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Housing Finance | newsletter

FAQs

What is a Construction Loan and what does it entail?

A Construction Loan is a loan in which Housing Finance advances funds for the construction of a building and takes a financial responsibility over the payments during the construction phase. Housing Finance offers to lend for construction by giving a commitment of partial funding based upon the professional estimated value of the finished property as projected from the architect’s plans.

Does Housing Finance build, operate and transfer the property?

Ordinarily, Housing Finance’s role is limited to provision of construction finance. The owner of the plot being developed takes full responsibility for management of the construction, appoints the respective members of the construction team and is responsible for making good the loan facility. Housing Finance’s role will be limited to vetting the selected team. However, the Company has a wide range of strategic partners in the build and design industry who may be called upon where the client wants our support.

What type of security do I need to provide?

The property under construction is the primary collateral that one needs to avail. However, if one intends to build in rural areas there may be need for additional security within a municipality to secure the borrowing.

What is a Building Contract?

A Building Contract is a standard agreement outlining, inter alia, the schedule of conditions of the building contract between the borrower and the contractor/construction firm. It defines the parties to the agreement, the site details, the contract sum, the professionals required, schedule of conditions of performance and the contract term including the retention period, penalties, party obligations and such other terms.

Who is a Contractor?

This will be an established firm of good conduct, which may be registered with the Ministry of Public Works (contractor’s registration committee) as a certified building and construction firm in categories C, D, E or F.

What comprises a Construction Team?

Construction Team refers to the team of professionals that are appointed by the Project Manager to undertake the construction project. The professionals in the team should comprise of a qualified architect, quantity surveyor, structural and electrical engineers and a construction firm, or an acceptable combination of some of them depending on the size of the project. Where one firm has an in-house team of professionals, an independent project manager can be appointed to participate in the construction team.

Who is a Project Manager?

A Project Manager can be a professional Architect, Quantity Surveyor or a professional in any other branch of building engineering with a proven record of construction projects management. The Project Manager will be responsible for ensuring the design; project management activities and team are properly appointed and constituted to realize the project objectives. Where the Project Manager is a company, it must demonstrate acceptable experience in project management.

How is the loan disbursed?

Project payments will be in stages and each disbursement of the loan proceeds happens after an acceptable report of completed work is presented to Housing Finance. Final disbursement, less contractual retention, occurs when the house is completed and upon confirmation that an occupation certificate has been issued by the relevant local authority. All payments must be authorized by the client for payment.

What is a Performance Bond?

This is a guarantee obtained by the contractor to provide cover for either failure to complete or for costs to be incurred in the event of correction of poor workmanship, construction delays etc. This bond must run for at least two months than the last date of any contract obligation as will have been defined.

What are Retention Monies?

A building contract will normally state an amount to be retained from the payments to the contractor. This unpaid portion, usually called retention, is intended to cater for repairs and other works that may need to be undertaken to correct construction commissions/omissions by the contractor. The contract also stipulates the period the retention money will be withheld from the contractor. The project manager specified recommends disbursement of the retention at the expiry of the defined period, under a signed certificate.


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