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Investment opportunities in mortgage


market development across Africa
Kecia Rust
Thursday, 4 May 2017
Room 2 | 16:30 – 16:50

Rural Government built 2

What does
the residential
investment
opportunity
look like in
Africa?
Slums
Real Estate
Kenya’s real estate
3

market is booming
§ Average value for a property
has risen from Ksh 7.1m in
Dec 2000 to Ksh 31.4m in
March 2017
§ 4-6 bedroom: Ksh 47.3m
(US$458 000)
§ 1-3 bedroom: Ksh 14.1m
(US$136 000)

§ Big shift to apartments. In


December 2016:
§ apartments 40.7% of the market
(from 23.5% in 2000)
§ semi-detached 18.7%
§ detached houses 40.6%

Source: Hass Property Index: House Price Index


Quarter 1 Report 2017 www.hassconsult.co.ke

… but focusing on a small minority


Population A $136 000 house at current rates would require a monthly
distribution in payment of about $2372, implying an annual hh income of
about $113,856: 0,3% of the urban Kenyan population
Kenya
> $40 001
US$7 239 – avg annual
$23 001-$40 000 income to afford the
$12 001-$23 000 cheapest newly built
house by a formal
$8 001-$12 000
developer
$5 001-$8 000
$5 077 – avg annual
$3 601-$5 000
urban hh income
$2 401-$3 600
$1 601-$2 400
$801-$1 600
<$800

2500 2000 1500 1000 500 0 500 1000


Households ('000)
Source: CGIDD income and population data for Kenya, in 2005 dollars
1-3 bedroom:
5

… but focusing on a small minority Ksh 14.1m


(US$136 000)

Potential loan amount and consequent book size by average annual


urban household income in Kenya

Source: CGIDD income and population data for Kenya (urban population only), in 2005 dollars, calculated with current
mortgage rates in Kenya: 17% over 10 years, no deposit

Given Kenya’s population dynamics, market players would realise a much greater
market opportunity by offering and financing products that cost less than $15 000,
than by sticking to the $25 000 + real estate market.

… but focusing on a small minority 6

US$19 365: affordable to a household


earning about $16 200 p.a. (about 3.8% of
the urban population or 99 000 households)

US$100 000:
affordable to
a household
earning
about
$83 000 p.a.
(about 0.3% of
the urban
population or
7850
households)

US$15 000: affordable to a household earning


about
Source: CGIDD income and population$12 500
data for p.a.
Kenya (about
(urban 3.8%
population ofinthe
only), urban
2005 dollars,population
calculated withor
current
99 000
mortgage rates in Kenya: 17% over households)
10 years, no deposit
Across the continent, developer-built housing targets 7

the higher end


Price of the cheapest, newly built houseby a formal developer: 2016 and 2015
Price of the cheapest, newly built house by a formal developer in 2015 and 2016
$200 000 300

Price of the cheapest, newly built house by a formal developer in 2015 (US$) Price of the cheapest, newly built house by a formal developer in 2016 (US$) What is the size of this house (in m2) in 2016?
$180 000
Price of the cheapest, newly built house by a formal developer

250
$160 000

$140 000
200

Size of that house (m2)


$120 000

$100 000 150

$80 000

100
$60 000

$40 000
50

$20 000

$- 0
Mozambique

South Africa
Libya

Central African Republic

South Sudan

Sierra Leone
Angola

Rwanda

Gabon
Djibouti

Burundi

Chad

Ghana

Zimbabwe

Morocco

Burkina Faso

Tunisia
Botswana

Uganda

Benin

Ethiopia
Nigeria
Lesotho

Cote d'Ivoire
DRC

Kenya

Guinea Bissau
Gambia
Mauritania

Niger
Tanzania
Comoros

Namibia
Eritrea

Mali
Madagascar

Zambia

Somalia
Mauritius

Senegal
Egypt

Togo
Cameroon
Seychelles

Malawi
Algeria

Swaziland
Source: 2016 Housing Finance Yearbook http://bit.ly/HousingFinanceAfricaYearbook2016
Email correspondence with local practitioners, annually

… and happens rarely at scale. But even a $20 000 house is unaffordable for
the majority – and these are only available in limited projects. Most housing
is built by the owner, incrementally, step-by-step.

Is a
$10,000
house
affordable?

In some
places.

It all
The gap between what
“affordable” housing would depends
cost to finance, and what the on the
average household can afford finance.
to pay, is simply too large. In
most countries, even $10 000
is too much for the average
household.
Mortgage markets are tiny – in some cases inconsequential 9

Mortgage to GDP vs. prevailing mortgage interest rate and term


35 35

30,4

Mortgage interesst rate (percent) and term (years)


30 28 30

25 24 25
Mortgage to GDP (percent)

22,15

20 18,21 20

15 12,99 15

9,25
10 10
7,5 6,3 6,1

5 3,31 5
2,83 2,63 2,5
1,29 1,2 1 0,91 0,9 0,58 0,53 0,5 0,5 0,49 0,4 0,34 0,1 0,07
0 0

Average Mortgages % of GDP Predominant mortgage interest rate - prime (2016) Predominant mortgage term - max years (2016)

Source: 2016 Housing Finance Yearbook http://bit.ly/HousingFinanceAfricaYearbook2016


Email correspondence with local practitioners, annually

In part as a result, African mortgage markets are tiny (and data is limited).
Lower interest rates seem to correlate with larger mortgage markets.

How can financial services engage with these


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limitations and realise new opportunities?

Source: CGIDD income and population data for Kenya (urban population only), in 2005 dollars, calculated with current
mortgage rates in Kenya: 17% over 10 years, no deposit

Consider micro-mortgages, housing microfinance, construction finance,


rental housing, pension-supported investments, equity products, insurance
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How much
can a
household
earning
$750/
month
afford?

It all
Financial services can depends
have a profound effect on the
on affordability, and on finance
housing supply, even for
moderate income
earning households

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1 Targeted innovation
Mortgage liquidity facilities Real Estate Investment Trusts
§ EMRC 2007 / TMRC 2010 / CRRH § Internationally accepted investment
2012 / NMRC 2014 structure
§ Draws investors and lenders into the § Aggregators: enabling big money to meet
mortgage market small projects
§ Encourages government to engage in § In Kenya, Tanzania, South Africa,
market development Zimbabwe: different versions of
§ Creates investment precedent and a Development REITs and Investment REITs
documented track record
§ Signal to the housing sector that Maturing models to go down market
finance is available § Rent-to-buy
§ Focuses efforts on opportunities for § Housing microfinance
growth § Employer-supported housing
§ A $10 000 mortgage at <10%? § Social rental & small scale landlordism

Growing track record & investor interest


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2 Better technology
South Africa

§ Big data platforms offer a better


connection to the target market

§ Merging datasets on GIS platforms shows


spatial investment opportunities

§ Innovative “alternative” building


technologies reduce construction costs
and realise other efficiencies

§ Blockchain technology overcomes issues


of recording ownership: Bitnation, in
Northern Ghana

New opportunities for efficiency & targeting

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3 Sharpening practice
NGOs and social movements adopting commercial practice to various degrees of success
§ REALL, with NGOs in in Mozambique, Malawi, Kenya, South Africa, Tanzania
§ Habitat for Humanity
§ NACHU, Kenya

Lenders broadening their business model to accommodate opportunities and engage with
constraints
§ Select Africa in Malawi, Kenya, Swaziland
§ KixiCredito in Angola
§ Trust for Urban Housing Finance in South Africa
§ Zambian Home Loans
§ Shelter Afrique

Cities are better understanding their housing role & local opportunity
§ House Price Index in South Africa

Investors coming better to understand their niche markets


§ International Housing Solutions
§ Phatisa’s Pan African Housing Fund
§ Lions Head Global Partners
§ Sofala Capital

Consolidating the sector


3 Sharpening practice
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Housing Finance Kenya’s changing balance sheet

Source: http://www.housingfinanceafrica.org/document/case-study-7-the-transformation-of-the-
housing-finance-company-of-kenya/

4 Government interest
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& reporting
§ Kenya Central Bank Report
§ Tanzania Central Bank Report
§ Nigeria Housing Finance Hub (NMRC)

Enabling environment – housing part of a


growth agenda
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Most countries offer mortgages at rates above 10%, and for less than 20 years, highlighting very real
macro-economic issues that challenge housing affordability. In Malawi, one might as well buy a house
with a credit card.

Bond term (years)


Mortgage interest rate

18

Watch the countries where rates are coming down… and where they’re going up

Bond term (years)


Mortgage interest rate
Policies and regulations have a huge impact 19

Number of days, and cost, to register a commercial property: 2016 vs 2012


350 25,00
Number of days to register a commercial property (2012 and 2016)

300

Cost of registering a commercial property (% of property value)


20,00

250

15,00
200

150
10,00

100

5,00

50

0 0,00

Days2016 Days 2012 Cost (% of property value) 2016 Cost (% of property value) 2012

Source: World Bank Doing Business Indicators, 2012 & 2016 (www.doingbusiness.org/data/exploretopics/registering-property )

When registration costs more than 10% of the property, or takes more than
2 months, can a low-income homeowner feel its worth it? Even in South
Africa, informal transactions are common. The time it takes to register
property is a serious disincentive to investment.

And improvements can change the game dramatically 20

Number of days, and cost, to register a commercial property: 2016 vs 2012


350 25,00
Number of days to register a commercial property (2012 and 2016)

300

Cost of registering a commercial property (% of property value)


20,00

250

15,00
200

150
10,00

100

5,00

50

0 0,00

Source: World Bank Doing Business Indicators, 2012 & 2015Days 2012
Days2016
(www.doingbusiness.org/data/exploretopics/registering-property)
Cost (% of property value) 2016 Cost (% of property value) 2012

Source: World Bank Doing Business Indicators, 2012 & 2016 (www.doingbusiness.org/data/exploretopics/registering-property )

Still, the time and / or cost is coming down in many countries:


Time: Rwanda, Burundi, Morocco, Lesotho, Cote d’Ivoire, Guinea Bissau, Sierra
Leone, Senegal. Up in Gabon, Namibia
Cost: Rwanda, Malawi, Angola, Mozambique, Niger, Togo, DRC, Cote d’Ivoire,
Comores, Sierra Leone, Senegal, Nigeria. Up in Zambia, Namibia, South Sudan
Identifying the niche: understanding the 21

nuance of affordability
Target markets Target products

of demand
Better understanding understanding
§ Households in informal settlements: § Micro-mortgages: shorter
what can they afford? term, smaller quantum
§ Informal earners / self-owned § Small business mortgages:
businesses focus on the income stream
§ New migrants & youth: rental & § Installment sale / rent-to-own
student housing § Housing microfinance linked
§ Housing-linked businesses with a to mortgages

of supply

Better
track record § Apex institutions /
§ Incremental housing processes, mechanisms to aggregate
linked with housing microfinance demand: i.e. REITs
§ Underperforming neighbourhoods § Developer equity
§ Reforming jurisdictions: shorter § Venture capital that targets
intelligent
Location

admin time / commitment to smaller initiatives


affordable housing § Green-lining: area-
based underwriting

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Thank you!
Kecia Rust
kecia@housingfinanceafrica.org
www.housingfinanceafrica.org
+2783 785 4964

Test out our mortgage affordability calculator:


http://housingfinanceafrica.org/dashboards/ca
lculating-mortgage-housing-affordability-
africa/

CAHF is supported by:


See the 2016 Housing Finance in Africa Yearbook
http://www.housingfinanceafrica.org/document
/2016-housing-finance-in-africa-yearbook/

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