Mobilizing Capital for Housing Finance in Africa: AUHF Annual Conference

Published: Monday, January 6th, 2014 by Lenora

How will the next generation of Africa’s housing growth be financed? Africa’s emerging housing leaders face challenging financial and operational conditions just as much as investors’ dim view of residential investment in Africa. Financial institutions need longer tenor funding to underwrite mortgages with maturities to enable affordability. Project developers, especially at an early stage, face substantial difficulty raising project equity, a challenge compounded by the high cost of conducting pre-feasibility due diligence. Securitization of loans and construction finance have grown more pressing as have structural reform, infrastructure and supportive policy.

The 29th annual AUHF conference on September 11-13, Mobilising Capital for Housing Finance, aimed to take these issues on by convening some of the most innovative institutions on the continent in Mauritius to address the lack of long-term funding for housing in Africa. Presenters from the public, private and NGO sector repeated four key themes:

  • Challenges of raising investment capital
  • Necessary partnerships between the public and private sectors
  • Innovation in housing finance and housing provision
  • Information solutions and knowledge sharing

Read the conference proceedings here.

Challenges of Raising Investment Capital. Financing and investment for housing in Africa is developing at a more cautious pace than commercial segments, where institutional capital has now played a well-established role. In many cases, the bankability of retail or office projects has diverted attention from compelling opportunities in residential development, as well as the overwhelming need.

Several participants noted that raising equity is exceptionally difficult for several reasons. Due diligence by institutional investors can be extremely costly and lengthy. Not only do developers lack track record, but also institutional investors expect comprehensive pre-feasibility due diligence. The absence of records and market data complicates pre-feasibility studies. Securitizations remain overly costly and difficult as transactions are not sufficiently standardized. With limited capacity to implement large scale projects among developers, investors may also be skeptical of the market’s ability to absorb capital for major projects.

Shelter Afrique presents how its products address constraints faced by developers in delivering affordable housing, among which helping to carry the cost and risk of pre-feasibility development.

Necessary Partnerships between Public and Private Sectors. Given the difficulty of residential development, the public and private sectors need to create new cooperation opportunities. The public sector needs to facilitate and build enabling frameworks for land acquisition, legal rights and infrastructure provision, among other constraints. While the private sector can participate actively in markets where commercial loans are financeable, the public sector will also have to fill the gaps in social housing, where market rate providers will not play an independent role. In cooperation with the private sector, however, governments can contribute to mortgage underwriting to enhance affordability and access. Finally, the need for rental housing will have to be filled by mixed public and private sector solutions.

The Tanzania Mortgage Refinance Company illustrates how mortgage liquidity facilities can improve the supply and diversity of housing finance products.

Innovation in Housing Finance and Housing Provision. At the leading edge of innovative financing vehicles for housing in Africa are corporate bonds, international housing investment funds, an urban community development bank and housing microfinance (like Kixicredito) are all marking new territory. Covered bonds, REITs and mortgage securitizations are all on the agenda but require additional regulatory action and institutional development.

International Housing Solutions illustrates outcomes of its first fund and the launch of its second [see our blog post and interview].

Strong negative perceptions of residential investment in Africa are causing the sector to trail the strong institutional support seen in other commercial real estate sectors. Even so, governments, development finance institutions and local investors are starting to participate in the first generation of investment innovations, such as the Trust Urban Housing Fund (TUHF) and IHS’ housing funds, as well as seed private equity funds.

TUHF offers mortgage finance for housing enterprises in South Africa’s inner cities with a special focus on rental housing.

Information Solutions and Knowledge Sharing. The myths and perceptions about building housing in Africa, especially in inner cities and for lower income groups, will only be addressed with better information and transparency, as well as regular reporting and examples of good governance. Indeed, participants agreed universally that the challenge of raising capital stems substantially from the need for better market data, improved information collection on developers, projects and sites and more dissemination of case studies.

In particular, investors need to be able to substantiate track records and assess markets. Market participants want to be able to run and target information campaigns more easily. Finally, objective tools, even ratings, were suggested to remove the skew in how investors assess capital seekers, such developers and other market participants.

The Centre for Affordable Housing Finance in Africa is producing data sets, tools and research help estimate market demand and affordability to support project implementation and to minimize mismatches in site selection, pricing and unit costs

Thanks to the African Union for Housing Finance and the Centre for Affordable Housing Finance in Africa for their permission to use their content for this summary. Find all the conference presentations here.