International Models for affordable housing: the South African Experience - 25, May 2009
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International Models for affordable housing:
the South African Experience
Presenter – Pamela Lamoreaux, International Housing
Solutions, South Africa
The Euromoney Egypt Housing Finance Conference ‐
Cairo, Egypt
25, May 2009
1
“The global economy has deteriorated
dramatically…no‐one knows how long
this crisis will last. Developing countries
face especially serious consequences as
the financial and economic crisis turns into
a human and development calamity”
‐ROBERT ZOELLICK, head of the World Bank,
speaking to its 185 member countries at the
end of the IMF/World Bank meetings on the
worst global slump in generations
2
Global Growth in Numbers
1,3 % is the decline in world output expected by the IMF during 2009.
The forecast drop in global economic activity is a revision of its January
position of 0,5% growth.
US$4,1 trillion is the estimated asset value losses that banks and other financial institutions
face. $2,7 trillion is from loans and assets originating in the US.
10 m jobs, mostly in the US and Europe, could be lost in 2009. US unemployment is expected to
reach 8,9%; 10,1% in 2010.
3,8% is the contraction in growth expected in advanced economies.
2,8% contraction is forecast for the US. This is expected to rise to 1,9% growth in 2010.
1,6% growth is expected in emerging and developing countries this year, rising to 4% next year.
1,7% is sub‐Saharan Africa’s forecast growth this year, rising to 3,9% in 2010
Source: International Monetary Fund
3
Global Perspective
Economists agree that urban development is fundamental to
sustained and increased national economic growth.
Improved planning and management of cities will be the
drivers of economic growth and development, and made
even more dramatic with increased public/private
partnerships, expanded citizens’ role, and improved
infrastructure investments.
Extremely high commercial and residential densities have
been observed in major cities around the world.
All of these factors have a dramatic impact on provision of
safe, affordable housing solutions .
4Case Study: Affordable
Housing in South Africa
Exchange Rate @ 5, May 2009: 1 USD = 8.93 ZAR
5Why South Africa?
Solid Economic Fundamentals
Established capital markets infrastructure
Relative political stability
Strong GDP growth (pre‐financial crisis)
Strong presence in global industries
Public Sector support for development and transparency
Social Challenges Persist but Gradually Improving
High unemployment due in part to educational catch up requirement
and housing accessible to jobs
Continued income disparity by race improving with employment
growth
11% HIV infection rate now being better addressed by public health
programs
6Why Housing?
Inadequate supply of workforce housing due
to legacy of apartheid and rapid urbanization
Inadequate pace of housing development in
low and moderate “gap” income bands
Private sector meeting upper income housing needs
Public sector/government addressing lower income bracket
Opportunity: high demand, inadequate supply, strong
rental growth/sales appreciation
7Unmet Housing Demand
Urbanization
Movement from homelands and rural areas to cities
Rural‐to‐urban migration as agriculture and mining jobs are lost to
mechanization
Immigration from other African countries
Housing quality upgrades required
From “informal” to “formal” units
Larger units/better physical condition
Better access to sanitation and services
Workforce housing needed near jobs
New household formations add demand
Increase in disposable income; growth of middle class
8Almost 100% of mortgage bonds in South Africa are floating rate – tied to prime rate
9Financial Sector Charter (FSC)
Current Charter agreed in 2002 with a target
for affordable housing of R32 billion (expected
to be reset in 2009)
Banks launched new‐entry products, created
affordable housing divisions and re‐looked at
their underwriting guidelines
Banks recognized that they needed to
participate both at project finance and end‐
user finance to meet these targets
10FSC Target Market
Household Incomes, adjusted each year by CPIx
2004 2005 2006 2007 2008
Lower Limit R1,500 R1,600 R1,600 R1,700 1,820
Upper Limit R7,500 R7,900 R8,200 R8,600 R9,670
Exchange Rate @ 5, May 2009: 1 USD = 8.93 ZAR
11Access is not the same as usage. The access frontier methodology
guides an analysis of access
Household is too poor Market redistribution zone
Currently has / uses the
product
e.g. affordability,
Does not have access to awareness, etc.
Excluded by default
the product
Target market
Market development zone
Other qualification criteria
that the product is
Does not have / use the Excluded by design
product designed to exclude e.g.
housing standards, area
Does not want the
product
Has access to the product Market enablement zone
but does not use it
Potential users
Based on a paper entitled “The Access Frontier as an Approach and Tool in 12
Making Markets Work for the Poor” by David PorteousUsing these income bands, the FSC target market measured in terms
of adults comprises around 11 million adults or just over a third of the
adult population
Household monthly income distribution
(Million adults)
32
2.3 3.2 3.1
28 2.1 20%
3.1 2.8 3.3
1.8 2.2
24 2.6 1.2 2.5 2.6 3.0
1.6 2.3
3.1 3.1 2.4
20 2.9
Million adults
FSC FSC FSC 34%
FSC
5.4
6.4 5.4
16 4.6 7.0
12
11.5 8.5
10.6 9.0 7.4
8 46%
4
5.0 5.9
2.8 4.3 4.3
0
2003 2004 2005 2006 2007
Uncertain Less than FSC Lower limit to R3000 R3000 to R5000
R5000 to upper limit Greater than FSC Refuse
Source: FinScope 2003 to 2007 13
* Adult definition for FinScope 2003 is age 18+, for the rest it is 16+Unaudited data from the banking association indicates that almost
R28billion worth of mortgages have been originated in the FSC target
market since Jan 2004, corresponding to over 230,000 loans
FSC Mortgage Origination: 2004 – Q3 2008
160
8,000
Rand value Number of loans Average value
70,000 145
7,262
140
7,000 127
6,319 60,000 57,324
6,045 55,287
53,159 120 114
6,000 5,775 110
104
50,000
100
5,000 43,721
Number of loans
R Thousands
40,000 80
R Millions
4,000
30,000 60
3,000
2,430 22,120
40
2,000 20,000
20
1,000 10,000
0 2004 2005 2006 2007 2008*
0
2004 2005 2006 2007 2008*
2004 2005 2006 2007 2008*
14
Source: Unaudited data, Banking Association
* Note 2008 data for Q1‐Q3 only – Provided by Finmark Trust/Eighty20How are we getting there?
Government programs
Breaking New Ground Initiative – various subsidized programs
Institutions such as National Housing Finance Corporation, Housing
Development Agency, Rural Housing Loan Fund
Provision of rental units for poor and low income (subsidized) (provincial and
municipal housing companies)
Financial Institutions
Banks and non banks (SA Home Loans, Integer, Blue Dot, Lendcor)
Products: Pension‐Backed Loans, Alternative Tenure (non‐ownership), Let‐to‐
buy, Unsecured loans
Private/Public Partnerships
Large integrated developments (mixture of subsidized and market rate
housing, mixture of subsidized rental, multi‐family, and free hold type units)
Public/Private multilaterals providing debt and equity financing for affordable
housing developments (i.e. Development Bank of South Africa, Public
Investment Corporation, IFC, World Bank, FMO, AFB)
15What is the role of IHS?
Raised fund of about $210 mn (about 1.9 billion rand) which
includes $80 mn of debt from OPIC and $130 of international
and domestic equity investment
Provides equity (up to 80% of equity required) financing for:
Land to stand – entitlement/planning
Infrastructure
Top Structure
Rental (refurbishment of dilapidated inner‐city for low income rental, new
build, rent‐to own, student accommodation)
Company investment in housing value chain (i.e. alternative building
technology, renewable energy, housing finance)
16What has IHS Accomplished?
Closed transactions (since late 2007): – R162
mn rand, 50% of units meet FSC requirement,
12,477 units for sale or rent (2,415 for land to
stand; 9,615 for top structure; and 417 for
rental units (inner city refurbishment)
Current Pipeline: various stages of closing –
about R707 mn rand, 60% of investment
meets FSC requirements, 15,326 units (in all
products)
17Contact Information
Pamela Lamoreaux
Investment Director
International Housing Solutions
+27 (0) 11 268 5166 (office)
+27 (0) 71 134 3242 (mobile)
269 Oxford Road
Illovo, 2196
Johannesburg, South Africa
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