Why investors fear touching affordable housing in Africa

Boma Yangu affordable houses in Ngara, Nairobi. [Wilberforce Okwiri, Standard] Patient capital (long-term capital) has been touted as one of the key solutions to the housing challenge in Kenya and the rest of Africa. This is according to an analysis by two continental agencies - the Centre for Affordable Housing in Africa (CAHF) and African Union for Housing Finance. The analysis notes that the risk of investing in housing on the continent remains too high. Some of the key challenges contributing to the risk include high prices of the land, the tedious process of acquisition of title or tenure and infrastructure. Others are off-take (sales and rental), maintenance and ongoing improvements, and social and economic infrastructure. The report notes that land assembly and ownership are dependent on the government adding that acquisition has remained expensive and challenging. The same applies to land administration and titling procedures which it notes, are slow and expensive. The continent is also said to have a high cost of building inputs with credit being limited and expensive for property developers. This leads to developers becoming financiers. The bureaucratic administrative procedures of securing permits and building codes and low construction productivity also affect the sector. The analysis lists uncertainty about the construction process, pointing out major delays with little accountability and an uncompetitive market caused by a lack of a benchmark. The report describes the off-take challenges as significant and links them to poor access to finance. This is in addition to significant credit risks relating to high non-performing loans (NPLs) and inaccessible security. A lack of long-term finance for mortgage lending banks and a high monthly payment rate of 14 per cent undermines borrower affordability. "Insecure security and little information about borrower capacity and willingness to pay undermines trust and encourages investors to look elsewhere," the analysis reads in part. "Risk is expensive." The July 2022 analysis is titled Effective Housing Finance: Data Lessons From Other Jurisdictions. The analysis emphasises the need for data in the market, noting that it is the driving principle, particularly if the private sector is to be interested. Data drives market interest, confidence, performance, investment and general activity. "Market intelligence and data is fundamental market infrastructure, in that it addresses risk," reads the analysis in part. Market intelligence It adds that a major constraint undermining private sector participation and good policy engagement in affordable housing finance is the availability of data and market intelligence to facilitate risk-taking and decision-making. "In providing market intelligence that makes the case for investment in under-served markets we can support a better policy environment and increased private sector activity in affordable housing markets. In this way, we catalyse scale interventions," says the analysis. The analysis says partnerships in capital and capacity, targeted at real affordability, in support of local market development, and niche opportunities along the value chain are what will create opportunities for the housing sector in Africa. "An overlooked ingredient, however, is good information that enables good decision-making," it adds. For the continent to have an enabling environment for investments in housing, apart from data and market analytics, the document calls for conducive macro-economic factors, emphasizing local networks and institutional capacity, and patient capital with time, target and capacity. Venture capital that meets risk with patience, blended finance arrangements that maximise and leverage capacity, and explicit pursuit of innovation are listed as the points that should accompany patient capital. The report calls for a favourable policy and regulatory environment, with support for housing listing Kenya's Big Four Agenda as an example. It also emphasises local capital markets, institutional investors and pension funds. The analysis states that land information is critical to land access and its cost. Additionally, data on housing is key in establishing the scope and nature of sector performance, enabling planning and supporting further investment. "Financial sector data regarding access, targeting, performance, enable targeted interventions and risk-taking, and ultimately reduces the cost of capital," the analysis reads. The report notes data across the value chain illuminates market activity and builds confidence. "Data transparency creates a basis for problem solving and innovation," it says. CAHF runs the Open Access Initiative and the Data Agenda for Africa which carries out market intelligence for the housing sector in the continent.

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