How to Secure Funding for Real Estate Projects in Africa

Real estate development projects are inherently risky and the lack of capital available for such ventures makes them even riskier. In most cases, the return on investment for property development projects is not quick enough for most banks to consider funding them. The lack of ready capital for such projects forces real estate developers to seek alternative sources of funding. In some cases, developers have to look beyond the usual sources of venture capital and apply for government grants.

Government funding for real estate projects in Africa is still in its nascent stages. However, there are ways in which you can secure funding for your project. But first, you need to know the different types of funding you can apply for. Here’s an overview of the most common sources of funding for real estate projects in Africa.

Real Estate Investment Trust (REIT)

Real estate investment trusts (REITs) are publicly listed companies that own a large number of commercial properties. They are distinct from real estate investment trusts (REITs), a type of investment fund that pools investor capital into a single company to acquire a large number of properties.

One of the main advantages of using a REIT as a funding source is that they have a proven track record. They have been around for more than 50 years and have proven to be a reliable source of funding for real estate ventures.

There are three main types of REITs:

• Mortgage REITs - These are companies that borrow money to purchase real estate assets. They earn income by lending out the mortgages on these properties. The main advantage of using a mortgage REIT is that they have a proven track record and are regulated by the U.S. government.
• Equity REITs - With equity REITs, the company owns the properties and earns income by leasing them. The main advantage of using an equity REIT is that it offers more flexibility. You can choose to go with a debt or an equity-based loan, depending on your project.
• Mixed Use REITs - These are the most common type of REIT and they own properties that provide both residential and commercial property services. The main advantages of using a mixed-use REIT is that they provide a wide range of services that makes them suitable for a variety of projects.

Debt Financing

The main advantage of using debt financing for real estate development projects is that you can access a lot of funding quickly. You can apply for debt financing for your project at the national, regional, or local level. Some examples of debt financing include:

• National government-backed loans - National government-backed loans are the most common type of debt financing and they are often given to real estate developers as part of the public sector banks’ lending program.
• Regional government-backed loans - Regional government-backed loans are given to projects that have a regional economic impact, such as a hotel that provides employment for local contractors and tradespeople.
• Local government-backed loans - These are given to projects that benefit a specific area, such as a community health center that provides services to a large number of people.

Development Bank Loan

Like a government loan, a development bank loan is also an interest-free loan that is given to develop a specific type of project. The main advantage of using a development bank loan is that they are given by a commercial bank with a proven track record. The main disadvantage of using a development bank loan is that they are often given in very small amounts, such as $25,000 or $50,000. These loans are often given to fund the initial phase of a project.

Private Equity or Venture Capital Funding

Like debt financing, private equity or venture capital funding can be used to fund real estate projects. The main advantage of using private equity or venture capital funding is that it comes with a much higher return on investment. The main disadvantage of using private equity or venture capital funding is that it comes with a much higher risk of failure.

Grant or Subsidy

The most common type of grant or subsidy for real estate projects in Africa is the government’s construction stimulus grant. These grants are given to projects that create jobs and boost the local economy. The main disadvantage of using a construction stimulus grant is that it is given very selectively and only to a small number of projects.

Crowdfunding

Crowdfunding is a newer way of raising capital for real estate projects. The main advantage of using crowdfunds is that it is usually more cost-effective than the other funding options. Some examples of crowdfundings include:

• Real estate investment trusts (REITs): These are publicly listed companies that own a large number of commercial properties. They are distinct from real estate investment trusts (REITs), a type of investment fund that pools investor capital into a single company to acquire a large number of properties.
• Debt financing: The main advantage of using debt financing for real estate development projects is that you can access a lot of funding quickly. You can apply for debt financing for your project at the national, regional, or local level. Some examples of debt financing include:
• Development bank loan: Like a government loan, a development bank loan is also an interest-free loan that is given to develop a specific type of project. The main advantage of using a development bank loan is that they are given by a commercial bank with a proven track record. The main disadvantage of using a development bank loan is that they are often given in very small amounts, such as $25,000 or $50,000. These loans are often given to fund the initial phase of a project.
• Private equity or venture capital funding: Like private equity or venture capital funding, it comes with a much higher return on investment. The main disadvantage of using private equity or venture capital funding is that it comes with a much higher risk of failure.
• Grant or subsidy: The most common type of grant or subsidy for real estate projects in Africa is the government’s construction stimulus grant. These grants are given to projects that create jobs and boost the local economy. The main disadvantage of using a construction stimulus grant is that it is given very selectively and only to a small number of projects.

Conclusion

Real estate development projects are inherently risky and the lack of capital available for such ventures makes them even riskier. In most cases, the return on investment for property development projects is not quick enough for most banks to consider funding them. The lack of ready capital for such projects forces real estate developers to seek alternative sources of funding. In some cases, developers have to look beyond the usual sources of venture capital and apply for government grants.

Government funding for real estate projects in Africa is still in its nascent stages. However, there are ways in which you can secure funding for your project. But first, you need to know the different types of funding you can apply for. Here’s an overview of the most common sources of funding for real estate projects in Africa.