Transcript housing market dynamics in africa

HOUSING MARKET DYNAMICS IN AFRICA
El-hadj Bah
AfDB- Research Department
ACRIA 6, Lagos
July 1 – 2, 2015
Africa’s rapid urbanization and increasing population growth has sharply
increased the demand for affordable housing across the continent…
Source: Hofinet
Source: The Economist
Urbanization processes and housing dynamics are inter-related
Urban population growth and urbanization put pressure on institutional and resource capacities of urban
authorities
Twin development process—‘formal’ and ‘informal’ settlements developing in parallel
Cities being built ‘back to front— building first and servicing afterwards, required infrastructure retrofitting
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…resulting in widespread shortage of affordable housing supply in Africa
Morocco (pop. 33.01mn)
Housing deficit of 800k units,
growing 178K p.a.
Cameroon (pop. 25mn)
Housing backlog of over
700k units
Ethiopia (pop. 94.1mn)
Estimated deficit of 1mn
units; 100k annual shortage
Ivory Coast (pop. 20.3mn)
Housing backlog of over
700k units
Uganda (pop. 37.6mn)
Estimated annual housing
deficit of 233k units
Nigeria (pop. 173.6mn)
Housing backlog of 17mn;
annual shortage of 700k units
Angola (pop. 21.5mn)
Housing deficit of over 1.9mn;
estimated annual shortage of
100K
Source: CAHF, UN-Habitat, National Sources
Kenya (pop. 44.4mn)
Housing backlog of 2mn
units; estimated annual
deficit of 200K units
South Africa (pop. 53mn)
Housing deficit of 2.1mn units; an estimated
1.5mn households live in slums
This lack of affordable supply has translated to the growth
of informal settlements
• Over 200 million Africans live in slums
• Cities accommodate 72% of slum dwellers across Africa
The housing issues should be looked at under the broader perspective
of
urbanization
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Data sources: UN-Habitat
The proliferation and expansion of informal
settlements poses a challenge to urban development
Source: Mutunga et al., 2012, p.7
Four main issues to deal with to address the shortage
of affordable housing on the continent
Major constraints
to providing
affordable housing
at scale:
Lack of access to finance for poor and
lower-middle-income families, as well as
real estate developers
Unsecured land tenure and weak land
governance inhibits the active
participation of the private sector
Rising cost of construction makes it
difficult to build homes at an affordable
price for the majority of households
Inability to provide infrastructure and
lack of human and institutional capacity
across the housing delivery value chain
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CHALLENGES & OPPORTUNITIES
HOUSING FINANCE
Underdeveloped financial markets (1)
Low Level of Financial Intermediation
 Credit to the economy / GDP still low: 18%
Lack of Long-term Finance and Inadequate Instruments
 Lack of equity for developers
 Untapped contractual savings industry– Pension Funds and insurance companies, etc.
 Inadequate instruments: lack of secondary markets; few mortgage refinancing facilities
(WAEMU, Tanzania, Nigeria, Algeria, Egypt), shallow capital markets including bond
markets (highly driven by treasury bills)
African Bond Market size as % of GDP
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
CEMAC* WAEMU**
Angola
bostwana
Zambia
Nigeria
Tanzania
Namibia
Uganda
Ghana
Source: African Market Initiative * CONSUMAF (cumulative issues 2007-2001) **CREPMEF (market capitalization)
Kenya
South
Africa
Morocco
Underdeveloped financial markets (2):
Mortgage markets quasi-inexistent
Underdeveloped financial markets (3):
Low mortgage penetration rates
Residential Mortgage Loans outstanding as % GDP
3.5%
40.0%
20.0%
18.0%
35.0%
3.0%
16.0%
30.0%
14.0%
2.5%
25.0%
12.0%
2.0%
10.0%
20.0%
1.5%
8.0%
15.0%
6.0%
1.0%
10.0%
4.0%
0.5%
0.0%
5.0%
2.0%
0.0%
0.0%
Namibia
Source: AfDB, World Bank
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RSA
Most of African Large Cities are unaffordable: high
risk & information asymmetries, inadequate legal framework;
high cost-to service customers; high interest rates, inflation
Source: Source: AfDB; CAHF (2014)
Formal Housing Construction Costs: The case of
Kenya – Construction materials and Infrastructure
are driving the costs
Contingences
5%
Finance charges
5%
Professional
fees
10%
Labour
30%
Direct
Building cost
60%
Land
10%
Infrastructure
10%
Source: AfDB
Material
70%
• Land & Infrastructure
cost can account for
over 20% of the
construction costs for
affordable housing
projects
• 40% of the cost of a
housing project relies
on the cost of
construction materials
Affordability Issue: double digits interest rates
deter borrowers
30.0%
25.0%
14.00%
12.00%
10.00%
20.0%
8.00%
15.0%
6.00%
10.0%
4.00%
5.0%
2.00%
0.0%
0.00%
Morocco
Source: AfDB, CAHF
Tunisia
Egypt
Financing Land & Infrastructure for Housing: a
challenge
- Urban infrastructure competes with huge global infrastructure
needs in SSA (15% GDP/ year, only half of which is satisfied)
- Financing land and its equipment is challenging
Estimated Infrastructure needs as % of
GDP
Source: World Bank
Infrastructure spending as % of GDP
Opportunities for Developing Housing Finance
Markets (1): how to go down market while covering the
informal sector (i.e. irregular incomes and unstable cash flows)?
Lowering the frontier: some promising models
Combination of housing cooperatives / banks:
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Tripartite arrangements Banque de l’Habitat du Sénégal
/cooperatives /land or building developer
Kenya NACHU: savings & credit mobilization for cooperatives
Feasibility demonstrated by some foreign
experiences



India: several specialized lenders active in this segment – best practice:
GRUH Finance, very performant (NPLs: 1,5%)
Morocco FOGARIM guarantee scheme - 10 year experience, 20%
market share
Colombia: Fondo Nacional de Garantia – provident fund and housing
lender, open to informal HH since 2007
Opportunities for Developing Housing Finance
Markets (2): how to go down market while covering the
informal sector (i.e. irregular incomes and unstable cash flows)?

Alternative Security:
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Equitable mortgage, deposit of title certificate with the lender,
promissory mortgage liens
lien on pension fund accounts, within limits (Kenya, RSA)
Personal guarantees, pledged savings, salaries payroll deduction
Mortgage Insurance & Guarantee Schemes: rare cases


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RSA, Kenya (self-insurance) – Failure ex. (Mali), or pilots with no
follow-ups ( Caisses Populaire du Burkina)
Best practice: Moroccco Damane Assakane
Many markets still not mature enough
Mortgage Refinancing Facilities: West Africa/WAEMU Zone:
Caisse Régionale de Refinancement Hypothécaire (CRRH)
 Support primary mortgage market
 Help develop secondary market
Opportunities for Developing Housing Finance
Markets (3)
Reducing Risk &
uncertainties:
Prudent lending
practices
Perspectives
• Prior savings (credit history, income
proxy)
• Independent check of stated income, e.g.
periodic surveys
• KYC rule, lending to existing customers
• Lower Loan-To-Values & Debt-ToIncomes limits, some repayment
flexibility
• Credit Information systems
• Develop capital markets (CRRH-UEOMA,
Nigeria, Algeria, Egypt, Tanzania mortgage
refinancing schemes)
• Linkage with the opening of pension
systems to the informal sector (Kenya, Côte
d’Ivoire)
• Equity for developers
• Building/strengthening capacity of local
developers
Opportunities for Financing Africa’s Urbanization

Develop municipal bond markets
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Develop cities as credit worthy borrowers (Dakar)
Expand skill sets, training and capacity building to local governments
Credit enhancement critical as it increases lenders perceived security
Fiscal decentralization for local governments to help fund
urbanization e.g. collection of certain taxes (licensing fees,
property taxes, etc.)

Promote contractual savings industry– pension funds,
insurance companies– as well as private equity investments for
long-term infrastructure finance

Diaspora savings and remittances remain an untapped
resource
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Land Value Capture as a Funding Source For Urban Investments
Thank you for your attention!
[email protected]
www.afdb.org