For many people, owning their own home is a goal that appears to drift further away each year. In much of the world, house prices have accelerated at a pace that wages have been unable to keep up with, making property increasingly unaffordable for many. According to the most recent data released by the International Monetary Fund, global house prices have now recovered to the peak they reached prior to the global financial crisis – with further growth expected. This surge has dramatically increased the amount of credit people have been required to take out in order to purchase a home, resulting in growing interest fees. For those who are able to meet these high costs, a home loan from a bank still comes with a long list of restrictions and expectations that some may be unwilling or unable to undertake.
The idea had by the founding members of Global Housing was to develop a solution where people could join forces to cooperate on home purchases
Idrees Malik, Director at Global Housing, told Mrassociates that recent surges in Norway’s housing market have had a tremendous impact on affordability. From 2016 until June 2017, Oslo house prices surged by almost 23 percent, with prices in areas surrounding the capital city growing by between 15 and 18 percent. Norway’s other cities saw similar results, with price increases ranging between 17 and 20 percent. “Therefore, at the end of 2016, it was very difficult for first-time buyers to buy a property in Norway, because of the extremely high prices,” Malik said.
Prices have started to come down since June, however, having decreased by almost 13 percent. “It is starting to get a lot better now, but Norway is still a country with some of the highest housing prices in the world,” Malik explained. “For first-time buyers, it is a requirement from the banks in Norway that the buyer has at least 15 percent equity. For second-time buyers, the government has raised the requirement so that you must have at least 40 percent of the equity needed to purchase your second house, in Oslo.” With such difficulties currently facing both aspiring property owners and seasoned investors, demand is growing for alterative finance models that provide a better deal.
Established in 2007, Global Housing now has more than 10 years of experience in the Norwegian real estate sector. Idrees came to the company later, while his partner Sohail Malik (pictured) was one of the founding members a decade ago. Idrees Malik explained that the company’s financing model to help people purchase property is quite different to a traditional loan from a bank. “In 2007, Global Housing launched a concept that combined partnership and rentals to facilitate housing purchases. The company creates deals that are an arrangement between a shareholder and Global Housing to buy and rent a property in partnership. The idea had by the founding members of Global Housing was to develop a solution where many people could join forces to cooperate on home purchases, thus avoiding interest-based loans. This was mainly a solution for people who did not want to borrow money from the banks.”
Equity required for first-time buyers to purchase a house across Norway
Equity required for second-time buyers to purchase a house in Oslo
The procedure is reasonably straightforward. Global Housing enters an agreement with a shareholder to buy a property, with each providing a portion of the purchase price. “Today, the requirement is that shareholders have at least 25 percent of the residual sum in the form of initial capital in order to enter the contract of buying a house in partnership with our company,” Malik said.
From there, part owners have the right to buy Global Housing’s portion of the property sporadically over time, or through fixed instalments. Global Housing also has the right to purchase the part owner’s portion of the residence if they are not able to buy out the company. The agreement also gives the part owner the right to rent the property from Global Housing, allowing the shareholder to start living in the house immediately after it is purchased. The deal offers a pathway to home ownership without the traditional restrictions that accompany a mortgage.
Malik explained that this model offers a more collaborative arrangement between the individual purchasing the property and the supporting business than a bank loan does. “Borrowing money will, in most cases, make people dependent on the lender. This creates an uneven relationship, where the lender steps into a position of power over the borrower. Loans also have an aspect of uncertainty in them because of fluctuating prices in the market and subsequent fluctuations in interest rates.
“You are also living with a liability when you borrow money. In difficult economic situations, liabilities such as these can make a bad situation even worse. With Global Housing, you have much more predictability. Your future is much more foreseeable.”
Apart from people who do not want the liabilities associated with a home loan, or have had negative experiences in the past, there are other reasons why many don’t want a traditional loan. It is a perception among many Muslims that both the charging of interest and paying interest is not allowed, making many financial products unsuitable for them.
Malik said the size of Global Housing’s target market of people who cannot borrow money from a bank, for religions reasons alone, is about 20,000 people. “Our total market in the long run may amount to between 170,000 and 200,000 people in future years, according to figures from Statistics Norway.”
According to Malik, the company’s model is unique in Norway. “Global Housing has currently no competitors in Norway offering the same housing purchase in partnership and leasing. This is a cultivated concept that focuses on investment in the housing market, while also helping people who have limited opportunities to enter the dynamic housing market in the country.”
This target market extends to the housing construction industry as well. “The total market in housing construction can be difficult to put a figure on,” Malik said. “In 2015, around 30,000 homes were built in Norway. Having compared the 10 largest residential builders in the country, we see that they all build at least 500 homes a year. Global Housing aims to initially invest in at least three housing projects a year, of good quality and style.”
Building and growing
Malik explained that, so far, customers have entered into agreements with Global Housing with the intention of eventually fully owning the property. “This has been the case regarding 31 house purchases in partnership and rental between 2007 and 2018. How long it takes for them to purchase the property varies from case to case. Factors like how big of a share the customer starts our housing partnership with play a big part.”
Apart from arrangements with individuals seeking to buy a house, Malik said Global Housing has also applied its model to two housing development projects in Norway. “For the first project, Global Housing was both the landlord company and the biggest investor. For the second housing project, which is ongoing, Global Housing is just an investor. In charge of the building projects is Global Building, another company established by the same owners as Global Housing.”
It is a pertinent time to undertake housing development projects in Norway, Malik explained. The country has a well-established housing market, but the record year for house prices posted in 2016 suggests that demand for housing is still much higher than supply can provide. Naturally, this has led to a surge in demand for equity in housing purchases in Oslo. “This is something that, in turn, has provided incentives for us to invest in adjoining areas around Oslo,” he said. “Our first two housing projects are in an area between Oslo and Nesodden.”
Global Housing’s 10 years of experience in the region will be crucial to how it navigates the future. Indeed, prices declined by up to 10 percent in Oslo between June and December 2017, although they are now starting to stagnate.
Malik said the future for Global Housing looks both positive and international. The company has registered to operate in both Pakistan and the US, with ambitions to open there in the future. Additionally, Global Housing hopes to expand to Scandinavia, the rest of Europe and South Asia. Right now, the company is looking towards investment opportunities, professional enrichment and growing awareness of its business and model.
“In three years’ time, we will be at a stage where we will not only be financially independent and operating a large business, but also inspiring a large group of people through our success and our work,” Malik said. “By that time, we will have made the company self-sufficient; investments and capital will be growing continuously in a mechanism that creates increasingly larger dividends for our investors.”
Malik said that in five years’ time, Global Housing expects to be among the largest players in Scandinavian housing, and in 10 years will be operating on an international scale. The issue of house prices is a global one, and combining part-ownership with a rent-to-own model is likely to become more prevalent in the future.
“We are aware that purchasing a house can be one of the biggest challenges people face today,” Malik explained. “Therefore, Global Housing believes that providing people with alternative ways of buying homes will give them broader opportunities. We believe in a future where it will be possible to buy houses without taking out a mortgage or loan.”