comprising of 400 units is aimed at local people on low income earning below C 100000pa. Tenure The scheme is a low start home ownership programme aimed at ensuring that the client group who are generally unable to buy their own homes on the open market are able to do so through the use of innovative funding structures. The second phase is for a flexible 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” of between 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. Assuming an average cost/unit of N5m, buyers will need to purchase a minimum initial equity of C1250000. This can be sourced through a mortgage or personal savings or loans. Monthly cost of a mortgage for C1250000 over 15years is estimated to be about C11000/month based on average 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 bullet payments. The bullet payments can be financed through individual savings, further advances from mortgage institutions or personal loans. Using similar assumptions as those set out above, average annual bullet payment is estimated to be about C 25000 per month granting a ROCE of 5% to the Investment vehicle. 4


Goldia Consultants – Property Proposal

Introduction The need for good quality affordable housing in Ghana, particularly among people on low and medium income is significant. This is more 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 with four elements: Attract local and foreign private sector participation to mass housing provision. This is in recognition of the fact that public monies 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 mass housing needs to be cheap, regimental and poorly built. This proposal envisages high quality homes set in neighbourhoods people 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 therefore value, 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 proposed development of 1000 affordable homes for local people on medium income to demonstrate these new approaches with a view to a wider roll out across the state.

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Goldia Consultants – Property Proposal

Executive summary The proposal is for the construction, financing and management of a housing scheme comprising of 1000 homes for local people 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 gross household 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 and investors. 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 estate management service with support from the FHA and international housing organisations to ensure that it develops the capacity to provide this service effectively. High Quality Design and Construction

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Goldia Consultants – Property Proposal

CAPITAL CHOICE A COOPERATIVE HOME OWNERSHIP SCHEME FOR

THE STATE GOVERNMENT

1

Housing proposals  

Housing projects for the future

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