Inflation is a global phenomenon. The buying power of the US dollar, British Pound or Rand, 100 years ago is different from what the same can buy today. Pension Funds continuously lose value if they are invested in assets that cannot stay ahead of inflation. Some funds are small and cannot afford to be overly concentrated in huge property investments.
Executives at big corporates may want to build their own individual property portfolios for passive income after their retirement. This product is our response to these very clear needs from these investors.
Leveraging off-plan sales is the fundamental property development formula the world over. It is tried and tested and is the mechanism by which property developers make profits. Developers and those investors that come in early and work with the Developer to promote projects achieve this by deploying bare minimum capital, which is called trigger capital.
This trigger capital serves to cause enough project progress, thereby giving the buying consumer public enough confidence in the project. The consumer public starts buying properties off plan. It is the revenues from these off-plan sales that finance the rest of the project. The return on initial trigger capital is therefore enhanced.
The trigger capital is a small portion of the total capitalization required to deliver the project. The bulk of the capitalization is then obtained from off-plan sales. To compute the return on capital employed by the Developer and its Early Entry investors, the margin of the project is divided by that minimum trigger capital. The result is a substantial return on the money actually invested by the Developer and its Early Entry investors—the trigger capital. This amount is way smaller than the rest of the funding capital, which is derived from consumer off-plan sales. High returns are therefore limited to those who participate in the bare minimum trigger capital.
Injecting the total cost necessary to deliver a whole project amounts to oversaturation and thus lower returns. The window for these high returns is limited to those investors who come in early to take up space in the quantum of the trigger capital.
This is the space that we offer to institutions like Pension Funds, Corporates, and Assisted Staff Housing programmes. They enter at the same level or cost as the Developer, thus enjoying the same off-plan leveraged returns on trigger capital. Trigger capital for a project is therefore capped to optimize returns. Once that quantum is funded, project prices go up to consumer-level exit prices, since this is the mechanism by which we can deliver good returns. This investment opportunity is for early birds. They put in their money early and, together with the developer, are the investors responsible for promoting a project and thus deserve these high returns.
This product is suitable for Pension Funds, corporates, high net worth individuals, and corporate executives who can access mortgage facilities to pay the full price or short terms at the beginning of the project. Individuals can buy properties more affordably, and pension funds can use this formula to recover the loss of value they have experienced over the years. The level of return this product offers means that pension funds can recover their losses of the last two decades that came about because of inflation.
The transactions are secure, and the delivery of the projects is via the EPC form or contract, a type that insulates investors from construction risk. The developer de-risks all projects by ensuring that all foundational documents are in place, including arranging a secure off-take where applicable. Project contractual and securitization arrangements are available to the buyers.
