Affordable housing has grown legs across the African continent, with the subject coming up for a panel discussion at the IHS Affordable Housing conference held on 5 September. This is the second part of a two-part series.
The panel consisted of: Gerhard Zeelie, Divisional Executive Property Finance Africa at Nedbank Corporate and Investment Banking, focused on Rest of Africa; Archie Graham, CEO: Jimmey Construction (Windhoek, Namibia); Sam Kariuki, Group Financial Director of Centrum Investment Company (Nairobi, Kenya); and Rushil Bhaat of private equity firm Actis Africa, based in London with an emerging market focus.
According to Bhaat, “For investors, the margins are very fine in residential property and even finer in the affordable housing space. But the supply and demand gap is so great that you have to address it. The saturated high-end property market collapsed in 2014 when Kenya experienced a recession and the value of the Kenyan shilling fell. Actis launched a new fund aimed at the affordable housing sector a couple of weeks ago, doing 70m2 units in 12-storey buildings and even higher, at prices of USD70 000 to USD100 000. You can make money but have to work a lot harder.”
Zeelie intimated, “Debt financing is the most useful means of funding the affordable market, and Kenya is one of the most advanced in Africa, albeit nowhere near as advanced as South Africa. This is something that has to be resolved, and whether it is resolved by the Kenyan banking industry or by some other financial services player remains to be seen. African capital markets are becoming more and more sophisticated – very quickly – and we might find a solution coming not from a player in the banking market. The other complexity as far as debt financing is concerned is that the availability of large pockets of funding in some African countries is denominated in foreign rather than local currency. If it’s available in local currency it is typically very expensive. If it’s in foreign currency then the challenge is that the tenants in the housing development pay in local currency because property owners would typically not have the stomach for the currency risk that sits between the financier and revenue stream of the end user which has to feel more like a local currency income stream. There are ways to solve that, the easiest being to put very little debt in the structure but that in turn doesn’t work very well from a developer’s perspective. Another option is for the financier to take a lot more market risk.”
What are end users looking for?
Graham said, “We are seeing a lot of urbanisation in Windhoek at the moment. We [property developers] have a responsibility to educate urban dwellers on what affordable housing is, but also to make these developments more attractive to people by having amenities on site, including playgrounds for kids and green spaces that will be part of the process of educating the end user.”