housing financing -a public-private partnership – “ private housing finance in africa”

Annual Conference and General Meeting of African Union for Housing FinanceJoaquim Chissano International Center

8th to 10th of September 2009, Maputo - Mozambique

HOUSING FINANCING-A PUBLIC-PRIVATE PARTNERSHIP –

“ PRIVATE HOUSING FINANCE IN AFRICA”

BY: ASARE AKUFFOMANAGING DIRECTOR

HFC BANK (GHANA) LIMITED ACCRA, GHANA8th SEPTEMBER

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OUTLINE OF PRESENTATIONOUTLINE OF PRESENTATION

1. General Introductiona) Africa Growth Performanceb) Africa’s Inflationary Situationc) Global Development Housing Marketd) Trends in the Housing Market of Africa

2. Housing Finance in Africaa) Mortgage Penetration by Regions b) Depth of Housing Financec) Housing Affordability Situationd) Major constraints across Africa

3. Recent Developments in Housing Microfinance

4. Challenges Facing Microfinance lenders

5. Country Examplesa) Ghanab) Nigeriac) South Africad) Kenya

6. The Way Forward

7. Conclusion

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GENERAL INTRODUCTION

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AFRICA GROWTH PERFORMANCE AFRICA GROWTH PERFORMANCE (Real GDP Growth)(Real GDP Growth)

• Over the past decade sub-Saharan Africa has made remarkable gains in promoting growth and achieving economic stability.

• Growth—which is essential for much-needed poverty reduction—averaged more than 6 percent over the past five years;

• inflation had fallen to single-digit levels before the fuel and food price shocks of 2008; and reserves were built up. These positive developments stemmed from:

-strong macroeconomic stability

-a favorable external environment, especially rising commodity prices;

Debt Relief and aid from the international community.

(Oil exporting countries include; Angola, Cameroon, Chad, Congo, Equatorial Guinea, Gabon, Nigeria)

Source; IMF REGIONAL ECONOMIC OUTLOOK 2009

2003 2004 2005 2006 2007 2008Sub Saharan Africa 5.0% 7.0% 6.2% 6.3% 6.7% 5.9%Oil Exporting Countries 8.1% 11.2% 7.8% 7.5% 8.9% 8.1%

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INFLATIONARY SITUATIONINFLATIONARY SITUATIONAFRICAAFRICA

Consumer Prices averaged 8.23 percent for SSA over the past six years , whilst thatof Oil Exporting countries was 12.3 percent during the same period.(Oil exportingcountries includes; Angola, Cameroon, Chad, Congo, Equatorial Guinea, Gabon,Nigeria)

Source; IMF REGIONAL ECONOMIC OUTLOOK 2009

Consumer Prices 2003 2004 2005 2006 2007 2008

Sub Saharan Africa 10.8% 7.3% 8.8% 7.3% 7.1% 11.7%

Oil Exporting Countries 20.4% 14.9% 14.7% 8.2% 5.7% 9.9%

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GLOBAL DEVELOPMENTS IN HOUSING GLOBAL DEVELOPMENTS IN HOUSING MARKETMARKET

• Global demand for housing is expected to increase about 2.5 percent per annum through 2011, generating construction of an estimated 60 million new housing units.

• The fastest gains will be in the Africa/Mideast region, spurred by the most rapid increases in population and household formation.

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TRENDS IN THE HOUSING TRENDS IN THE HOUSING MARKET OF AFRICA-1MARKET OF AFRICA-1

• 70% of housing stock in Sub-Sahara Africa is of poor quality and not in compliance with local regulations (Killick).

• In Africa over 75% of households cannot access mortgages despite the increasing trend in the mortgage GDP ratio.

• Internal population flows presents a challenge to the ability of government planning agencies to respond to the need for urban housing.

• The housing finance industry in Africa is dominated by state or government institutions and a few players from the private sector.

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TRENDS IN THE HOUSING TRENDS IN THE HOUSING MARKET OF AFRICA-2MARKET OF AFRICA-2

• Informal settlements are home to majority of inhabitants in most African cities.

• Over 70perent of urban population suffers shelter deprivation in terms of inadequate housing, water supply, or sanitation.

• There is overcrowding and upsurge of slums in most African countries.( Kenya, Namibia ,Zambia)

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MORTGAGE PENETRATION BY MORTGAGE PENETRATION BY REGIONSREGIONS

• Compared to the developed regions of the World, Africa has a relatively meagre aggregate MD/GDP ratio(2001-2005).

REGION

5-yr-Average MD/GDP Ratio

Africa 13.5

Eastern Europe 2.7

Emerging Asia 12.5

Latin America 5.5

Middle East 4.9

North America 65.8

Pacific 38.7

Europe 43.6Source: Warnock, V.C., Warnock, F.E., Markets and Housing Finance,

J. Housing Econ. (2008), doi:10.1016/j.jhe.2008.03.001

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DEPTH OF HOUSING FINANCEDEPTH OF HOUSING FINANCE

NB: For the Legal rights score index the higher scores indicates that collateral and bankruptcy laws are better designed.-Source: Warnock, V.C., Warnock, F.E., Markets and housing finance, J. Housing Econ. (2008), doi:10.1016/j.jhe.2008.03.001

Length of Contract

(years) MAX LTV(%)Fixed of variable MD/GDP (Avg)

Legal Rights

Emerging Markets n/a n/a n/a 8.6 n/a

Africa n/a n/a n/a 13.5 n/a

Ghana 20-25 80 Variable 0.5 5

Algeria 20 90 Fixed 1.3 3

Morocco Max-25 70-100 n/a 7 3

South Africa 20-Oct n/a Variable 22 5.5

Tunisia n/a n/a n/a 6 3

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HOUSING AFFORDABILITY SITUATION IN SELECTED HOUSING AFFORDABILITY SITUATION IN SELECTED AFRICAN COUNTRIES-1AFRICAN COUNTRIES-1

Uganda• Only 0.68% of households have access to mortgage loans from commercial banks.• 19.52% of households have access to housing microfinance loans from MDIs.• 62.3% have no access to housing loans.

South Africa (Rust, 2007)• Within SA’s population of about 12.7 million households, only about 2 million can afford

to meet their needs in the housing market.”

• Mozambique (Allen and Johnsen, forthcoming)• A household would require a monthly net salary of 48 000 MT ($1 900) to borrow $40 000

over a 20 year period to purchase a small apartment in the less attractive areas of the cement city of Maputo. … This is more than the net basic salaries of a couple senior doctors working for the national health system.

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HOUSING AFFORDABILITY SITUATION IN SELECTED HOUSING AFFORDABILITY SITUATION IN SELECTED AFRICAN COUNTRIES-2AFRICAN COUNTRIES-2

Kenya (Alder and Mutero, 2007)• Less than 10% traditionally qualified for mortgage loans from HFIs, with the majority

ruled out by their low incomes. • Borrowers generally consist of high net worth individuals.

Zambia (Gardner, 2007)• Few self-employed people earn sufficient to qualify for a home loan. This leaves the 16%

of all Zambians that are formally employed (2.2-million) as the potential market. Of these, 40% are currently un-banked.

Rwanda (Oyier, Ketley & Davis, forthcoming)• Of the 270 000 formally employed, only around 50,000 people earn above RWF1.2

million (US$2000) per month. Income of the bulk of the population will fall below the level where they can secure mortgage financing in the formal market.

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OTHER MAJOR CONSTRAINTS ACROSS OTHER MAJOR CONSTRAINTS ACROSS AFRICAAFRICA

• Unavailability of long term funds• Legislation (foreclosure & eviction)• Underwriting (income, ID verification)• Cost, Process and timing in registering title• Reliability of title deeds• Lack of Credit Bureaux to discriminate on risk• Macroeconomic challenges (Interest rates, currency,

inflation).• Lack of knowledge of financial products in general

(mortgages in particular)• Cultural aversion to debt

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RECENT DEVELOPMENTS IN HOUSING MICROFINANCE RECENT DEVELOPMENTS IN HOUSING MICROFINANCE IN AFRICAIN AFRICA

• Microfinance is extensive and growing in many African countries.

• Housing microfinance growing at a slow pace

• Micro finance is mainly donor / NGO-driven

• Banks are now setting up microfinance subsidiaries.

• The time is ripe for housing microfinance.

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GHANA


8th to 10th of September 2009, Maputo - Mozambiquewww.hfcbankgh.com

MORTGAGE MARKET DEVELOPMENTS-1MORTGAGE MARKET DEVELOPMENTS-1

• The demand of housing in Ghana is estimated at about 70,000–90,000 housing units annually of which only 40,000 is met.

• This leaves an annual deficit of about 30,000–50,000 housing units.

• It is estimated that only 8% of Ghanaians desirous of houses could afford them without accessing mortgage loans

• It is also estimated that between 12% and 15% of Ghanaians comprising mainly, top civil servants and staff of financial institutions have access to mortgage loans to build.

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• Houses built through government public mass housing schemes constitutes about 20 percent of housing stock, with the remaining 80 percent produced by the private sector.

• The 2000 population and Housing Census indicates that the current housing stock in the country stands a t 2.1millions houses.

• About 50 percent of the home buyers in the formal sector are Ghanaians living abroad, using the real estate market as an investment channel.

• 70% of Urban population suffer shelter depreciation in terms of inadequate housing, water supply or sanitation.

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• In recent times there has been an effort by Universal Banking institutions to provide mortgages.

• They are however focused on financing the high end of the market.

• These financial institutions include; • Ecobank • Merchant Bank, • Fidelity Bank • Ghana Home Loans Company.

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ESTIMATED MORTGAGE FINANCE ESTIMATED MORTGAGE FINANCE PORTFOLIOPORTFOLIO

Bank Amount GH¢m(2008) Share(%)

HFC Bank 37.9 30.03%

Ghana Home Loans 34.1 27.02%

Barclays Bank 31.5 24.96%

Fidelity Bank 14.9 11.81%

GCB 6.6 5.23%

SG-SSB 1.2 0.95%

Amal Bank 0.017 0.01%

Total 126.217 100.00%

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AFFORDABILITY ANALYSIS-1AFFORDABILITY ANALYSIS-1

YEAR Minimum Wage Per

Annum (GH¢)

% Increases in Annual Minimum

Wage

Maximum Mortgage Finance

Accessible (GH¢)

Maximum Mortgage Finance

Accessible (US$)

Adjusted Minimum Wage Per

Annum

Maximum Adjusted Mortgage Finance

Accessible (GH¢)

2000 136.08 544.32 598.75 204.12 898.13

2001 178.2 30.95% 712.80 784.08 267.30 1,176.12

2002 231.66 30.00% 926.64 1,019.30 347.49 1,528.96

2003 298.08 28.67% 1,192.32 1,311.55 447.12 1,967.33

2004 362.88 21.74% 1,451.52 1,596.67 544.32 2,395.01

2005 437.4 20.54% 1,749.60 1,924.56 656.10 2,886.84

2006 583.2 33.33% 2,332.80 2,566.08 874.80 3,849.12

2007 712.8 22.22% 2,851.20 3,136.32 1,069.20 4,704.48

2008 821.25 15.21% 3285 3,457.89 1,231.87 5,420.23

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AFFORDABILITY ANALYSIS-2AFFORDABILITY ANALYSIS-2

• The Average Prices in US dollars are current prices of housing units in the Ghanaian property market.

• The maximum mortgage finance accessible was computed as annual minimum wage multiplied by a factor of four.

• Adjusted maximum mortgage finance accessible is computed by increasing the annual minimum wage by fifty percent.

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HOUSE PRICE AS A HOUSE PRICE AS A MULTIPLE OF MORTGAGE FINANCEMULTIPLE OF MORTGAGE FINANCE

TYPE OF HOUSE

AVERAGEPRICE IN

US DOLLARS

MAXIMUM MORTGAGE FINANCE ACCESSIBLE

ADJUSTED MAXIMUM MORTGAGE FINANCE

ACCESSIBLE

1 Bedroom ( semi-detached, expandable) 25,000 8 times 5 times

2 Bedroom ( semi-detached, on-expandable) 45,000 14 times 10 times

2 Bedroom ( Detached, on-expandable) 55,000 18 times 12 times

3 Bedroom ( semi-detached, expandable) 60,000 19 times 13 times

3 Bedroom ( Detached, expandable) 75,000 24 times 16 times

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MICROFINANCE INSTITUTIONS - 1MICROFINANCE INSTITUTIONS - 1

• Micro finance policy initiatives have been geared towards developing micro finance institutions to be effective in facilities for the development of the low-income group.

• There has been significant increase in competition in Ghana’s microfinance sector.The number of microfinance institutions has more than doubled in the last five years to 501,offering access to loans to approximately 745,000 low income people and savings services to about 3.1 million people.

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• The Micro finance sector is made up of formerly regulated, semi-formal and informal/unregulated groups.

• Given the introduction of the universal banking license in 2003, a few banks have established microfinance subsidiaries to cater for low income earning customers.

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• HFC Bank is currently the only institution that operates a low-income housing scheme, with a maximum amount of US $12,000.

• HFC worked with the CHF International (United States NGO) to set up a servicing company to work with HFC on a long term microfinance project, in which lending terms would be attractive for housing purposes.

• The Micro Finance Home loans would be expected to range up to $2000 (18 - 20 million cedis).

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REGULATORY FRAMEWORKREGULATORY FRAMEWORK

• Mortgage Act 1972(NRCD 96-Repealed)

• Home Mortgage Act 1993 (PNDCL 329-Repealed)

• Home Mortgage Finance Act,2008

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FORECLOSURE EFFECTIVENESSFORECLOSURE EFFECTIVENESS

Home Mortgage Finance Act 2008 The mortgagee is not obliged to take court proceedings and may take

possession peaceably.

Where a mortgagee is unable to enforce a right of possession in a peaceable manner the mortgagee may use the services of the police to evict the mortgagor or other person in possession pursuant to a warrant issued by a court.

These new act would enhance the process of foreclosure in the Country.

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RECENT GOVERNMENT POLICIESRECENT GOVERNMENT POLICIESON HOUSINGON HOUSING

Government plans to improve the housing situation through the following strategies:• National Housing Policy

• Land Banks

• Government Affordable Housing (Direct Delivery)

• Sale of Government Low Cost Houses

• Rural Housing Schemes

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NIGERIANIGERIA

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HOUSING SITUATIONHOUSING SITUATION

• With estimated population of over 140million, and housing deficit of over 17million,Nigeria needs to produce 720,000 housing units per annum based on an estimate of 9 dwelling units per 1,000 of population.

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HOUSING FINANCE ARRANGEMENTS HOUSING FINANCE ARRANGEMENTS IN NIGERIA-1IN NIGERIA-1

Government policies aimed at providing affordable and comfortable housing for all Nigerians include the following:

The Federal Mortgage Bank of Nigeria (FMBN)The (FMBN) provided of long term credit facilities to mortgage institutions in the country; encourages and supervised the activities of the mortgage institutions;provision of long term loan to individual and property developers for house building,produce saving facility, carry out research on mortgage finance.

Credit PoliciesThe CBN has through its credit policies, required the commercial and merchantbanks to allocate a stipulated minimum proportion of their credit to the housing/construction sector

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HOUSING FINANCE ARRANGEMENTS HOUSING FINANCE ARRANGEMENTS IN NIGERIA-2IN NIGERIA-2

National Housing Fund (NHF)The NHF was established as a mandatory contributory scheme to mobilize cheap and long term funds for housing credits. The NHF is aimed at

• encouraging a multiplication of housing finance institutions, enhancing mobilization and growth of long-term funds and

• making loans affordable to more borrowers. • ensuring constant supply of loans to Nigerians for the purpose of building, purchasing

and improvement of residential houses • providing incentives for the capital market to invest in property development,• encouraging the development of specific programmes that would ensure effective

financing of housing development and to provide long-term loans to mortgage institutions for on- lending to contributors to the fund.

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PROBLEMS OF MORTGAGE FINANCING IN NIGERIA-1

Low Interest Rate on National Housing Fund The low interest rate level stipulated by law on investment on NHF makes the banks and Insurance companies reluctant to invest in the Fund especially, as there are some more profitable investment Avenues.

Low Level of Participation in the NHFThe number of contributors to the NHF has been relatively small compared with the national work force. There are about 9 million workers who are yet to be registered and are therefore not making any contributions. There are also alleged cases of diversion of workers contributions to the fund by employers to other investment purposes.

Macroeconomic environmentThe hitherto high inflation rate negatively affected the macroeconomic environment. There is need to continue to keep the rate of inflation moderate as high inflation rate and structural bottlenecks in the economy do not encourage contribution toward the fund.

-

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PROBLEMS OF MORTGAGE FINANCING IN NIGERIA-2

Cumbersome Legal Regulatory Framework for Land AcquisitionThe existence of a cumbersome process of title documentation of land ownership which is reinforced by inadequate cadastral system makes mortgage financing very difficult. This has been seen as one of the factors responsible for slow disbursement of NHF.

The Structure of Bank Deposit Liabilities Deposit money banks tend to avoid fund mismatch i.e. borrowings short but lending long, which is required in mortgage financing. The key issue that emerges therefore revolves around how to ensure adequate long term lending by financial institutions rather than the current short term lending practice. This requires significant intermediation efforts, especially, since housing finance

is very sensitive to inflationary environment.Absence of National Credit Data BaseThe inadequate data on credit history of households presents a challenge to mortgage finance institutions

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SOUTH AFRICA

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THE HOUSING SITUATIONTHE HOUSING SITUATION

• Despite pro-active government activities between 7.5 and 8.7 million South Africans lived in inadequate housing in 2004( Knight 2004).

• Housing Deficit–between 2.4million in 2006(IRIN news.org)

• South Africa’s MD/GDP ratio for the period 2001 – 2005 averaged 22.0.

• Between 2004 and 2007, a total of R 37.99 billion has been committed to Housing Finance in South Africa.

*Source: Warnock, V.C., Warnock, F.E., Markets and housing finance, J. Housing Econ. (2008), doi:10.1016/j.jhe.2008.03.001

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APPROACH TO HOUSING FINANCE SYSTEM-1APPROACH TO HOUSING FINANCE SYSTEM-1

Government Role– Implemented a National Housing Subsidy Schemes. E.g. Jubilee Housing

Scheme and Owotu Housing Scheme.

-Established institutions to encourage banks to extend their loans down the market. E.g. Urban Development Bank.

– Established National Housing Finance corporation and rural housing loan fund to provide wholesale support to specialist housing lenders, market financiers, etc.

– Established other housing institutions to encourage Public and Private Partnerships (PPPs), and to attract private sector investment for the low-income housing market, namely

– National Urban Reconstruction and Housing Agency (NURCHA),

– National Home Builders Registration Council (NHBRC),

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APPROACH TO HOUSING FINANCE SYSTEM-APPROACH TO HOUSING FINANCE SYSTEM-22

• The private sector delivered just under 200 000 houses across South Africa between 2000 and 2004.

• Of this, 42% or 82 944 units were delivered in the sub R200 000market, also known as the “affordable” market.

• The annual proportion of affordable housing delivery has declined form 63% in 2000 to 30% in 2004, even though actual unit numbers have remained almost constant.(Source Nell et al 2005)

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APPROACH TO HOUSING FINANCE SYSTEM-3APPROACH TO HOUSING FINANCE SYSTEM-3

Financial Institutions Major Players:

• Absa, • Standard Bank,• Nedbank and • First Rand

Minor Players. They provide housing finance either through: • Specific loans (Cash Bank)• Micro loans (African Bank) • or both (Saambou, Unibank)

Non-Governmental Organizations (NGOs) Home Loan Guarantee Company, (HLGC).

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8th to 10th of September 2009, Maputo - Mozambique40

CONSTRAINTSCONSTRAINTS

• High Unemployment rate (38% of the household do not have a source of monthly wages)*

• Low income levels and wide income disparities

*Source: Labour Force Survey September 2004 (wage income only, other income sources are not included).



KENYA

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THE HOUSING SITUATION IN KENYATHE HOUSING SITUATION IN KENYA

• The annual housing deficit in urban areas was estimated at 255,500 units in 2002( Cities Alliance 2002).

• Sixty percent of the population live within the informal settlements occupying 5% of the land designated for the residential purposes.

• Between 1980s and 1990s there were 20 housing finance institutions. Only few of these institutions remain currently.

• In recent times commercial banks are competing with these institutions in the provision of mortgage finance.

• The general improvement in the financial sector has had a positive impact on housing finance, but the vast majority of Kenyans still cannot meet the terms of borrowing.

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APPROACH TO HOUSING FINANCE SYSTEMAPPROACH TO HOUSING FINANCE SYSTEM

Housing Finance Institutions• Housing Finance Company of Kenya( HFCK)

HFCK was incorporated in 1965 as a joint venture between government and the

Commonwealth Development Corporation (of the United Kingdom),• Kenya Building Society (KBS)• Savings and Loan (S&L)

• East African Building Society Bank

BanksStandard Chartered Bank Barclays Bank Stanbic Bank

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HOUSING MICROFINANCEHOUSING MICROFINANCE

Housing microfinance is a relatively newproduct in Kenya and is offered primarily bythe following institutions;

– National Cooperative Housing Union (NACHU)– Kenya Affordable Shelter Project (KASP) of the

K-REP Development Agency .– Jamii Bora, (JB)

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8th to 10th of September 2009, Maputo - Mozambique45

CONSTRAINTS IN THECONSTRAINTS IN THEMORTGAGE MARKETMORTGAGE MARKET

• Low income levels resulting in affordability problems.

• Non-functioning and complex legal and regulatory environment

• Lack of access to long-term finance by commercial banks and housing finance institutions.

• High house prices.



THE WAY FORWARD

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WAY FORWARD-1WAY FORWARD-1

Stable Macroeconomic ConditionsStabilizing the macroeconomic climate which promotes confidence in the value of a country’s currency; and lowering interest rates

A legal framework for property rights– developing sound property rights, including the need for a clearly defined right to sell land;– developing property laws (e.g. condominium law) and– developer finance; and– developing efficient judicial processes to resolve disputes

A property market Establishing an efficient housing supply chain which focuses on removing obstacles to the release of land by government; providing infrastructure; and clearing construction bottlenecks

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WAY FORWARD-2WAY FORWARD-2• A growing consensus is that alternatives must be found to conventional

mortgage lending in Africa.

• Housing Microfinance is the appropriate housing finance tool for the poor.

• Challenge is to gear this approach to scale; -Land -Housing Support Services - Political and administrative support

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THANK YOUTHANK YOU

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housing financing -a public-private partnership – “ private housing finance in africa”

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