1 HMF PRODUCT POSSIBILITIES: Using HMF to promote housing, job creation, and sustainable human settlements, and more borrowing RHLF Annual Client Workshop 25 October 2012 Leriba Lodge, Centurion Kecia Rust kecia@housingfinanceafrica.org www.housingfinanceafrica.org
Outline 2 Housing Job creation Sustainable human settlements Borrowing Understanding affordability & circumstance Understanding local economies & sustainable livelihoods Understanding communities Understanding HMF Product possibilities Positioning the HMF loan product in the housing delivery chain Key issues in South Africa
Housing: understanding affordability & circumstance 3
Affordability constraints limit the potential of mortgage markets across Africa 4 According to the World Bank, only 3% of the population in Africa has an income sufficient to support a mortgage In most cases, subsidies don t bridge affordability to buy a new house. In others, they cause new affordability challenges. Served Underserved Unserved 10.8% earn US$10 - $20 per day 9% earn US$4 - $10 per day 24% earn US$2 - $4 per day 36.5% of Africa s population earn less than US$ 2,00 per day. This is the international poverty line. 18.8% earn above US$20 per day Source: AfDB Report on the middle class, 2011
Affordability constraints limit the potential of mortgage markets across Africa Mortgages as a percent of GDP 20 26,4 19,6 18 16,9 16 14 12 12 12,2 10 8 6 4 2 3,94 2,3 2,3 2,51 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 0 5 Senegal (2010 Hofinet) Central African Republic (2005 WB) Burkina Faso (2010 WB) Tanzania (2012 response from NHC Tanzania) Nigeria (2008 WB) Cameroon (2005 WB) Ghana (2012 response from HF Bank, Ghana) Malawi (2007 WB) Egypt (2011 Hofinet) Uganda (2011) Zimbabwe (2012 response from CABS) Algeria (2009 WB) Burundi (2011 WB) Rwanda (2010 WB) Botswana (2009 WB) Kenya (2010 WB) Seychelles (2010 WB) Tunisia (2010 Hofinet) Mauri us (2012 response from MHC) Morocco (2011 WB) Namibia (2011 Hofinet) South Africa (end 2011, own analysis) Source: World Bank data from Simon Walley; email correspondence from country-level prac oners; Hofinet; own analysis. Percent
6 Affordability constraints (&housing costs) also limit the potential of mortgage markets in SA Monthly hh income distribution (Housing White Paper 1994) Monthly household income distribution (Housing White Paper 1994) Monthly hh income distribution (General Household Survey 2011, StatsSA) 100% 90% 80% 70% 1,150,000 1,440,000 >R3501 R1500-R3500 <R1500 100% 90% 80% 70% 1464370 905885 915397 2180760 60% 60% >R16 000 50% 50% R10 000 - R16 000 R7000 - R10 000 40% 30% 5,720,000 40% 30% 8 177 850 R3500 - R7000 <R3500 20% 20% 10% 10% 0% Households per income band 0% Households 8,3m households in SA in 1994 14,7m households in SA (2011)
In South Africa, housing affordability and circumstance are not necessarily related 7 100% 90% Other (% hh) 80% 70% Hostel (% hh) 60% Tradi onal dwelling - rented or owned (% hh) 50% 40% Backyard dwelling - rented or owned (% hh) 30% Informal se lement - rented or owned (% hh) 20% 10% 0% 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 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
Housing: understanding affordability & circumstance 8
HMF offers a staged financing process that is affordable to a wider population for both home improvement and housing development 9 According to the World Bank, only 3% of the population in Africa has an income sufficient to support a mortgage Build in opportunities for housing microfinance & shift housing finance potential for low-income earners. Served Underserved Unserved 18.8% earn above US$20 per day 10.8% earn US$10 - $20 per day 9% earn US$4 - $10 per day 24% earn US$2 - $4 per day 36.5% of Africa s population earn less than US$ 2,00 per day. This is the international poverty line. Source: AfDB Report on the middle class, 2011
Realising housing by understanding affordability: from whole house to step-by-step 10 HMF can be affordable even at rates significantly above mortgage rates Traditional Mortgage $10,000 Home Loan at 25% interest Incremental HMF Loan 5 x $2,000 Loans at 50% interest USD 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1 2 3 4 5 6 7 8 9 10 Year 1 2 3 4 5 6 7 8 9 10 Year Principal paid Interest paid Principal outstanding Cumulative borrowings Monthly installment: $233 Total repayment: $28,000 Monthly installment: $150 Total repayment: $18,000 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. Source: Select Africa
Job creation: understanding local economies & 11 sustainable livelihoods Original house built around 1995 Three backyard rooms with waterborne 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
Sustainable human settlements: understanding 12 communities A shop in the neighbourhood means 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
Sustainable human settlements: understanding 13 communities Quality rental housing serves a housing need & stimulates the local construction sector Property creates the demand for other local enterprises: burglar bars, ceilings, walling, gardens, etc. all stimulating the local economy Original house access to good water, sewerage and electricity taxes and services charges are affordable when the household has an income Small businesses diversify residential space and support sustainable human settlements
More borrowing: understanding HMF 14
15 More borrowing: understanding HMF 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 generation opportunities to support sustainable livelihoods. Borrow microloan Make improvements Accommodation for rent Small business Realise income Pay back microloan Encourages home improvements and gentrification towards sustainable human settlements Improved housing asset
More borrowing: understanding HMF 16 Once homeless, now an investor, providing housing to other low income earners Starter house Borrow micro loan to improve 2 nd dwelling for business Income for retirement Sell and buy Sell to buy Mortgaged 2-room house with backyard dwelling Improved house with backyard room (for rental) Mortgaged 5-room house with granny cottage
Positioning the HMF loan product in the housing delivery chain 17 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 18 Finance moment Finance moment Finance moment Finance moment Finance moment Acquisition and occupancy of the plot Physically occupy the plot Pay for plot Starter infrastructure Construct an initial makeshift shelter Upgrading property tenure to obtain security Maintain physical control of the plot Achieve secure tenure Obtain full legal title Provision of basic infrastructure & upgrading Upgrading of basic infrastructure Provide adequate sanitation Construction of the house structure & improvements Improve and expand unit Add accessories and space for relatives and rental Building community institutions to combat insecurity Form neighbourhood groups Local and international NGO support Partner with pubic and private sector Advocacy & networking: policy and regulatory Issues Services: Technical skills, supervision, admin support Products: building materials, plans, etc. Source: Housing Value Chain derived from Ferguson, as reported at HMF Regional Kecia Rust Workshop, Centre for April Affordable 2010 Housing Finance in Africa - a division of the FinMark Trust
Housing loans can be for various purposes: NACHU, Kenya 19 Hatua New Housing Loan Huduma Infrastructure loan: install electricity, water and sanitation facilities, sewerage systems, fencing and roads >100% growth between 2010-2011. Book value is US$721 000 41% growth Ploti resettlement loans: buy land for residential or commercial purposes 94% growth
Housing loans create demand for other services: KixiCredit, Angola 20 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; KixiCasa end 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
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 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 Increase volume of site visits and inspections The 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. 21
Using the delivery chain to innovate around origination 22 Satellite HMF lending operations at building material stores Lendcor s Wozani Nonke interactive store terminals Lafarge Cement pilot in Zambia and Nigeria
Market making by filling in the delivery chain 23 Housing microfinance needs A place to build (land): Access to secure tenure on which households can begin to improve their housing conditions rather than wait for the State to intervene is critical. Can microlenders be expected to provide the housing ingredients? Can the borrower? 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) But without these ingredients, the housing process is less likely to be a quality one While microlenders grow to scale, big challenge is growing housing support services to scale.
Product possibilities: Emerging practice in Africa 24 Izwe, South Africa Establishing a housing loan product Ugafode, Uganda Faulu, Kenya KixiCredito, Angola Select Africa Cooperative savings and loans for housing Nachu, Kenya Zinahco, Zimbabwe Scaling up capacity for growth Kuyasa Fund, South Africa Nachu, Kenya Offering housing support services Habitat for Humanity, Malawi / Ghana / Uganda Broadening institutional actors The use of cheap and effective building technology Services products: solar, water, sanitation Guarantee finance Collaboration Tanzania HMF WG WAT, Tanzania Centenary Bank, Uganda Mwanza, Tanzania Mchenga, Malawi Mchenga Fund, Malawi Nachu, Kenya Alitheia Capital, Nigeria Planet Finance Select Africa TAFSUS, Tanzania pay as you go slum upgrading UNHabitat Ghana & Tanzania
Key issues for HMF in South Africa 25 RDP housing Informal settlements Housing supply & debt
RDP Housing 26 All these dots represent 24% of the residential property market in SA
27 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: 40m 2 maximum: Home improvements / extensions Stand size: 250m 2 (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
Informal settlements are an EMERGENCY 300 estimate 1066 2628 1994 2001 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 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 planning Source: Steve Topham, National Upgrading Support Programme. Presentation to Planning Africa 2012, 18 September 2012
Progress delivery and technical assistance 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 Source: Steve Topham, National Upgrading Support Programme. Presentation to Planning Africa 2012, 18 September 2012
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) 31 Sources: NCR Credit Bureau Monitor Q2 June 2012 / ABSA Residential Building Statistics 16 February 2012
creates other opportunities to shift towards productive HMF lending 32 Limitations in housing supply may have precipitated a rise in pensionbacked 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
33 Thank you! Kecia Rust kecia@housingfinanceafrica.org www.housingfinanceafrica.org +2783 785 4964