Pro-Poor Urban Development: China and Africa Workshop - "Affordable Housing Finance in Africa ", Kecia Rust 07/30/2012

1. 1
Affordable Housing Finance
in Africa
Issues and opportunities
Kecia Rust
Pro-Poor Urban Development: China and Africa Workshop
Co-organised by Mazingira Institute, Centre for Chines Studies, Peking University and
Development Workshop
Nairobi, 30 July – 1 August 2012

2. 2
Kampala, Uganda
Photos: radiomuqdisho.net and elcivics.com
Two sides of African cities: strong
growth, clear demand, but poor

3. 3
Fabulous growth
“Africa’s growth acceleration resulted from
more than a resource boom. Arguably more
important were government actions to end
political conflicts, improve macroeconomic
conditions, and create better business climates,
which enabled growth to accelerate broadly
across countries and sectors.” McKinsey (2010) Lions
on the move: The progress and potential of African economies
“Sub-Saharan Africa is changing. The region’s
resilience to the global financial crisis of 20082009 demonstrates this. It experienced a
slowdown in growth to 2.8 per cent in 2009,
before staging a robust recovery to 5 per cent in
2010. The only other two regions that
experienced a slowdown in growth, rather than a
recession, were developing Asia, and the Middle
East and North Africa. This is a commendable
performance.” FitchRatings (2011) Sub-Saharan Africa.
Outlook and Challenges: Special Report. First published in World
Economics 12(2) in July 2011.
Source: FitchRatings 2011
Performance in a number of key countries in Africa is
attracting investor interest.

4. 4
Massive urbanisation
80
2000
70
2030 (es mate)
60
50
40
30
20
10
E
ZI
M
BA
BW
BI
A
ZA
M
BI
A
E
GA
M
IA
TH
TA
NZ
AN
UG
AN
DA
A
AF
RI
C
H
UT
RI
A
NI
GE
IB
IA
RW
AN
DA
SO
M
NA
M
IU
S
OZ
AM
BI
QU
E
I
M
AU
RI
T
M
AL
AW
NY
A
KE
A
GH
AN
BO
TS
W
AN
A
0
Source: UN-Habitat (2005) Financing Urban Shelter. Global Report on Human Settlements.
Urbanisation rates mean more people are seeking
accommodation in urban centres.

5. But…. tiny mortgage markets
35,0%
Mortgage debt to GDP
30,6%
30,0%
25,0%
20,0%
20,0%
15,9%
15,0%
12,6%
10,0%
5,0%
2,5% 2,4% 2,3% 2,0%
Ke
ny
a
Rw
an
da
Bo
ts
wa
na
Se
ne
ga
l
Al
ge
ria
Ug
an
da
Ca
m
er
oo
n
Eg
yp
t
Gh
an
a
Ni
ge
ria
Ta
nz
an
ia
Ce
Ch
nt
ad
ra
lA
Ga
fri
bo
ca
n
n
Re
pu
bl
ic
Gu
Co inea
ng
o,
Re
p.
Tu
ni
sia
co
or
oc
ib
ia
Na
m
M
So
u
th
Af
ric
a
0,0%
1,2% 1,0% 0,5%
0,4% 0,4% 0,4% 0,2% 0,1% 0,1% 0,1% 0,1% 0,0%
Source: World Bank data, provided by Simon Walley
Why? And if not with mortgages, how do people finance
their housing situation?
5

6. 6
Affordability of consumers
According to the World Bank, only
3% of the population in Africa has
an income sufficient to support a
mortgage
In most cases,
subsidies don’t
bridge affordability
to buy a new house.
In others, they
cause new
affordability
challenges.
18.8% earn above US$20 per day
10.8% earn US$10 - $20 per day
9% earn US$4 - $10 per day
24% earn US$2 - $4
per day
36.5% of Africa’s population earn
less than US$ 2,00 per day. This is
the international poverty line.
Source: AfDB Report on
the middle class, 2011
In part, this has to do with low levels of affordability for
mortgage finance

7. Access to affordable,
serviced land
Access to finance
Term mismatch
Limitations on capital
Functioning land registries

Rwanda / Uganda / Tanzania /
Zambia all developing

Title deeds & registered land


Mauritius & Seychelles
Speculation


Tanzania
Angola
Infrastructure


Backlog estimated at US$93
billion for Africa
Municipal capacity constraints
Pension funds restricted from
investing in housing
Barriers to investment
Ghana / Mozambique
Benin: 3.2% of households have land
title. Total titles, 22 820 (2006)

Land for housing vs. other demands

7

And very
limited
affordable
housing
supply
Exchange control regulations &
risk
Tiny markets
Better return options


Government bonds
Short term / high churn
microloans
Value chain constraints



Project/construction finance
End user finance
Market makers
Other challenges relate to a constrained
housing delivery & finance system:
these demand policy attention

8. 8
A more nuanced approach opens up opportunities
According to the World Bank, only 3% of
the population in Africa has an income
sufficient to support a mortgage
1. Bring
mortgages downmarket (and make
houses cheaper).
2. Grow &
develop housing
microfinance.
5. Build solid data / information
platforms to sharpen & target
investments and incentives
18.8% earn above US$20 per day
10.8% earn US$10 - $20 per day
9% earn US$4 - $10 per day
24% earn US$2 - $4
per day
3. Finance rental
housing
4. Target subsidies
carefully
36.5% of Africa’s population earn
less than US$ 2,00 per day. This is
the international poverty line.
6. Pursue policy
interventions
along the value
chain
Source: AfDB Report on
the middle class, 2011
New players are beginning to carve out niche markets, serving a
wider population / policy makers are recognising the value of
partnerships

9. 9
1. Bring mortgages down-market (& make houses cheaper)
 Home Finance Guarantors
Africa Reinsurance Limited
 Established in 2008 by South
Africa’s Home Loan
Guarantee Company
 Working with local insurers to
provide “collateral
replacement indemnity” for
low-moderate income earners
 Tanzania: 18 June 2012
 Rwanda: July 2012
 Ghana: 3 February 2012
 Zambia:15 June 2012
 Tanzania Mortgage Refinance Facility
 Mortgage liquidity facility for primary mortgage
lenders
 10 shareholding banks
 Reduces cost of funding so reducing lending
rate
 Standardises the mortgage market
 … also in Egypt, Nigeria
 Kenya’s Jamii Bora Makao
 Founded in 2007, originally only housing
microfinance – now full range of servies
 Flagship is Kaputei New Town: 2000 low and
middle income units
 Micro mortgages and reduced costs of
construction
A number of players are innovating in this space, promoting
the development of affordable housing

10. 10
1. Bring mortgages down-market (& make houses cheaper)
Source: email correspondence with practitioners in August 2011 – this data is indicative only
There is a link between the size of the house and its cost.
Cement prices are also a factor, as are minimum stand sizes

11. 11
1. Bring mortgages down-market (& make houses cheaper)
Source: email correspondence with practitioners in August 2011 – this data is indicative only
There is a link between the size of the house and its cost.
Cement prices are also a factor, as are minimum stand sizes

12. 12
2. Grow and develop housing microfinance: Angola

KixiCredito (Angola’s first non-bank MFI) offers a housing
microloan product: KixiCasa



Development Workshop as developer


36 month sequential loans up to $5000 per phase per house
Raising further capital to grow loan book
Partnership with CLIFF to scale up: 3000 home, incremental housing
project in Huambo. CLIFF provides infrastructure financing; KixiCasa
end user finance
HabiTec is a social enterprise supporting KixiCasa loans:



HabiTerra provides settlement planning, land registration and land
allocation services – support to provincial government with
participatory urban planning
AquaSan improves rural water supply, builds water systems
Wood factory produces furniture & other goods for homes and schools
Examples from Angola, Malawi, Kenya, Tanzania,
Zimbabwe, Uganda and elsewhere show real progress

13. 13
2. Grow and develop housing microfinance: Malawi
Select Africa / Habitat for Humanity
International partnership
Select (private sector MFI) provides HMF
HfH provides construction technical assistance – cost
covered by Select
1900+ households served in Blantyre & Lilongwe – 40%
of Select clients
Plans to grow to other urban centres
“site visits are an invaluable branding
opportunity for both Select and HfH”
Future plans
 Refining overall cost model for CTA to increase capacity,
offer more services
 Getting to the client before they start construction
 Increase volume of site visits and inspections
Off-site CTA
•Technical information,
leaflets, sample plans
•Professional services &
training: meeting with client
regarding plans
On-site CTA
•3 levels relating to
complexity of project and
level of TA required
•Different professionals for
different tasks
•Multiple visits
The need to link HMF with the housing supply sector (through construction
technical assistance & other support) make this different from traditional
microlending and supports a good housing outcome.

14. 2. Grow and develop housing microfinance
In Kenya:
14
•
Rooftops Canada coordinated $83,400
commitment from Co-op Housing Federation of
Canada to match $250,000 funding from CIDA to
create a Fund.
Part of this has been used as guarantee to
leverage a loan to NACHU (National Cooperative
Housing Union) from the Co-op Bank of Kenya
over 62 months, for HMF.
Loan sizes <Kshs 400 000
MicroBuild Fund: $50m fund established
by Habitat for Humanity International,
providing debt capital and technical
assistance to MFIs to grow HMF
•
New Urban Finance Facility for Africa:
catalytic investment fund to support HMF
and finance for basic services initiatives
Africa: Phase 1 in Ghana, Kenya, Uganda,
Tanzania, West Bank. Target $100m
Group loans for land purchase can be higher
Max term 48 months, many shorter
•
CLIFF (Community Led Infrastructure
Finance Facility): established by
Homeless International, in multiple
countries in Africa
Further loan to NACHU from Canadian Fund
helped secure a large piece of land
660 families benefiting from combined facility
New funds see promise in housing microfinance products and
approaches: big challenge is the development of sound capital
structures – space for DFIs to offer advisory services

15. 3. Finance rental housing
 Niche markets are
undersupplied




Urban workforce
Student housing
Transitional housing
Housing for the elderly
In South Africa, International
Housing Solutions and the Trust for
Urban Housing Finance are building
a strong track-record in how to build
and finance rental housing.
 Different housing types &
landlords offer new
opportunities:




Inner city building rehabilitation
Inner city building conversions
New construction
Backyard dwellings
 Small-scale landlords
 Developers
 Institutional landlords
Rental housing creates an investment class of sufficient size and
stature to attract long term investors such as pension funds
15

16. 4. Target subsidies very carefully: South Africa
1994 housing subsidy
policy
1 million houses in 5 years  ± 3
million in 18 years
But not enough: backlog the same as
1994 (2.1m houses)
New gap market created
2012 Presidential
announcement
Finance linked subsidy
Mortgage guarantee
Tax incentive to developers
Gap market
(25%): housing
too expensive
Subsidy eligible
population (60%):
free house
≤R300 000 (±US$37 000)
Informal settlement upgrading
South Africa’s housing subsidy history and current
interventions offer useful lessons: beware of risks of crowding
out market participation and growing a ‘gap market’
16

17. 5. Build solid data / information platforms to sharpen
& target investments and incentives
Data is most easily accessible in South Africa, but even there,
markets are not segmented so market intelligence for the low
income sector is limited.
Systems should be put in place now to monitor market development
and promote greater investment throughout the income pyramid.
17

18. 6. Pursue interventions along the value chain
prop right land
dev.
finance
infrastr.
services
constr.
industry
18
end-user
finance
Development of cadastral systems & registries, access to secure tenure (need not
be ownership)
Estate agency, conveyancing, information systems / stands for
sale, integrated developments
Equity investment; integrated financing
Products appropriate to borrower composition / more lenders with
capacity, include incremental housing approaches and finance
Accelerate housing supply / Delivery of building materials
/ small scale contractors / large scale developers/
diversified industry
Infrastructure investments & delivery;
long term financing
Government departments and DFIs need to get beyond
the narrow silos of finance, land & housing

19. 19
Thank you!
Kecia Rust
kecia@housingfinanceafrica.org
www.housingfinanceafrica.org
+2783 785 4964