Investment opportunity knocks for Affordable Housing Market

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Standard Bank's Gauteng Residential Development Finance Head, Somaya Joshua says we are experiencing healthy levels of affordable housing demand in SA, largely driven by historical stock shortages in the sector. Standard Bank's Gauteng Residential Development Finance Head, Somaya Joshua says we are experiencing healthy levels of affordable housing demand in SA, largely driven by historical stock shortages in the sector.

Affordable housing in Africa as an investment is still in its infancy but the opportunities to create investment vehicles are there, Africa Property has learned.

Africa’s housing sector is not delivering at the rate and scale needed, nor is it serving the diversity of the market given varying levels of affordability and access to credit. The market is constrained because of affordability, determined by household income and high levels of household debt. 

A large portion of the African population is deprived of the basic need of suitable, quality shelter. This is a problem that African Governments have been hard-pressed to solve due to the variety of logistical problems involved in the provision of bulk, affordable housing.

While some of South Africa's listed property funds have recently begun to develop affordable housing from scratch or re-develop housing, in other African countries, the investment options have tended to be via trusts and not necessarily through property focused investment options.

One prominent investment trust related to affordable housing is the Centre for Affordable Housing Finance in Africa (CAHF). This originated as a division of the FinMark Trust, a non-profit trust with a mission of ‘making financial markets work for the poor’. 

In May last year, the Centre was established as a not-for-profit company in terms of South African company law, independent from the FinMark Trust.

Various organizations work with the Centre. It is the Centre's mission to make Africa’s housing finance markets function, with special attention on access to housing finance for the poor. 

The Centre does a lot of work with governmental organizations in African countries other than SA.

The group disseminates research and market intelligence, supporting cross-sector collaborations and a market-based approach. 

"The overall goal of our work is to see an increase of investment in affordable housing and housing finance throughout Africa: more players and better products, with a specific focus on the poor, " the Centre says.

According to the US$41.5m Pan African Housing Fund (PAHF), managed by sub-Saharan Africa-focused private equity firm Phatisa, plans to provide risk capital to developers building middle and lower-middle income residential housing in major urban areas in Kenya, Zambia, Tanzania, Uganda, Mozambique and Rwanda.

PAHF announced last year that is was in its advanced stages of completing a series of deals in East Africa through which it hopes to spur the development of affordable housing.

In February, PAHF entered into an agreement with Africa Reit Limited (Africa Reit) to secure a six-acre property located in the Karen-Lang’ata area of Nairobi.

In SA, the most sophisticated African economy, listed property companies have involved themselves in affordable housing. Funds which have done this include Arrowhead Properties and more recently Vukile Property Fund. Arrowhead has recently listed its residential property portfolio as Indluplace Properties

Residential property is currently a highly popular area of investment for listed property companies in SA. This is despite only about 2.5% of listed SA property being residential. This number is closer to 20% in the US, the world's largest property market. 

In an interview with Africa Property, Mark Kaplan, the chief operating officer of Arrowhead said affordable housing is one of the easiest residential property types to get into and develop.

According to Somaya Joshua, Head: Residential Development Finance, Gauteng at Standard Bank’s Real Estate Finance division, the bank is experiencing healthy levels of demand in South Africa, despite the economic outlook. 

“In our view, the high levels of demand is largely driven by historical stock shortages in the sector. Demand in the affordable rental sector is also on the increase," she said.

Joshua adds that: “Developers are seeing the recent listing as an opportunity to develop affordable rental stock and are also seeing this as an opportunity to balance their current portfolios giving a spread of annuity income producing assets and assets for sale.”

“The potential for interest rate hikes will also contribute to increases in the demand for affordable rental accommodation as potential buyers may find it harder to qualify for traditional home loans,” Joshua concluded.

Global investors have also recognized the value in investing in affordable housing.

International Housing Solutions (IHS), a private-equity firm that focuses on the development of residential housing. IHS partners with financial institutions, private capital groups, real-estate developers and local government authorities to provide equity finance for residential projects, primarily in the affordable housing market.

IHS delivered a 24.5% risk-adjusted return in its first successful South African project exit. It regularly realizes double digit returns.

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