Receiver to manage the project, ensure financing institutions recover their money, and home owners get their houses
Maisara has experienced over two years of uncertainty over a property she bought at Palm Estate project in Kagugu, Kigali.
The project has been at the centre of a court battle between the developer and funders. Maisara is one of the scores of Rwandans that have lived in fear of losing their houses following the wrangles.
This anxiety could, however, soon end following an agreement signed between the developer, Ujenge Group, and financiers - Ecobank Rwanda and Shelter Afrique - to put the multi-million dollar project under receivership.
Home owners in the estate who paid up to 70 per cent down payment for the property will now have their houses secured under the new arrangement managed by Trust Law Chambers, as the receivers.
The deal was reached after the intervention of Rwanda Development Board (RDB) following a serious disagreement between Ujenge Group, the developer, and the financial institutions funding the venture.
The $12.6 million (about Rwf8.7 billion) project started in 2011, bringing on board Shelter Afrique and Ecobank, the co-financiers. Shelter Afrique contributed $6.5 million (about Rwf4.5 billion), while Ecobank added $2 million (about Rwf1.4 billion).
However, problems arose after Ujenge Group failed to raise its share of the equity, resulting into a move by the funders to force the developer out of the project.
This created anxiety among home buyers who petitioned court to secure their rights over the property.
The project’s funders also dragged Ujenge to court following non-remittance of the periodic payments. The apartments cost Rwf28 million (two bedrooms); and Rwf35 million and Rwf50 million for small and large three-bedroom units, respectively.
Louise Kanyonga, the RDB Registrar General, said the receivers will now take over the management and development of the project to recoup the money invested and ensure that home buyers secure their property.
In an exclusive interview with Business Times, Kanyonga revealed that the management of the property has since been transferred from Ujenge Group to Trust Law Chambers, a leading law firm in Kigali, under Richard Mugisha, the managing partner.
“We intervened to make sure that the financiers recover their money and those who had paid for homes in the estate retain rights over the properties they bought,” Kanyonga said.
She explained that the process is provided for by law, adding that it is fair for all the parties involved. Kanyonga said the developer, Ujenje, did not meet the loan obligations and, therefore, the only win-win solution was to put the property under receivership.
She noted that the decision was reached after extensive consultation with the banks and the developer.
“This, therefore, means that the property won’t be sold. The receiver’s job will be to implement the agreed management plan, including completion of the houses which may require hiring a different developer,” she said on Friday.
Once this is done, the banks will sale the property giving priority to those that had already paid, she elaborated. The receiver was selected from a list of three firms submitted to RDB.
“We were able to pick Trust Law Chambers basing on their experience on matters of liquidation and loan recovery,” Kayonga added.
Receiver speaks out
Meanwhile, Richard Mugisha, the Trust Law Chambers managing partner, said their mandate will be to protect the interests of both the funders and property owners. “We will first evaluate the property and also continue engaging all parties involved to achieve the desired outcome,” he said.
This would allow buyers who had paid up to 70 per cent for homes in Palm Estate to acquire their properties on completion.
What the developer, home owners say
Patrick Sebatigita, the proprietor of Ujenge Group and developer, said they have no problem with the new development, adding that the firm is ready to cooperate with the receiver to ensure home owners get their property.
“Actually, we were the first people to suggest this kind of arrangement, but Shelter Afrique was initially against it. We are okay with the deal as it expedites the development and completion of the project, ensuring that home owners get their property,” Sebatigita said.
However, it is not yet clear whether the new receiver will continue with the current developer or will look for another developer with the financial muscle to complete the project in time.
Lawyers representing the home owners, said all their clients want is to have their property secured as soon as possible regardless of the arrangements put in place.
When contacted about the issue, the Ecobank Rwanda managing director, Ndiaye Maareme Mbaye, was non-commital, saying the bank had taken a decision not to comment on the matter.
About the project
The first phase of the project consisting 32 affordable apartments sold out in pre-sales and owners have paid up to 70 per cent of the value per unit. That is why they petitioned court when they learnt that the funders wanted to pull out the project developer.
Ujenge Group conceived the idea of developing Rwanda’s first condominium project on a 7,000 square metre piece of land in Kagugu, an upscale suburb of Kigali.
The $12.6 million Palm Estate project was expected to be implemented in two phases. Thirty-two apartments were to be developed in the initial phase, while the second stage would consist of 103 units, eight penthouses and commercial space, according to documents from Ujenge Group.
Works for the first phase started in November 2011 and were estimated at about $2 million, but it was expected to be financed through pre-sales of the 32 proposed apartments.
The first phase was expected to be completed in October 2013. However, the developer seem to have run out of funds as work on at the project stalled.
In December 2014, more than a year after the project was supposed to have been completed, RDB intervened.
Sources privy to matter say RDB has since then been trying to find a solution through secret negotiations with all concerned parties to circumvent a costly court battle.
Genesis of problem
Real estate experts say to successfully implement such big projects, developers must first mobilise enough money. This could indicate that Ujenge embarked on the project before mobilising the required resources.
According to documents, the loan processing, an imposed change in design of the estate by City of Kigali delayed disbursement of money from Shelter Afrique, resulted into loss of over six months’ worth of project progress.
According to documents obtained by this newspaper, Ecobank disbursed money to the developer in two batches; one in September and another in October 2012.
However, their co-financier, Shelter Afrique, disbursed the first installment in December 2012 (two months after signing the loan deal). The second disbursement came in May 2013.
The developer started seeking a partner since they couldn’t raise their part of the funding. Sebatigita is the sole proprietor of Ujenge Group.
In September 2013, Ujenge contacted TLG Capital, a London-based private equity firm, that had showed interest in the Palm Estate project.
On October 27, 2013 TLG Capital, signed its terms of investment and, on November 17, the equity firm’s representatives came to Kigali to carry out due diligence on the project.
However, TLG Capital soon discovered that Ujenge was not financially stable and was shopping for an investor to capitalise the project. Shelter Afrique also found out that Ujenge was broke, which affected their working relationship.
Since Ujenge Group could not raise its own equity, it started negotiating for the restructuring of the project to allow for entry of TLG but this needed to be supported by Ecobank and Shelter Afrique.
Ecobank gave the developer a no-objection letter to the plan on March 12, 2014, and advised the firm to get the same from Shelter Afrique.
However, Shelter Afrique reportedly refused to grant a no-objection stand that would guarantee TLG’s entry.
As pressure continued mounting on the developer, the developer was forced to seek a meeting with Shelter Afrique.
During the meeting, Shelter Afrique asked Ujenge to pull out of the venture since the firm had failed to raise its part of the contribution for the project. Ujenge agreed to exit in the interest of project success.
It is reported that shortly after the meeting, Shelter Afrique wrote to the government expressing its concern about the developer.
Even when another investor, Phatisa, a South African-based equity firm, had showed interested in investing in the Palm Estate project, nothing came of it.
This new development, therefore, should raise hope of home owners who have waited for years to get titles for their properties. However, experts say it could take a while before works at the project can resume.