Webinar Report - Affordable Housing in Africa: Challenges and Opportunities
This second edition of a series of three webinars on the relationship between pension funds and housing finance was held May 24, 2018 between 1 pm and 2 pm, and was an opportunity to present and discuss challenges and opportunities offered by pension funds to the affordable housing industry in Africa.
This series of webinars aims to provide a platform for pension funds on the continent to know the needs and constraints that the housing sector faces, in order to better allocate financial assets under their management. This series is a joint initiative of MFW4A and CAHF (Centre for Affordable housing Finance), the result of a partnership whose main goal is to foster a deepening of knowledge of housing finance markets in Africa, through joint working groups, case studies, knowledge briefs and webinar series.
The session was moderated by Abdelkader Benbrahim, “Housing Finance“ Pillar Head in the MFW4A Partnership, and co-facilitated by keynote speaker, Sireena Ramparsad, Research Specialist, CAHF,
with the assistance of two discussants who explored specific aspects of the webinar thematic:
- Pamela Lamoreaux, Head of Investor relations, International housing Solutions (IHS)
- Femi Adewole, Managing Director, Shelter Afrique
At the start of the webinar, the moderator highlighted some of the main characteristics of African pension funds investments, which were addressed in the first edition of the webinar series, including: a) the drivers of pension fund growth; (b) the barriers to long-term investment of African pension funds; (c) the investment portfolio structure of and the outlook for pension funds (especially in the real estate sector), with the examples of Nigeria, Kenya and Ghana. For more details on these aspects, please download the report for the first edition of the webinar series HERE.
Following the introductory remarks, the keynote speaker, Sireena Ramparsad, presented a landscape on the African housing backlog of at least hundreds of thousands in the following countries: Cameroon, Cote d'Ivoire, and Morocco. This deficit, it was noted is even more pronounced in Ethiopia, Nigeria, Kenya and South Africa, and others, where it is estimated at millions of residential units. Sireena remarked on four factors characterize the African housing markets:
- Informality and tenure insecurity related to slums;
- The existence of urban rental stock;
- Poor targeting of new build, especially to low- and modest-income populations; and
- Insufficient supply of residential units.
These markets are generally prone to poorly functioning value chains, including deficiencies related to high costs of land acquisition and house construction, small size of mortgage markets, low infrastructure endowments, or macroeconomic conditions negatively impacting access to long-term credit and private / public investment in the affordable housing sector. Due to a limited supply of residential units, many real estate developers in Africa target relatively wealthy clientele compared to the national average, while most real estate projects are carried out by homeowners, step by step, with an offer insufficient mortgage financing.
Sireena briefly presented some of CAHF's ongoing research projects in the African housing sector, including:
a) A case study on REITs (Residential Real Estate Investment Trust funds) in selected African countries (Tanzania - Kenya - Nigeria - Ghana - South Africa - Rwanda and Morocco), as an investment instrument to stimulate the interest of African financial markets, and hence pension funds, for the housing sector in Africa.
b) A study presenting the landscape of local and foreign investment in East Africa, with a specific interest in housing finance. This project is the first step in a research project to cover each of the major sub-regions of the continent.
Between 2000 and 2017, more than US$ 40 billion was invested by more than 20 international institutional investors in East Africa, including US$ 4 billion - or 10% of the total - having a direct impact on the housing industry and its financing. These investments include equity investments, lines of credit and collateral to stimulate the regional mortgage market, dedicated financing to developers, and technical assistance, among others. Kenya, Tanzania and Uganda respectively benefited from US$ 1.7, 0.9 and 0.7 billion from the housing finance portfolio.
Sireena presented a case study of the Millar Fuller Foundation project in Nigeria, which aims to build affordable houses at a cost of US$ 7,500 per unit, to illustrate the significant impact that this project would have at a continental scale, i.e.: about 52 million households served in Africa; US$ 400 billion in terms of economic activities generated (construction-infrastructure); and millions of jobs created in the construction sector. Four approaches were proposed to stimulate investment in the affordable housing market in Africa:
- The option of housing microfinance with financial products adapted to low and modest incomes, while favoring incremental (step by step) construction
- The channel of the savings and credit associations (SACCOs) that turn into real estate developers at the local level, for their members
- The advent of Residential Real Estate Investment Funds (REITS) to attract Institutional Investors in the housing sector
- Development of rental offers, with purchase option, which are adapted to low and modest incomes.
The Q & A session began with a question asked by the moderator to Pamela Lamoreaux on IHS experience in co-investing with pension funds, and the opportunities they would enjoy in affordable housing. Pamela mentioned IHS's collaboration with North American pension funds, which see South Africa as an important first step in their investment strategies in emerging housing markets; due to proper legal and regulatory frameworks and mortgage market dynamism. She further presented two funds set up by IHS, with international and South African institutional investors - including pension funds - and their assets under management of around U$ 200 million each. These funds invest in the residential real estate sector (renting – affordable housing) across South Africa and sub-Saharan Africa.
Responding to the same question about Shelter Afrique's experience in co-investing with pension funds, Femi Adewolé pointed out that, over the last 10 years, most of the capital used to finance housing projects from Shelter Afrique, comes from shareholders, local bond issuances (Kenya - WAEMU market) and Development Finance Institutions (DFIs). He also mentioned that pension funds participation in bond issuance was much lower in the WAEMU region compared to Kenya. Regarding the investment opportunities of pension funds in the affordable housing sector, Femi commented on the available data, saying that this sector represents a highly risky assets class for pension funds, while advocating for the intermediary role Shelter Afrique is trying to play between Pension Funds’ available liquidity and households looking for (affordable) houses.
For more details on the webinar, please download the webinar recording HERE.