SmartHomes Africa at AUHF 2014: Committing to the Zambian Market

Published: Sunday, December 7th, 2014 by Aaron Leaf

Image courtesy of SmartHomes Africa

Chris Jannou, CEO of SmartHomes Africa, was scheduled to speak at the African Union for Housing Finance conference this month in Cape Town but after flying a six-seater plane from a project site along the Zambia-Congo border, he arrived in Lusaka to find his connecting flight canceled.

Working in far-flung places, even within Zambia, is part of Jannou’s approach to total immersion in the countries where he works. A New Yorker with a nose for new markets, Jannou sees developers sunk before they get off the ground because of their lack of commitment to the country they’re working in, especially when they’re perceived as “talking down to the market.”

“A lot of Westerners like us come here with a new system that’s super cheap,” he says, but they forget that Zambians are “all watching the same television and internet as us.”

Zambians, Jannou insists, want cement-based construction with all the amenities. “People are getting more sophisticated in terms of how they view housing,” he says. With a booming housing market, younger workers especially are shifting from the idea of a house with a garden that gets passed down through generations to the idea of starting with “a place that’s smaller than we want then moving onto something else.”

Jannou’s company SmartHomes Africa embodies the middle-class ideal of family living, suburban cul-de-sacs and tasteful interiors. The bulk of their work, however, is developed in partnerships with companies involved in Zambia’s lucrative mining sector. International mining companies like Glencore and First Quantum Minerals have extensive operations in Zambia. Through their corporate social responsibility programs, they are attempting to move employees from self-built homes into formal “international-class” housing in hopes that these houses will become appreciating assets. Located near Zambia’s biggest mine sites in the country’s northwest, these housing projects are inevitably far from Lusaka, hence Jannou’s small plane, but apparently not far from these workers’ aspirations.

Advancing New Building Technologies and Beyond

SmartHomes Africa recently won a contract with Lafarge Zambia that aims to build ten thousand units of affordable housing over the next five years. Jannou attributes this to his company’s track record in Zambia and their previous work with alternative building materials.

Through this deal, SmartHomes Africa will build a turn-key project using a proprietary product being developed with Lafarge called “Smart Wall.” The system is based on previous structural concrete insulated panel technologies—where insulation is encased in concrete—and will be “more cost effective and more resilient than normal cement.”

“We found that [this technology] works here because it’s cement based and it’s extremely green,” says Jannou, “It’s an incredible building technology that will probably do well in the US with the rise of more extreme weather.”

Courtesy of SmartHomes Africa

Jannou is nonetheless adamant that new building materials are not enough to succeed. Most innovative building systems, he says, are just different ways of building a wall, or 20 percent of the house.

“If you can save 30 percent on 20 percent of the house you’re not creating a revolutionary incentive,” says Jannou. Developers fail when they focus on new technologies to the detriment of everything else. Finance partners, vendors, contractors, and logistics are all critical business model elements that developers tend to overlook. “Do buyers have financing and clear title?” says Jannou.

Logistics can also be a nightmare. Zambia is a landlocked country where everything comes by truck. Jannou says, “We can’t phone it in,” he says. “We can’t do quarterly trips.” He is adamant about living in Zambia because the business needs it.

Long-Term Investors Deliver Financing But Not Enough

One of the major constraints to development in African markets is the lack of long-term capital financing, especially project financing for real estate. However, in many markets, “it’s often the pension funds and insurance companies that are funding these long horizon projects.” They are big investors in the malls, rental properties and housing developments. This is no different in Zambia, says Jannou, who has found local insurance companies looking for projects to back.

“The secret sauce here,” says Jannou, is the lack of good bankable projects and teams to back. “There is so much self-built housing with no clear title, where people build over time and quality is bad.” Consequently, financiers are very eager to work with developers with a proven track record.

“The Zambian Market is Banging”

Although SmartHomes came to Zambia at the invitation of the National Housing Authority, SmartHomes Africa quickly found new opportunities in the country’s private sector. In addition to their work with mining companies and Lafarge, the company also develops private projects in Lusaka aimed at the growing middle class. “For developers like us, that’s probably the best market.” says Jannou, “Right now, if you build anything under 75 thousand US you are seeing 15 people lining up.”

Many local developers, he says, enticed by the higher margins are going for the high end of the market “building 200-300 thousand dollar houses for the elite and government officials.” A product aimed at the middle income consumer, by contrast, is not only less familiar to developers in Zambia but has lower margins which means scale is needed to make it profitable.

Jannou sees the country’s underdeveloped rental market as another great opportunity. While rents in Lusaka are sky high, says Jannou, the only new rental properties are coming from the odd developer who adds an extra apartment here and there. “Returns are incredible” he says. “You get your money back in three years.”

Jannou hopes to do more work in other African countries, looking at value-class business hotels, retail and commercial property. English-speaking countries, in particular, are attractive for their familiar legal and judiciary systems and their potential for growth over the next half century. Added to this is Jannou’s faith in the burgeoning African middle class, which he sees surpassing the spending power of their Indian counterparts. He doesn’t see himself working outside Africa anytime soon.

“The Zambian market is banging,” says Jannou, but of all the African countries, Zambia is the quietest and a country where you get stuff done.” In the end, for SmartHomes Africa, that opportunity is critical.