Pan African housing company Shelter Afrique is betting on bonds to navigate through the volatile foreign exchange rate regimes and unlock funding for affordable homes.
Group Chief Executive Andrew Chimphondah said the fluctuation of African currencies against the dollar or other hard currencies has been putting lots of pressure on borrowers.
As such, products such as mortgages become expensive to service, which makes housing a farfetched dream for many in the continent.
Mr Chimphondah said with good local capital markets, funding can be made accessible at affordable rates through the issuance of investment securities such as bonds.
This is already being done in Nigeria. “We are raising 250 billion Naira ($500 million or Sh56.5 billion) through a bond issuance currently undergoing in Nigeria and 2022, we intend to issue the first-ever East Africa bond of $500 million,” said Chimphondah.
The chief executive said the company is keen on developing local capital markets by issuing bonds in local currencies so that developers and primary mortgage lenders can have access to debt funding in their local currencies to avoid such exposures.
“The volatile foreign exchange rate regimes in most of our member countries is another major challenge (to affordable housing) since most of the local currencies are weaker against the major world currencies such as the US dollar,” explains Chimphondah.
“Look at the Nigerian Naira – if today it is 500 to the US dollar, tomorrow it could be at 700. Such a scenario makes it difficult for those who borrow in hard currencies to be able to pay back because of the foreign exchange exposure risks.”
In Kenya, the Kenya Mortgage Refinance Company has got the greenlight from the Capital Markets Authority (CMA) to float its first-ever bond through which the company seeks to raise Sh10.5 billion through Medium Term Notes (MTN).
This will be done in tranches with the first seeking to raise Sh1.4 billion.
CMA on January 12, 2022, said the proceeds from the MTN will be used to give long term loans to primary mortgage lenders in a bid to increase the availability of affordable housing finance in the country.
“While banks have liquidity, the (liquidity) they have is short term,” said KMRC Chief Executive Johnson Oltetia in 2020, when he revealed the plans to go into the capital markets to raise funds.
In December 2021, the CMA also approved the listing of Sh3.9 billion MTN for Urban Housing Renewal Development Ltd.
Chimphondah said a major challenge to affordable housing is the huge capital needed to put up houses to cover the already existing deficit of 56 million units in Africa.
Kenya with its share of two million requires Sh2.8 million to put a single unit. The continent needs at least Sh339 trillion ‘which presents a huge funding challenge for us.’