Is Rama Homes Payment Plan Reaping Dividends or Just a Bluff?

When it first came to the limelight with a payment plan that is off the normal mortgage loan mumbo jumbo, many were sceptical. But the mere fact that sales for property units are soaring says something about their approach to financing a house.

Could this be the trick for the real estate sector or is it just a lot of hot air?

Insider narratives indicate that the firm has been able to sell over 200 units in a span of two months—breaking the common story of low sales in the real estate sector as the economy performs dismally. (Disclaimer-The writer could not independently verify the sales figures, the writer chose to believe the source.)

Coming at a time when the sales script book for most real estate firms is a mortgage loan, a cash sale, a buy-a plot-and-build… or the highway, something seems to be working for Rama homes.

Or is it?

The secret appears to be how they have structured the payment system.

As their advertisement material reads, Rama Homes does not deal in interest rates being Muslim owned. All Rama Homes marketing materials state 0 per cent interest rates.

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Instead, the payment plan is divided into segments. There is the identification and allocation phase, the construction phase and the rent-to own phase. This way, Rama Homes says, its breaks down the burden of payment to prospective buyer.

The allocation phase

The standard procedure goes like this. A prospective buyer visits Rama Homes offices to discuss with the sales agents their property of interest. The buyer is then required to pay Sh50, 000 allocation fee. Upon payment of the sum stated, the prospective buyer then signs off official documents ushering them into the formal buying process. The allocation fees serves to formally reserve the particular property and assigns it to the prospective buyer. After the allocation fee is paid and receipts issued, that particular property cannot be assigned to any other persons as it will be deemed ‘booked.’

The Construction Phase

As all Rama Homes properties are off-plan, buyers buy into the promise that the houses will be constructed. This is a move in faith and trust given the bad history of off plan products in Nairobi and its environs. Under an off-plan arrangement, a property is a property before a structure has been constructed upon it. Pre-constructions plans are usually marketed to real estate developers and to early adopters as developments so that the purchaser can secure much better finance terms from their lenders.

At this stage in the payment plan, a potential buyer is required to make a 10 per cent down payment. The down payment is based on the valuation of the property at the time of allocation and does not change over the period of construction. In addition to the 10 percent down payment—which is required over a flexible defined period but normally not exceeding three months from the time a buyer commits to allocation, the prospective buyer is informed of a pre-calculated monthly instalment that runs for twenty four months or two years. During this period, Rama Homes will be actively constructing the house. The figure for both the 10 per cent deposit and the construction phase instalments vary depending on the property chosen.

Rent-to-own phase

The rent-to-own phase refers to the period when the construction of the house has been done and the prospective buyer has moved in. All the amounts paid are towards owning the house. The difference here is that unlike the other models, the rent is towards owning the house. The monthly payments are considerably lower than the construction phase although it over a longer period of time depending on the initial price of the property informed by whether it was an upper class, middle class or lower middle class property.

Just to demonstrate

For Gateway Park for example—which is located in Syokimau and classified as lower middle class, the 3 bedroom apartments are valued at Sh7.9 million. They attract first the Sh50, 000 allocation fee. Then there is the 10 percent deposit of Sh246, 667 a month staggered over a period of three months For Gateway Park, the construction phase is of two years attracts Sh154, 708 per month. The rent-to-own phase is over four years and attracts Sh70, 771 per month. In the last phase, the amount is paid as rent while the prospective buyer is living in the house. Whether this works better than the normal mortgage route, up front cash sale or the good old fashioned buy-a-plot and build statistics will show. Be the judge.

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Written by Maurice Aron

Maurice is an award winning business journalist specialising in the general economy, real estate, capital markets, finance and banking. He is part of the founding staff writers at east Africa's premiere daily business publication, Business Daily. Currently he specializes in research, communication, media, investor and public relations consultancy as he pursues further studies.

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