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Investment in Affordable Housing and Housing Microfinance in Africa
Barbara Hewson
CEO, New Urban Finance Facility for Africa Fund Manager: NewLine Investment Advisors
144 East 44th St. New York, NY 10017 USA
Focus on Africa
Investment opportunities to stimulate real-estate related lending in Ghana, East Africa, and South Africa, based on:
– Recent past investment experience
– GDP growth
– Relatively stable politics
– Rising household income
– Government support to expand affordable housing and housing finance
– Capital markets exit potential from investments
What attracts investment in real
assets and related lending
• Rising income levels
– Increasing disposable income and purchasing power
What attracts investment in real
assets and related lending • Housing demand by end users, with local FI’s seeking to serve
end users in this segment
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Composition of African Consumption by Household Income Bracket
(% income based on 2005 PPP dollars)
Other
Telecom and other
serivices
Transport
Housing
Consumer Goods
Source: McKinsey, Lions on the Move
Total Consumption Demand
• Africans spent US $860 billion on goods and services in 2008: – 35% more than the $635 billion spent in India, – Slightly more than the $821 billion spent in Russia
• If Africa maintains its current growth trajectory, consumers will buy
$1.4 trillion worth of goods and services in 2020 – A little less than India’s projected $1.7 trillion – More than Russia’s $960 billion
• Housing expenditures in particular are projected to grow by
approximately $100 billion from 2008 to 2020 (to $242 billion), at a compound annual growth rate of 4.5%
(McKinsey and Harvard Business Review data)
Constraints on Investment
Cost or lack of availability of:
• Public infrastructure
– Transportation
– Basic services: water, sanitation, electricity
– Urban planning (streets, schools, shops, other amenities)
• Land or secure tenure property
• Building materials
• Construction finance, takeout finance
Constraints on Investment (cont.)
Capacity issues • Limited capacity and capital in real estate development sector
outside of South Africa • Housing support services unavailable for progressive home
improvement – House plans, architectural and engineering advice, building code
compliance advice, bulk purchase options for building materials
• Community organization gaps and gaps in self-help savings programs
• Weak support or ties with local, regional, national government programs
• Lack of coordinated use of subsidy and donor funding
What should policy makers do
• Focus on where the needs are: urban as well as rural
• Support housing markets in a holistic fashion – Integrating infrastructure development, community-based urban
development, building codes and planning and urban design, public and private funding sources, subsidy for the neediest, and progressive home improvement as well as green-field development schemes
!
What should policy makers do • Support non-standard housing finance solutions, because
mortgage markets reach only the top few in Africa
• Promote growth of well-regulated FI’s lending to real estate developers and housing microfinance borrowers
Source: Centre for Affordable Housing Finance in Africa
What investors should communicate
• Affordable housing projects need developmental support, solid financial analysis and project planning to be bankable
• Housing microfinance must be designed to reach those with informal incomes
– While ensuring that financial products are suitable for and affordable to target borrowing population
• Investors require a clear investment structure, good project management and predictable returns – for affordable as well as high end housing projects
Role of local financial institutions
• Banks in Africa have higher liquid assets and lower lending rates than banks in other regions, with the exception of the Middle East
• Possibility for expansion of lending and consolidation in banking sector; and bringing MFI’s into formal banking
!
Role of Catalytic Impact Investment
• Private equity/catalytic investment role in increasing availability of construction finance, rental housing finance, takeout finance through local financial institutions
38%
43%
15%
4%
NUFPor oliobyTypeInvestment
Project-relatedInvestment
BankTierIICapital
RegionalProgramEquity/1stLoss(IFC/KfW)
CashReserve
74%
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Por olioInvestmentsbyPopula onImpact
Micro
Mixed
Capital markets role
• Financing at regional and national level for: – Financial institutions,
– Building materials suppliers
– Real estate development companies
– Other service providers
• Exit for private equity/catalytic investment
• Asset-based funding source – Structured finance
– Securitization
Capital Markets role and exits less likely in smaller countries
• Making consolidation through regional M&A more likely
Investment example: Ghana
Investment through local banking partner in construction finance and takeout finance of mixed-use low-income low-rise building Shop rentals and toilet and shower block revenues lower cost of units to low-income purchasers Up to 50% of the construction cost can be financed by a local commercial bank. A combination of subsidy and community savings is needed to finance the balance.
Investment Example: Uganda
Development of savings and microfinance lending program for low income communities through catalytic capital provided to local banking partner Local bank provides construction and take-out finance for qualifying families Families enroll in savings program to build credit history – with local bank or participating MFI’s Local government provides infrastructure National housing ministry provides SME fund for entrepreneurs, job training program, and subsidized land for construction
Investment Example(s): South Africa
• Refurbish inner city rental units
• Reclaim informal settlements
• Add lower income segments to greenfield real estate development projects
• Increase point-of-sale lending at building materials suppliers
