1. ACRIA 6, Lagos July 1 – 2, 2015 HOUSING MARKET DYNAMICS IN AFRICA El-hadj Bah AfDB- Research Department

2. Africa’s rapid urbanization and increasing population growth has sharply increased the demand for affordable housing across the continent… 2 Source: Hofinet  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 Source: The Economist

3. …resulting in widespread shortage of affordable housing supply in Africa Kenya (pop. 44.4mn) Housing backlog of 2mn units; estimated annual deficit of 200K units Cameroon (pop. 25mn) Housing backlog of over 700k units Angola (pop. 21.5mn) Housing deficit of over 1.9mn; estimated annual shortage of 100K Ivory Coast (pop. 20.3mn) Housing backlog of over 700k units Ethiopia (pop. 94.1mn) Estimated deficit of 1mn units; 100k annual shortage Nigeria (pop. 173.6mn) Housing backlog of 17mn; annual shortage of 700k units South Africa (pop. 53mn) Housing deficit of 2.1mn units; an estimated 1.5mn households live in slums Morocco (pop. 33.01mn) Housing deficit of 800k units, growing 178K p.a. Uganda (pop. 37.6mn) Estimated annual housing deficit of 233k units Source: CAHF, UN-Habitat, National Sources

4. This lack of affordable supply has translated to the growth of informal settlements 4 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 Data sources: UN-Habitat

5. The proliferation and expansion of informal settlements poses a challenge to urban development Source: Mutunga et al., 2012, p.7

6. Four main issues to deal with to address the shortage of affordable housing on the continent 6 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

7. CHALLENGES & OPPORTUNITIES HOUSING FINANCE

8. 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) Source: African Market Initiative * CONSUMAF (cumulative issues 2007-2001) **CREPMEF (market capitalization)

9. Underdeveloped financial markets (2): Mortgage markets quasi-inexistent

10. Underdeveloped financial markets (3): Low mortgage penetration rates 10 Residential Mortgage Loans outstanding as % GDP Source: AfDB, World Bank

11. 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)

12. Formal Housing Construction Costs: The case of Kenya – Construction materials and Infrastructure are driving the costs 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 Contingences 5% Finance charges 5% Professional fees 10% Land 10% Infrastructure 10% Direct Building cost 60% Labour 30% Material 70% Source: AfDB

13. Affordability Issue: double digits interest rates deter borrowers Source: AfDB, CAHF

14. 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 Source: World Bank

15. 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: 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

16. 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: 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 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

17. Opportunities for Developing Housing Finance Markets (3) 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-To-Incomes limits, some repayment flexibility Credit Information systems Reducing Risk & uncertainties: Prudent lending practices 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 Perspectives

18. Opportunities for Financing Africa’s Urbanization  Develop municipal bond markets 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  Land Value Capture as a Funding Source For Urban Investments

19. Thank you for your attention! e.bah@afdb.org www.afdb.org