Multi-home development, South Africa

Summary

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Shareholder’s Agreement

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Description

1.     Investment Objective
GrowMyHome (GMH) provides opportunities to the members to invest in the real estate market in the African Continent (initially South Africa and Nigeria) that should provide above-average returns on their investment.The existing property at 378 West is being rezoned to be redeveloped into a mini complex consisting of 7 units of bungalows and duplexes.

1.1.Project Details
The existing building consists of a six-bedroom house with three sections. One section serves existing tenants, and the other two sections have regular patronage from guests secured via Airbnb or Booking.comDuring the duration of the rezoning and subdivision, the existing building will continue to operate and generate income. This income will be shared pro-rata to all owners after deductions of all costs and taxes. Operational costs will be at competitive market rates.

Probable Scenario
Rezoning is expected to be completed by year four (see below for worst-case scenario), following which the process of the development of the mini-complex will be commenced. The complex will consist of four 3-bedroom duplexes, one 3-bed bungalow, and two 2-bed bungalows. To achieve this, the existing building will be repurposed into three units – one three-bed bungalow and two 2-bed bungalows. The four new duplexes will be built from scratch.The complex will be a sectional title development with stylish finishes targeted at a mid-market range. Each unit will have its demarcated spaces while the entire complex will have some shared, Communal spaces.Each of the units will be sold to home buyers during development.Upon sales of all the units between year 5 and year 7 the proceeds will be withdrawn and shared pro-rate to all investors. Ownership of the units will be transferred to new buyers and the deal will come to a close.

Worst Case Scenario
The rezoning is not approved by the latest year 4 and the entire property is sold off to new investors at the going rate of a rental unit complex. Investors will then have benefitted from the rental income during the period plus the expected annual growth of property prices in the area.

1.2.Basis for ROI
Existing Rental Income – with potential year-on-year increase. Participation in the upside upon sale of the property and share the profits resulting from the upgrades of existing buildings, new buildings, and price appreciation.

1.3.Project Owner:  378 West (Pty) Ltd

1.4.Due Diligence Provider
GIG Wealth  Pty Ltd is a registered Financial Service Provider, FSP 49233 and appointed by the management of 378 West (Pty) Ltd to provide governance and management oversight of the funds invested in the project.
GIG Wealth has extensive experience in the governance and management oversight of investments into assets and projects by ensuring compliance with legislative and regulatory framework.

2.     Registration of Investors
Before a person can start to invest, they must first be registered to be a member of Grow My Home’s Investor Group. To do this, the investor must complete an application form and activate their investor status when they make the first investment (minimum R1,000 or equivalent). Hereafter the investor can make further investments at any time at a minimum of R1,000. The investor will receive a welcome letter from GrowMyHome with a unique investor code to be used in future deposits.

3.     Investment Term

3.1.Payments & Financials
Investors will be able to make payments via Payfast or Electronic Funds Transfer.

3.2.Structure and security
Investors will be aggregated into a deal-specific ringfenced Company. Each investor owns a pro-rata share of the membership interests in the Company and as such, is entitled to certain rights that are described in the Shareholder Agreement, including the right to receive economic benefits from the Company. The Company will use the funds to invest directly into the project with 100% ownership. Thus, each investor’s share will reflect prorate the value of the share in the property.

3.3.Payout
During the investment duration, investors will earn income from rentals of the property. This income will be allocated to investors after all costs are deducted (see fees and costs). Investors may either withdraw yearly or accrue to be withdrawn at the end of the deal.At the end of the investment period, the GIG Wealth/ GMH will calculate the growth on the fund and make an allocation to the investor’s account. The aim will be to provide the investor with an average ROI over the duration of the project of 12%pa  In the event of the fund outperforming the 12%pa, the management of the project will share the portion of the extra growth with investors on a 50-50 ratio as a performance bonus.

3.4.Fees & costs
All fees are charged at the marketplace level as displayed on the marketplace at the time of the investment.  GrowMyHome will provide end-to-end management of the deal.  Its services will include:

• Management of the property during development. This includes the management of tenants and maintenance of the existing property. Grow my home or its agents will handle all property-related management at competitive market rates.
• Project management of the new development. This will include all stages from initiation to execution, including but not limited to council approvals, rezoning, architectural works, engineering, construction, conveyancing, and sales.
• Provide reports and statements for all investors,

Management costs on the property during the duration of the deal will be at competitive market rates, including the following.

• Property management agency – 12% of monthly rental income
• Cost of operational expenses including
  • Utilities
  • Maintenance and repairs
  • Security services
  • Accounting
  • Taxes
• Sales agent fee (payable at the point of selling in years 4 to 7) – 6%
• Property registration and transfer fees
• Fund management fees

4.     Rights:   See Shareholders agreement.

5.     Disclaimer
This proposal is for information purposes only and not advice to make an investment. Should the investor require investment advice he should contact his financial advisor. Any reference to a potential growth on the investment is for illustration purposes only and cannot be guaranteed.An investment is secured only by the value of the property and while the fund management will take all the steps necessary to mitigate risk and protect capital it indemnifies itself against any losses that may result from investment decisions.