Money to house Africa’s emerging middle class

The National Housing Finance Corporation (NHFC) has partnered with the IFC, a member of the World Bank Group, to address the housing gap market.

The parties unveiled yesterday investments of more than $63 million (R630m) in IHS Fund II, the second fund of global private equity investor International Housing Solutions. The fund will support the development of affordable housing in South Africa and sub-Saharan Africa.

The initiative speaks to a critical matter in South Africa where multitudes of middle income earners find themselves homeless because of a market failure and exclusion from government housing subsidy. Many South African middle income earners do not qualify for the so called RDP houses while they are deemed to be earning too low to be financed by banks. They are in no man’s land. This situation is playing itself across the continent which is experiencing growing middle class.

Saleem Karimjee, IFC Senior Manager for Southern Africa, said “IHS Fund II offers an attractive opportunity for private investors to gain access to a fast-growing market with significant positive social impact. IFC’s commitment will stimulate investment, growth and job creation in sub-Saharan Africa, demonstrating our support that can help catalyse additional fundraising.” IFC has committed $25 million to the fund.

IHS is already active in affordable housing development in South Africa. It partners with financial institutions, real estate developers and local government authorities to provide equity finance for housing projects. In 2006 it launched the SA Workforce Housing Fund which received capital injections from North American, the Development Bank of SA, the Public Investment Corporation and the Overseas Private Investment Corporation (OPIC).

NHFC CEO, Samson Moraba, said “Our goal is to enhance the well-being and quality of life of the low- to- middle income households with the security of a home, as well as an opportunity to create wealth.  We firmly believe that our deliberate strategic partnership with IHS will unlock the delivery of housing at scale, and ultimately lead to the creation of sustainable and attractive communities, where people can live, play and pray.

“We are delighted with this investment because not only will it accelerate delivery of housing, but it will also contribute toward foreign direct and private sector investment, as well as job creation.”

Soula Proxenos, IHS Managing Partner, said “IHS has already provided financing for more than 28 000 housing units with a combined total value of more than ZAR 8.6 billion, providing tangible positive social impact for the people living in IHS developments. We can substantially expand that impact through IHS Fund II.”

IHS’s first fund, the SAWHF, has committed more than $ 230 million (ZAR 2 billion) to providing affordable housing in emerging markets while generating superior risk-adjusted returns.

“With our second fund, our thesis remains the same,” Proxenos explained. “Because of urbanisation and the growth of the middle class in Africa, the need for housing across the continent vastly outstrips supply, especially in the category of affordable housing. In countries with a functioning mortgage market, that need translates into market demand. This offers investors the opportunity to achieve superior risk adjusted returns”.

“There are many great opportunities for affordable housing investments across Africa, and we’re optimistic that Fund II will deliver excellent returns for investors, as our first fund is showing.”

More players are recognizing Africa’s housing gap. In a statement released yesterday Gerhard Zeelie, Standard Bank Head of Real Estate Finance for Rest of Africa at Standard Bank, said “There are challenges to investing in residential property in Africa but there are massive opportunities as well, particularly in booming centres like Accra, Lagos and Nairobi”.

Zeelie added that rapid urbanisation in response to population growth and sustained economic expansion across the continent is boosting demand for residential rental stock and in particular where home ownership remains elusive due to the dearth of long-term mortgage financing.

“As African economies continue to expand and people become wealthier so the demand for formal housing stock will grow,” said Zeelie. “Although we’ve seen a lot of activity in African commercial property, particularly in the retail sector, the residential market hasn’t attracted as much interest due of the lack of well-developed home loan products on the continent. However, this barrier to home ownership could be an opportunity for investors looking for new frontiers in the rental market.”

“Standard Bank is more than prepared to finance this sort of investment; it’s just a matter of backing the right deal and partnering with investors who have the necessary capabilities.” 

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