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HMF PRODUCT POSSIBILITIES:Using HMF to promote housing, job creation, and
sustainable human settlements, and more borrowing
RHLF Annual Client Workshop25 October 2012
Leriba Lodge, Centurion
Kecia [email protected]
www.housingfinanceafrica.org
22
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Outline
� Understanding affordability & circumstance
� Understanding local economies & sustainable livelihoods
� Understanding communities
� Understanding HMF
Housing
Job creation
Sustainable human
settlements
Borrowing
Product possibilities
Positioning the HMF loan
product in the housing
delivery chain
Key issues in South Africa
33
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Housing: understanding affordability & circumstance
44
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Affordability constraints limit the potential of
mortgage markets across Africa
According to the World Bank, only 3% of the population in Africa has an income sufficient to support a mortgage
36.5% of Africa’s population earn less than US$ 2,00 per day. This is the international poverty line.
24% earn US$2 -$4 per day
9% earn US$4 - $10 per day
10.8% earn US$10 - $20 per day
18.8% earn above US$20 per day
In most cases, subsidies don’t bridge affordability to buy a new house. In others, they cause new affordability challenges.
Source: AfDBReport on the middle class, 2011Served
UnderservedUnserved
55
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
0,07 0,07 0,16 0,21 0,39 0,5 0,5 0,5 1 1,1 1,2 1,3 1,6
2,3 2,3 2,51
3,94
12 12,2
16,9
19,6
0
2
4
6
8
10
12
14
16
18
20
Sene
gal (
2010
Hof
inet
)
Cent
ral A
frican
Rep
ublic
(200
5 W
B)
Burk
ina Fa
so (2
010 W
B)
Tanz
ania
(201
2 re
spon
se fr
om N
HC Tan
zani
a)
Niger
ia (2
008 W
B)
Cam
eroo
n (2
005 W
B)
Gha
na (2
012 re
spon
se fr
om H
F Ba
nk, G
hana
)
Malaw
i (20
07 W
B)
Egyp
t (20
11 H
ofin
et)
Uga
nda (2
011)
Zim
babw
e (2
012 re
spon
se fr
om C
ABS)
Alge
ria (2
009 W
B)
Buru
ndi (
2011
WB)
Rwan
da (2
010 W
B)
Botswan
a (2
009 W
B)
Keny
a (2
010 W
B)
Seyc
helle
s (20
10 W
B)
Tuni
sia (2
010 Ho
finet
)
Mau
rius
(201
2 re
spon
se fr
om M
HC)
Mor
occo
(201
1 W
B)
Nam
ibia
(201
1 Ho
finet
)
Sout
h Af
rica (e
nd 2
011,
own
analys
is)
Pe
rce
nt
Mortgages as a percent of GDP
Source: World Bank data from Simon Walley; email correspondence from country-level prac oners; Hofinet; own analysis.
Affordability constraints limit the potential of mortgage markets across Africa
26,4
66
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
8 177 850
2 180 760
915 397
905 885
1 464 370
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Households
>R16 000
R10 000 - R16 000
R7000 - R10 000
R3500 - R7000
<R3500
Monthly household income distribution (Housing White Paper 1994)
5,720,000
1,440,000
1,150,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Households per income band
>R3501
R1500-R3500
<R1500
8,3m households in SA in 1994 14,7m households in SA (2011)
Monthly hh income distribution (Housing White Paper 1994)
Monthly hh income distribution (General Household Survey 2011, StatsSA)
Affordability constraints (&housing costs) also limit the potential of mortgage markets in SA
77
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
In South Africa, housing affordability and circumstance are not necessarily related
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
R 0-R 3,500 R 3,500 -
R7,000
R 7,000 –
R10,000
R 10,000 -
R15,000
R 15,000 –
R20,000
R 20,000+ Total
Other (% hh)
Hostel (% hh)
Tradi onal dwelling - rented or owned (% hh)
Backyard dwelling - rented or owned (% hh)
Informal se lement - rented or owned (% hh)
Formal - rented, plus room/flatlet not in
backyard (% of hh)
Formal - owned (% of hh
Source: Household income data is based on data modeled by the Department of Economics at the University of Stellenbosch, utilising the Community Survey of 2007. Analysis by Shisaka Development Management Services, prepared for the Finance and Fiscal Commission, 2012
88
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Housing: understanding affordability & circumstance
99
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
According to the World Bank, only 3% of the population in Africa has an income sufficient to support a mortgage
36.5% of Africa’s population earn less than US$ 2,00 per day. This is the international poverty line.
18.8% earn above US$20 per dayBuild in
opportunities for housing
microfinance & shift housing
finance potential for low-income
earners.
Source: AfDBReport on the middle class, 2011
9% earn US$4 - $10 per day
10.8% earn US$10 - $20 per day
24% earn US$2 -$4 per day
ServedUnderservedUnserved
HMF offers a staged financing process that is affordable to a wider population for both home improvement and housing development
1010
HMF can be affordable even at rates significantly above mortgage rates
Traditional Mortgage$10,000 Home Loan at 25% interest
Incremental HMF Loan5 x $2,000 Loans at 50% interest
The installment associated with a Traditional Mortgage Loan at 25% interest is still 55% greater than that of an Incremental HMF Loan at 50% interest.
1 2 3 4 5 6 7 8 9 10
Year
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1 2 3 4 5 6 7 8 9 10
USD
Year
Principal paid
Interest paid
Principal outstanding
Cumulative borrowings
Monthly installment: $233Total repayment: $28,000
Monthly installment: $150Total repayment: $18,000
Source: Select Africa
Realising housing by understanding affordability: from whole house to step-by-step
1111
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Original house –built around 1995
Three backyard rooms with water-borne sewerage: rental income
Container in the front yard for spaza shop – small business with cash flow for credit
Building materials for the next project
About 70% of small scale enterprises in Gauteng have a component of their business in the home
Job creation: understanding local economies & sustainable livelihoods
1212
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Sustainable human settlements: understanding communities
A shop in the neighbourhoodmeans residents don’t have to take the bus for milk & bread.
A creche allows parents to work.
Small businesses diversify residential space and support sustainable human settlements
1313
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Original house – access to good water, sewerage and electricity – taxes and services charges are affordable when the household has an income
Quality rental housing serves a housing need & stimulates the local construction sector
Sustainable human settlements: understanding communities
Small businesses diversify residential space and support sustainable human settlements
Property creates the demand for other local enterprises: burglar bars, ceilings, walling, gardens, etc. all stimulating the local economy
1414
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
More borrowing: understanding HMF
1515
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Housing microfinance:
� Gives low-income earners an opportunity to improve their housing circumstances
� Enables lenders to extend lower down market, creating new clients for possible future cross-selling.
� Offers income generationopportunities to support sustainable livelihoods.
� Encourages home improvements and gentrification towards sustainable human settlements
� Borrow microloan
� Make improvements
� Accommodation for rent
� Small business
� Realise income
� Pay back microloan
� Improved housing asset
More borrowing: understanding HMF
1616
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
More borrowing: understanding HMF
Starter houseStarter houseStarter houseStarter house
Borrow micro
loan to improve
Improved house Improved house Improved house Improved house
with backyard with backyard with backyard with backyard
room (for rental)room (for rental)room (for rental)room (for rental)
Sell to buy…
Mortgaged Mortgaged Mortgaged Mortgaged
2222----room room room room
house with house with house with house with
backyard backyard backyard backyard
dwellingdwellingdwellingdwelling
Mortgaged Mortgaged Mortgaged Mortgaged
5555----room room room room
house with house with house with house with
granny granny granny granny
cottagecottagecottagecottage
Sell and buy…
2nd dwelling for business…
Income for retirement…
Once homeless, now an investor, providing housing to other low income earners
1717
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Positioning the HMF loan product in the housing delivery chain
1818
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Acquisition and
occupancy of the plot
Upgrading property tenure to
obtain security
• Maintain physical control of the plot
• Achieve secure tenure
• Obtain full legal title
Provision of basic
infrastructure & upgrading
Construction of the house structure &
improvements
Building community
institutions to combat insecurity
• Physically occupy the plot
• Pay for plot
• Starter infrastructure
• Construct an initial makeshift shelter
• Upgrading of basic infrastructure
• Provide adequate sanitation
• Improve and expand unit
• Add accessories and space for relatives and rental
• Form neighbourhood groups
• Local and international NGO support
• Partner with pubic and private sector
Finance
moment
Finance
moment
Finance
moment
Finance
momentFinance
moment
Positioning the HMF loan product in the housing delivery chain
Source: Housing Value Chain derived from Ferguson, as reported at HMF Regional Workshop, April 2010
Advocacy & networking: policy and regulatory
Issues
Services: Technical skills, supervision, admin support
Products: building materials, plans, etc.
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Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Housing loans can be for various purposes: NACHU, Kenya
�Hatua New Housing Loan
�Huduma Infrastructure loan: install electricity, water and sanitation facilities, sewerage systems, fencing and roads
�Ploti resettlement loans: buy land for residential or commercial purposes
>100% growth between 2010-2011. Book value
is US$721 000
41% growth
94% growth
2020
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Housing loans create demand for other services: KixiCredit, Angola
� KixiCredito (Angola’s first non-bank MFI) offers a housing microloan product: KixiCasa
� 36 month sequential loans up to $5000 per phase per house
� Raising further capital to grow loan book
� Development Workshop as developer
� Partnership with CLIFF to scale up: 3000 home, incremental housing project in Huambo. CLIFF provides infrastructure financing; KixiCasaend user finance
� HabiTec is a social enterprise supporting KixiCasa loans:
� HabiTerra provides settlement planning, land registration and land allocation services – support to provincial government with participatory urban planning
� AquaSan improves rural water supply, builds water systems
� Wood factory produces furniture & other goods for homes and schools
Examples from Angola, Malawi, Kenya, Tanzania, Zimbabwe, Uganda and elsewhere show real progress
2121
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Market making by filling in the delivery chain: Malawi
Select Africa / Habitat for Humanity International
partnership
� Select (private sector MFI) provides HMF
� HfH provides construction technical assistance – cost
covered by Select
� 1900+ households served in Blantyre & Lilongwe –
40% of Select clients
� Plans to grow to other urban centres
� “site visits are an invaluable branding opportunity
for both Select and HfH”
� Future plans
� Refining overall cost model for CTA to increase capacity,
offer more services
� Getting to the client before they start construction
� Increase volume of site visits and inspectionsThe need to link HMF with the housing supply sector (through construction technical
assistance & other support) make this different from traditional microlending and supports a good housing outcome.
Off-site CTA• Technical information,
leaflets, sample plans
• Professional services &
training: meeting with
client regarding plans
On-site CTA• 3 levels relating to
complexity of project
and level of TA required
• Different professionals
for different tasks
• Multiple visits
2222
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Using the delivery chain to innovate around origination
� Satellite HMF lending operations at building material stores
� Lendcor’s WozaniNonke interactive store terminals
� Lafarge Cement pilot in Zambia and Nigeria
2323
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Market making by filling in the delivery chain
Housing microfinance needs
� A place to build (land): Access to securetenure on which households can begin toimprove their housing conditions rather thanwait for the State to intervene is critical.
� The skills and technical capacity to build (housing support services):
� Local municipal requirements
� Drawing & approval of appropriate & efficient plans
� Sourcing & costing of quality building materials
� Good quality builder / contractor
� Ongoing maintenance and longer term home improvements
� The permission to build (political support)
� Can microlenders be expected to provide the housing ingredients?
� Can the borrower?
� But without these ingredients, the housing process is less likely to be a quality one
� While microlendersgrow to scale, big challenge is growing housing support services to scale.
2424
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Nachu, Kenya
Product possibilities: Emerging practice in Africa
� Establishing a housing loan product
� Cooperative savings and loans for housing
� Scaling up capacity for growth
� Offering housing support services
� Broadening institutional actors
� The use of cheap and effective building technology
� Services products: solar, water, sanitation
� Guarantee finance
� Collaboration
� “pay as you go” slum upgrading
Ugafode, Uganda
Faulu, Kenya
KixiCredito, Angola
Nachu, Kenya
Kuyasa Fund, South Africa
Habitat for Humanity, Malawi / Ghana / Uganda
Centenary Bank, Uganda
Mchenga, Malawi
Mchenga Fund, Malawi
WAT, TanzaniaNachu, Kenya
Tanzania HMF WG TAFSUS, Tanzania
Select Africa
UNHabitat Ghana & Tanzania
Mwanza, Tanzania
Select Africa
Planet Finance
Izwe, South Africa
Zinahco, Zimbabwe
Alitheia Capital, Nigeria
2525
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Key issues for HMF in South Africa
• RDP housing• Informal
settlements • Housing
supply & debt
2626
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
RDP Housing
All these dots represent 24% of the residential property market in SA
2727
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
RDP Housing: Johannesburg
� 135 000 registered subsidized units have
been built in Johannesburg since 1994, or
about 20% of the city’s registered
housing stock. (It is noted that a
significant number of subsidised housing
units have not been registered)
� House size: 40m2 maximum: Home
improvements / extensions
� Stand size: 250m2 (older properties):
Backyard rental, home based
enterprises
Legend
� Green: Discount benefit scheme
� Pink: RDP project-linked subsidy
� Grey: either DBS or RDP
Location of registered subsidised housing in Johannesburg: to September 2010
300 estimate
1994
1066
2001
2628
2010
• Nationally 10 shack fires each day, over 200 deaths p.a.
• 7% HIV annual incidence rate - 1.8% in urban formal areas
• Diarrhoea-related infant mortality up to 10 times higher than urban
formal areas
• Official estimates over 40% unemployment compared to 26%
national average
Informal settlements are an EMERGENCY
Source: Steve Topham, National Upgrading Support Programme.Presentation to Planning Africa 2012, 18 September 2012
Response: participatory upgrading at scale
• Outcome 8 Delivery Agreement national
target: 400 000 households in well-located
informal settlements to receive basic services
and secure tenure by 2014
• Cabinet Lekgotla 2011: Integrated upgrading
programmes in 45 municipalities
• National Planning Commission Vision 2030:
expand upgrading programme, create new
instruments for tenure & regularisation
• NDHS & Presidency 2012: Detailed project
plans for 1 800 informal settlements
• ALL to be produced by participatory planningSource: Steve Topham, National Upgrading Support Programme. Presentation to Planning Africa 2012, 18 September 2012
• 125 694 serviced sites delivered by provinces by June 2012
(31.3% of 2014 target) (Eastern Cape, Free State &
Limpopo figures outstanding)
• 7 metros have overall upgrading strategies in place, 6 to be
assisted with detailed settlement level plans – Cape Town,
Johannesburg, Tshwane, Buffalo City, Ethekwini, Ekurhuleni
• 13 Municipalities have housing plans (part of IDP) in place –
ISU portion however requires additional support
• Remaining 29 Municipalities have not upgrading strategies –
but will be assisted with mapping & categorisation of IS as a
first step: Limpopo complete, Free State underway
Progress – delivery and technical assistance
Source: Steve Topham, National Upgrading Support Programme. Presentation to Planning Africa 2012, 18 September 2012
3131
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
Rising debt levels coupled with declining housing supply…
� Annual supply has plummeted since 2007, but starting to recover
� Small house category the leading performer
� Debt levels are serious: 9.22 million consumers have impaired records (47% of 19.6 million credit active consumers)
So
urc
es:
NC
R C
redit
Bure
au M
onit
or
Q2 J
une
2012 /
A
BS
A R
esid
enti
al B
uil
din
g S
tati
stic
s 16 F
ebru
ary 2
012
3232
Kecia Rust ▪▪▪▪ Centre for Affordable Housing Finance in Africa - a division of the FinMark Trust
… creates other opportunities to shift towards productive HMF lending
� Limitations in housing supply may have precipitated a rise in pension-backed and unsecured lending.
� The rise in unsecured lending in SA can also be attributed to the absence of anything else to buy / invest in.
� Melzer has shown how unsecured lending locks the borrower in for years…
� And, the housing subsidy has also put upward pressure on housing prices, reducing affordability
� A wider population is joining the HMF target market, if incremental housing systems can be designed