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 44 th St. New York, NY 10017 USA bonnie.hewson@newlinecapital.com barbarachewson@gmail.com
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 Composition of African Consumption by Household Income Bracket (% income based on 2005 PPP dollars) 100% 80% 60% 40% 20% 0% <$2,000 $2,000-5,000 $5,000-10,000 $10,000-20,000 >20,000 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 NUF Por olio by Type Investment 15% 43% 4% 38% Project-related Investment Bank Tier II Capital Regional Program Equity/ 1st Loss (IFC/KfW) Cash Reserve Por olio Investments by Popula on Impact 26% 74% 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 lowincome 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