Why are banks missing out on the container home loans market?
The real estate industry is being disrupted by the green modular building movement, in the form of prefabricated housing and container homes. It is tragic, however, that this industry’s creativity is not met with equal creativity by the finance sector with efforts to offer loans for these projects. It’s as if the suits are sitting in a corner with their eyes wide shut rocking themselves back and forth waiting in arid hope that container housing will go away.
The lack of a solid financier in the container housing and extended modular housing market has resulted in leading container home companies such as Contabode – based in Johannesburg – and Berman-Kalil Housing Concepts – based in Cape Town – to create their own financing solutions for their customers. The green building industry must, however, inevitably create strong financing solutions that will allow the modular building market to strongly compete with conventional real estate on a cost-convenience basis.The popularity of this construction method has been gaining traction for the past six years now, with big multi-storey malls such as Citiq Property Developers’ 27 Boxes mall in Melville and Propertuity’s Drivelines Studios multi-storey apartments in Maboneng making a strong case for the commercial adoption of this modern building technique.
Container real estate has become an accepted and sought-after alternative to conventional housing, and financiers would do well to adapt to this trend as the first to comprehensively service the sector will have a large claim of the market, as Al Ries and Jack Trout’s Immutable Laws of Marketing dictate.
Why the cold feet then? It’s a ripe market that has grown less and less ambiguous over the years, and the international community embraces the vision, so why the hesitation to fully service the market? Let’s attempt to view this from the financiers’ perspective.
Lenders are used to granting loans for homes being built on-site, and therefore their financing models release funds once the building is on site. The challenge here is that the bulk of modular building work (and the bulk of the cost as well) happens off site, and is only brought to site once it is ready for assembly. In this scenario you, the client, need to have at least 60% of the construction cost before having a hope of getting a loan. This creates a “chicken and egg” conundrum: you need money to build the house, to get the money, to build the house that will get you the money to build it.
In this type of lending environment, the best you can do is to make yourself very loanable. The lender needs security against your loan to ensure liquidity, so you might have to lend against an asset or two. Container home loans are granted on a case-by-case basis by major banks, so the better your credit history the better your chances of getting the loan. If you have a bad credit history, a deposit of 40% accompanied by a convincing, detailed, application should improve your chances as well.
Your container home builder can help you through this process by giving you all material required by your financier to assess your loan application and proceed with municipal application and/or registration thereafter. With the exponentially increasing number of people looking to buy container housing, lending institutions will need to urgently develop finance models that cater for such buyers or risk leaving the opportunity open to competitors.
Written by Tshepo Machethe
Tshepo Machethe is a 24-year old business communication practitioner by profession, and a serial entrepreneur by passion. Over the years he has started several companies that form the Statik Corp Group. He is the founder of Contabode, one of the first premium container housing companies in South Africa. Tshepo is an avid reader, passionate writer and, above all, a chess addict.