Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Analysis of Real Estate Business in Somalia: Current Trends, Challenges and Prospective Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Outline Background Challenges in the real Estate business: from property seeker point of view Challenges faced by real estate developers Recommendations Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Background Factors contributing to the demand for both residential and commercial real estate Somalia is recovering from the tragedy caused by political instability and civil war which lasted for more than two decades Increase in the population of Mogadishu city as result of many Somali diaspora return to the country Rural urban Migration improving security situation Growing middle class families ( Educated and working) Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

The banking sector in Somalia has taken number of initiative to take advantage of the growing property market by building a large number of houses with differing size in the city Darussalam city and Safari apartments are the earlier pioneers of real estate business in Somalia Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Challenges in Real Estate: From Buyer Perspective Even though there is a great demand for both residential and commercial properties and the existence of potential opportunity, the real estate industry is not without challenges. The challenges are not only limited to property market but are found in different sectors of economy Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Challenges in Real Estate ( Continued) Challenges include: Repayments period ( Short term loan) According to the requirement of most banks in Somalia, property seekers willing financing from banks are usually required to pay the loan maximum in three years. 95% of the respondents have considered as major challenges that halts property seekers from achieving their dream to have a house in the growing city of Mogadishu, Somalia. Example : if house cost 75,000 USD with a down payment of 30% and Murabaha charge rate of 15%. Period of payment 30 months . The buyer is required to pay every month 2,012 USD It is true that most of the middle class families are not be able to afford paying $ 2,012 per month. Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Down Payment Value An initial payment made when something is bought on credit Most of the banks charge a down payment between 20% and 30% after fulfilling other requirements. Example : if house cost 75,000 USD with a down payment of 25% and Murabaha charge rate of 15%. Period of payment 30 months . The buyer is required to pay approximately 21,562.5 USD as down payment. For some banks, Down payment is optional Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Murabaha Rate Banks charges a Murabaha fee between 12% and 30% on net cost of the house or the land Some banks charge Murabaha rate on Cost of the asset minus down payment. 75% of the respondents indicated that the fee or rate is too much and consider as challenge for property seekers. For instance, if house cost 75,000 USD with a down payment of 25% and Murabaha charge rate of 15%. Period of payment 30 months Under this example, the minimum Murabaha value will be 11,250 Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Limited Real Estate Investors There is limited investment in real estate development in Somalia despite the number of banks that offer loans to property seekers Real Estate Industry lacks real development enterprises and other credit financial institutions capable of mobilizing of funds and lending money to both real estate developer and property seekers. Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Value of Residential Property ( Cost) Majority of the respondent questioned under this study have indicated, due to the sales price of the asset, they cannot afford to buy the residential property. The question is How many middle class individuals are able to buy a residential property valued at 75,00 USD. Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Challenges in Real Estate sector: From Property developer’s Perspective Reliability of information provided by the property seeker Property seekers seeking finance from the bank for buying land or house are required to provide financial statements to the respective banks. If the property seeker is an individual not a company, they are also entitled to proof their financial ability to pay the stipulated monthly installment payment Investors also indicated that the lack of the appropriate mechanism such as auditing firm to verify the information poses greater risk to their investment in real estate business. Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Land issues The lack of Land law (land act was not passed in Somalia specifically since the collapse of Somali central government in 1991 Fluctuation in the price of land in the city Disputes over land ownership Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Recommendations In line with the finding regarding the challenges faced by both parties, the study recommends the following for solving the problem that limit the real estate sector: Banks provide long term loans of more than three years to those willing to buy houses or land. Such offer by the banks would encourage more property seekers to apply for financing to buy house Banks employ other alternative investment and financing methods such as Istisnaac The study also recommends bank reduce the Murabaha fee charged to property seekers on the initial investment. Low Murabaha fee would make house affordable to many middle class families. Government of Somalia set up real estate board, develop laws and specific guidelines for real estate agents activities. Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Finally, Applying the above mentioned recommendations and others will help both property seekers and real estate developers overcome the challenges that that befall. Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia

Thank you very much for listening my presentation and I hope that it was fruitful and wonderful Presented by Ahmed Khadar Abdi Jama at 2nd Conference of Enreprenuership and Business, SIMAD University Main campus, 24-25 December 2016 in Mogadishu, Somalia