Secretariat to the STREAM TWO: Bridging the gap: Housing finance & policy Making finance work for Africa Making housing finance markets work for the poor Kecia Rust 3 rd Annual Affordable Housing Africa 19 July 2016 African Pride 15 on Orange Cape Town, South Africa
Cities are built the way they are financed Bertrand Renaud, 1984 The gap is visible: unequal development persists across African cities Kenya www.buzzkenya.com/poverty- kenya/ Sandton / Alexandra, Johannesburg www.unequalscenes.com Hout Bay / ImizamoYethu, Cape Town www.unequalscenes.com Page 2
The gap is massive: housing backlogs across Africa Concentrated in rapidly urbanising cities can we estimate the growth opportunity? Morocco (pop. 33.01m) Housing deficit of 800k units, growing 178K p.a. Cameroon (pop. 25m) Housing backlog of over 700k units Ethiopia (pop. 94.1m) Estimated deficit of 1mn units;; 100k annual shortage Ivory Coast (pop. 20.3m) Housing backlog of over 700k units Nigeria (pop. 173.6m) Housing backlog of 17mn;; annual shortage of 700k units Angola (pop. 21.5m) Housing deficit of over 1.9m;; estimated annual shortage of 100K Uganda (pop. 37.6m) Estimated annual housing deficit of 233k units Kenya (pop. 44.4m) Housing backlog of 2m units;; estimated annual deficit of 200K units Source: Presentation by Dr Issa Faye to the AUHF Conference, 26 October 2015. AfDB Research quoting CAHF, UN-Habitat, National Sources South Africa (pop. 53m) Housing deficit of 2.1m units;; an estimated 1.5m households live in slums Page 3
Five stories characterise Africa s housing finance markets in 2015/16 1. Innovation in financing 2. Growing awareness of the opportunity in residential 3. The identification of niche markets and an appreciation of the affordability challenge 4. Policy & regulatory evolution to match investor interest 5. Growing experience and investor interest The Housing Finance in Africa 2015 Yearbook can be downloaded from http://www.housingfinanceafrica.org/document/20 15-housing-finance-in-africa-yearbook/ Page 4
1. Financing Most countries offer mortgages at rates above 10%, and for less than 20 years, highlighting very real macro- economic issues that challenge housing affordability. In Malawi, one might as well buy a house with a credit card. 35,00 Prevailing3mortgage3interest3rates,3and3term Mortgage3interest3 rate3(%)3and3term3(years) 30,00 25,00 20,00 15,00 10,00 5,00 0,00 Malawi Uganda Sierra3Leone Nigeria Gambia Mozambique Comoros Tanzania Zambia South3Sudan DRC Rwanda Kenya Burundi Cote3d'3Ivoire Central3 African3 Angola Cameroon Benin Burkina3Faso Seychelles Zimbabwe Eritrea Madagascar Ethiopia Guinea3Bissau Senegal Mali Namibia Lesotho South3Africa Djibouti Libya Togo Chad Mauritius Niger3 Somalia Tunisia Liberia Ghana Algeria Morocco Egypt Mortgage3Interest3Rate3(%)3 Mortgage3Term3(years)# Page 5
1. Financing African mortgage markets are tiny (and data is limited). Lower interest rates seem to correlate with larger mortgage markets. Mortgage3to3GDP3vs3prevailing3mortgage3interest3rate3and3term Mortgage3to3GDP3(percent) 30 25 20 15 10 5 0 28 22,54 22,15 18,21 15 35,00 30,00 25,00 20,00 12,99 15,00 9,25 10,00 6,59 3,85 3,64 3,53 3,31 5,00 2,83 1,29 1,16 1 1 0,9 0,58 0,5 0,5 0,49 0,46 0,34 0,25 0,14 0,07 0,07 0,00 Mortgage3interest3 rate3(percent)3 and3term3(years) Average3 Mortgages3%3 of3gdp Mortgage3Interest3Rate3(%)3 Mortgage3Term3(years)# Linear33(Mortgage3Interest3Rate3(%)3) Page 6
1. Financing: innovative responses to constraints Real Estate Investment Trusts Internationally accepted investment structure Aggregators: enabling big money to meet small projects Assists investors diversify their targets In Kenya, Tanzania, South Africa, Zimbabwe: different versions of Development REITs and Investment REITs Housing microfinance Niche market lenders: Select Africa NGO / commercial linkages: REALL, Habitat for Humanity International Central Bank attention on this link in the value chain Increasing industry organisation Useful link into SME lending sector Mortgage liquidity facilities EMRC 2007 / TMRC 2010 / CRRH 2012 / NMRC 2014 Shareholders are government, investors & mortgage lenders lenders have skin in the game Increase the availability of long- term funding, so lenders are confident to lend over longer terms, and builders confident to build Reduces cost of funding, so reduced lending rate, making housing loans more affordable Reduces barriers to entry for smaller mortgage players Standardises the mortgage market, making it easier for investors to understand risk & engage with all the players New models to go down market Rent- to- buy Employer- supported housing Social rental & small scale landlordism Page 7
2. Growing awareness of the opportunity of residential Global Insights from the Financial Times The Middle Class Growth Story The FDI Story Page 8
3. Affordability: In many countries, only a minority of urban households can afford even a US$10 000 house Malawi: 3% Mozambique: 10% Zambia: 26% Ethiopia: 3% Ghana: 11% Tanzania: 2.4% In some, a $10 000 house might make quite a difference Nigeria: 55% Zimbabwe: 50% South Africa: 65% Cote d Ivoire: 74% Senegal: 74% Angola: 73% http://www.housingfinanceafrica.org/calculating- mortgage- and- housing- affordability- in- africa/ Page 9
3. Affordability is a factor of house price, household income, and lending terms Angola Source: C-GIDD (Canback Global Income Distribution Database www.cgidd.com). Data accessed in August 2015 Angola s housing backlog is about 1,9m units. In 2015, the cheapest house being built by a private developer in Angola was US$200 000. At current lending rates, only 2,2% of the urban population can afford this. Average household income in urban areas is only 9% of what is needed to afford this house. Some governments are championing the potential of Megacities in an attempt to get scale to resolve the affordability challenge. This is not yet working most housing in these new cities are for higher income earners. Page 10
3. Affordability is a factor of house price, household income, and lending terms >*$50*000 $25*000)$50*000 $14*000)$25*000 $8*000)$14*000 $5*000)$8*000 $3*600)$5*000 $2*400)$3*600 $1*600)$2*400 $800)$1*600 <$800 Thousands $*8*821 $*4*140 3000 2500 2000 1500 1000 500 0 500 1000 Average*income*needed*for*the*cheapest*newly*built* house*by*a*formal*developer,* 2015 Rural Urban. 10% Average*Annual*HH income,* urban* 2014 Kenya Source: C-GIDD (Canback Global Income Distribution Database www.cgidd.com). Data accessed in August 2015 Kenya s housing backlog is about 2m units. The cheapest newly built house built by a private developer in Kenya, 2015, was US$17 000. Even this is only affordable to about 10% of the urban population. The income required to buy this house is double the average annual household income in urban areas. There is a disconnect between the price of formal, developer- built housing and the affordability of the population. The vast majority of the population across the continent live in houses they built themselves, with various degrees of success and quality. Can developers & investors shift their emphasis to meet the needs of the majority? Page 11
3. Affordability is a factor of house price, household income, and lending terms >)$50)000 Rural Urban Malawi $25)000($50)000 $14)000($25)000 $)14)666 $8)000($14)000 $5)000($8)000 $3)600($5)000 $2)400($3)600 $1)600($2)400 $800($1)600 $)2)103 <$800 Thousands 2500 2000 1500 1000 500 0 500 Average)income)needed)for)the)cheapest)newly)built) house)by)a)formal)developer,) 2015) Average)HH income,) 2014 Source: C-GIDD (Canback Global Income Distribution Database www.cgidd.com). Data accessed in August 2015 In 2015, the cheapest house being built by a private developer in Malawi was US$14 100. At current lending rates (32% over 15 years), only 1,1% of the urban population can afford this. Average household income in urban areas is only 9% of what is needed to afford this house. Page 12
3. Given affordability challenges, where are the opportunities? Exploring the potential book size with prevailing mortgage rates and the distribution of household incomes Mozambique Real opportunity is in non- mortgage housing finance and incremental housing construction 1. Increase scale delivery of lower- priced housing. 2. Deconstruct the housing delivery process to accommodate smaller loans, and build housing incrementally, but at scale. 3. Resolve macro- economic issues to address finance costs Page 13
3. Affordability: (1) Increase delivery of lower cost housing If we reduced the cost of the house to US$5 000, we change the number served, considerably Malawi: 3% > 6% Mozambique: 10% > 31% Zambia: 26% > 51% Ethiopia: 3% > 16% Ghana: 11% > 26% Tanzania: 2.4% > 11.3% Shelter Afrique is championing the $5000 challenge The initiative seeks to challenge developers, stakeholders, countries, to come up with a house costing 5000 dollars and we will match the financing and commission 5000 units. http://www.housingfinanceafrica.org/calculatin g- mortgage- and- housing- affordability- in- africa/ Page 14
3. Affordability: (1) Increase delivery of lower cost housing Construction costs vary significantly across the continent: combination of policy & regulatory issues, materials costs, labour, market dynamics, and Generic house specs: Land = 120m 2 House = 46m 2 Veranda = 9m 2 CAHF research in progress Currently underway, to be launched at AUHF Conference in Abuja, September 2016 Page 15
3. Affordability: (2) Deconstruct the housing delivery process Example: Incremental housing in Angola KixiCredito (Angola s first non- bank MFI) offers a housing microloan product: KixiCasa 36 month sequential loans up to $2500 per phase per house: 97% repayment on initial pilot Raising further capital to grow loan book Development Workshop as developer 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 Page 16
4. Policy & regulatory evolution Number of days, and cost, to register a commercial property: 2015 vs 2012 Number+of+days+to+register+a+commercial+property 300 250 200 150 100 50 25,00 20,00 15,00 10,00 5,00 Cost+of+registering+a+commercial+property+(%+of+property+value 0 0,00 Days+2015 Days+2012 Cost+(%+of+property+value)+2015 Cost+(%+of+property+value)+2012 Source: World Bank Doing Business Indicators, 2012 & 2015 (www.doingbusiness.org/data/exploretopics/registering- property) The time and / or cost is coming down in many countries: Time: Rwanda, Burundi, Morocco, Lesotho, Cote d Ivoire, Guinea Bissau, Sierra Leone, Senegal. Up in Namibia Cost: Rwanda, Malawi, Angola, Mozambique, Niger, Togo, DRC, Cote d Ivoire, Comores, Sierra Leone, Senegal, Nigeria. Up in Zambia, Namibia Page 17
4. Policy & regulatory evolution Government interest & reporting Kenya Central Bank Report Tanzania Central Bank Report Nigeria Housing Finance Hub (NMRC) Page 18
5. Growing experience and investor interest Housing Finance Kenya s approach to the capital markets Source: http://www.housingfinanceafrica.org/document/case- study- 7- the- transformation- of- the- housing- finance- company- of- kenya/ Page 19
5. Growing experience and investor interest NGOs and social movements adopting commercial practice REALL, with NGOs in in Mozambique, Malawi, Kenya, South Africa, Tanzania Habitat for Humanity Kuyasa Fund, South Africa NACHU, Kenya Lenders broadening their business model to accommodate opportunities and engage with constraints Select Africa in Malawi, Kenya, Swaziland KixiCredito in Angola Trust for Urban Housing Finance in South Africa Shelter Afrique Investors coming better to understand their niche markets International Housing Solutions Phatisa s Pan African Housing Fund Lions Head Global Partners Investors into HF Group Page 20
5. Growing experience & investor interest African Union for Housing Finance was established in 1984 and has 50 members across 17 countries Membership includes mortgage and non- mortgage lenders, housing development corporations and developers, and investors Page 21
Thank you! Kecia Rust kecia@housingfinanceafrica.org www.housingfinanceafrica.org www.auhf.co.za +2783 785 4964 Page 22