A huge earnings potential is waiting to be tapped in new US housing projects as the residential property development sector there has yet to fully recover from the 2007-2010 subprime crisis, land asset management Walton Global shared with IFN Investor.
James Buchanan, the firm’s managing director for Southeast Asia, said the US housing industry statistics show a current shortfall of around two million homes – resulting in house prices on the rise due to supply constraints.
“With high financial commitments sunk into housing projects for around two years before earning any money from sold properties, access to appropriate financing is critical for any developer which wants to be viable enough to deliver successfully to buyers.”
Walton, a provider of such financing to US property developers, recently formed a partnership with Koru Family Office of Singapore to expand its access to extra financial resources by tapping investment sources outside the US.
To help ensure maximum reach to both conventional and Muslim investors, Koru and Walton mutually agreed to have operations at the Singapore-domiciled fundraising outfit to be Shariah compliant – with certification and annual audits by Masryef Advisory of Malaysia.
Koru co-founder and CEO Adrian Ong Yew Chong explained investors have two entry points into this Shariah compliant scheme – called the US Homebuilder Income Fund – with either a minimum US$1 million or US$15 million, earning annual dividends of 10% and 11% respectively.
With the initial investment period open till June 2025 and targeting to secure at least US$100 million in commitments, investment cash calls will be made periodically when funding requests for US projects come from Walton’s associated firm GRT Management.
Operating as a five-year close-ended fund with the option of double one-year extensions, the clock starts ticking from the June 2025 closing, said Adrian. Once some of the completed houses are sold, capital repayments will also begin at around the two-year mark.
James explained this Singapore Shariah fund is linked to a deal that Walton had inked with DR Horton, which was the largest residential property developer in the US by public housing transaction volume in 2022. “A land plot is parked with Walton with a 15% down payment and DR Horton also pays a fixed rate regular premium for Walton to carry that land.”
The Singapore Fund is able to earn regular income from its provision of finance to the underlying projects. Accordingly, the fund targets quarterly dividend payments to investors – matching the regular payments by DR Horton.
“Parking the land with Walton unlocks the remainder in cash value for DR Horton to use for development costs and the houses typically take about two years to complete. It then takes about three to five years for the houses to be fully sold off,” James explained.
Hence, the Singapore Shariah fund’s validity period of up to seven years matches this housing property business cycle, said Adrian, but expectations are for full repayments to be completed within five years.
While there is no upper limit set for this first US Homebuilder Income Fund in Singapore, James said the cash call requested by DR Horton via GRT Management should top out at around US$1 billion as it would make more sense to structure a new fund for separate property development phases.
“In view of this outlook, we have created an umbrella structure for Shariah compliance so that it will be convenient to launch more sub-funds when the need arises,” said Adrian.
