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Growing Africa’s Economies through Residential Investment

Oct 19, 2015
* An edited version of this piece originally appeared in the Autumn edition of Housing Finance International, the journal of the International Union for Housing Finance. The African Union for Housing Finance's (AUHF) conference, which will take place on October 26 -28 in Durban, South Africa, promises to focus on making housing finance markets work in Africa. The line-up is impressive, with speakers from across the continent and the globe, focusing on financing the housing value chain, growing the capacity of housing microfinance, and responding to demand. The keynote address will be offered by the African Development Bank, and will set out the findings from their recent study into housing market dynamics across the continent. Following this, the African Union's Housing and Urban Development (HUD) Coordinating Committee will make a presentation on the Draft Africa Common Position - Africa's input into the Habitat III process which will culminate in Ecuador in April, next year. The AUHF conference will produce a "Durban Declaration", a statement on housing finance in Africa and the key issues that practitioners in the private sector will commit themselves to in the coming years. The African Development Bank's work into housing markets is important, because it signals the institution's interest in focusing on housing and working with both governments and the private sector to develop and implement solutions to address the various problems undermining functioning housing markets in the continent. It comes at a good time, offering recommendations into the Habitat III process, which hopefully will pull together the public and private sectors into a coordinated effort. Of course, a key set of constraints sits at the macro-economic level: average mortgage interest rates across the continent range from 9.25% in South Africa through to 42% in Madagascar. This is what makes the participation of the AU at the AUHF meeting so significant, as that body offers the opportunity to engage with governments through the AU structures. A further component of the AUHF conference is the Housing Finance Marketplace, a combined effort by the AUHF and the Making Finance Work for Africa Partnership (MFW4A) that aims to increase access to assistance for housing projects. As many stakeholders are unaware of how funding and technical assistance from investors can be tapped for projects, the Marketplace creates a platform that not only fills this information gap between stakeholders and investors, but also increases the ease of accessing assistance for specific projects. The Marketplace will launch at the AUHF, and will allow for one-on-one meetings between investors, DFIs and housing practitioners - projects, programmes and initiatives - towards sealing new deals to promote investment in affordable housing across the continent. In its recent directory of investors, the Global Impact Investment Network identified a number of investors already active in housing across Africa, including Rockefeller Foundation, Echoing Green, Credit Suisse, LoK Capital, Ludin Foundation, Oikocredit, CDC Group, Blue Haven, MicroVest, Acumen, TH Investments LLC, AdobeCapital, AlphaMundi Group, Cordaid Investments. Just within East Africa, twenty-three impact investors were identified as having an interest in housing. Among them, just fewer than ten deals involving collectively about US$150 million worth of investment in housing were identified. Interest notwithstanding, housing was low on the list of priorities, trailing investments in other sectors, namely financial services and agriculture, and the number of deals realized was fewer than the number of interested investors. Why is this? Clearly there are factors in the housing sector in Africa that are stopping the market from working as effectively as it could. This is one of the issues that the AUHF conference will address. Within this environment, one area that has been receiving increasing attention by investors, DFIs, financiers, as well as local banks and developers, is rental housing. In June, Shelter Afrique hosted a symposium in Ghana, on developing affordable housing for rent. This followed a conference on rental housing held by Shelter Afrique in December 2014, and supported by the Agence française de développement (AFD). Over the course of these events, key motivations for investing in the sector were highlighted: (i) given urbanization rates and demographics, demand for rental housing was clearly evident and growing; (ii) with a regular cash flow and increasing rentals, the sector offered strong synergies with pension fund liabilities, and opportunities for diversification and hedging; and (iii) the growing track record of the sector showed impressive yields.
As with the broader housing sector, key factors undermining investment had to do with institutional and regulatory capacity[1]. Clearly, investment in these broader, macro-level issues is required if investor interest is to be translated into effective deals. A number of recommendations towards supporting the rental sector were offered. As a first priority, it was noted that governments at all spheres, from the national to the local level, should identify and support, in both policy and administrative terms, the opportunities to be found in the "build-to-let" market. This could be achieved, in part, through the release of public sector land for rental housing. A further recommendation emphasized the importance of scale interventions and the need for new business models (possibly the establishment of public sector supported funds to gear private sector investment) to entice investor participation in the market. The establishment of a body of best practice was also necessary, both to demonstrate successes and create a framework for on-going learning. Shelter Afrique has promised in this regard to publish a Rental Housing Development Manual, setting out rental housing transaction structures, financial modelling options, management experience and best practice, design standards, model leases, and so on. Pilot initiatives to demonstrate viability would also be identified and pursued. Certainly, the rental-housing sector offers opportunities for a wider array of practitioners to participate in Africa's housing challenge. Through this, investors may also become more familiar with the dynamics of residential investment, while local authorities become familiar with addressing the implications of scale. The emergence of REIT-friendly legislation in many countries was offering opportunities to build this broader capacity. All of these issues will be considered at the upcoming AUHF conference. The "Durban Declaration", arising from the conference, will offer opportunities for all role players to play their part and participate in the exciting growth of African cities.
[1] For a very useful summary of the issues surrounding rental housing in Africa, see the White Paper produced for the December 2014 conference: http://www.shelterafrique.org/wp-content/uploads/2014/12/Rental-Housing-Conference_White-Paper_ENGLISH-FINAL.pdf Kecia Rust is the Executive Director and founder of the Centre for Affordable Housing Finance in Africa (CAHF). She is a housing policy specialist and has provided strategic support to governments in South Africa in the development of national, provincial and local housing policy for the past 20 years. She was the Housing Finance Coordinator at the FinMark Trust from 2003-2014, from where CAHF was established. Under her direction, CAHF was appointed as the Secretariat to the African Union for Housing Finance, an association of about 40 mortgage banks, building societies, housing corporations and other organisations involved in the mobilisation of funds for shelter and housing across Africa. CAHF's work is represented on its website: www.housingfinanceafrica.org

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