Stimulating local investment in affordable housing and...
Transcript of Stimulating local investment in affordable housing and...
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%
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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