A lack of adequate mortgage solutions in many African territories is suppressing a “massive opportunity” in lower-to-middle income housing.
This is according to Peet Strauss, group development manager for real estate agency Pam Golding Properties.
“The local [housing] market is stifled and probably the biggest reason for it is that there’s no proper mortgage solution for low- and middle-income people in Africa. They typically have to pay cash.”
Founded in South Africa, Pam Golding has grown to over 300 offices across sub-Saharan Africa through partnering with local players in key countries – including Kenya, Mozambique and Zimbabwe. Its operations span from residential to commercial properties, but focuses mostly on the upper-end of the market.
However, while Strauss says there is still a strong demand for top-tier housing developments that cater to expats and wealthy businesspeople, the largest housing potential lies towards the lower-income levels.
“That’s where the biggest market is,” he explains.
The United Nations projects the continent to be the most rapidly-urbanising region in the world over the next few decades, with the number of people living in cities expected to rise to 56% of the population by 2050. They will be looking for adequate, yet affordable, housing.
However, interest rates for home loans are high in many African markets – in some cases well over 20%. This is a result of a low level of competition in the banking sector, perceived credit risks and high transaction costs.
According to recent research by the Centre for Affordable Housing Finance in Africa, less than 10% of households can afford a mortgage for even the cheapest newly-built house. For example, it highlighted the cheapest house built by a private developer in Angola was US$200,000. But at the lending rate of around 15%, only 2.2% of the urban population are able to afford it, as the average household income in the country’s urban areas is only 9% of what is required.
“It is a bit of mismatch,” says Strauss.
“But banks are moving into Africa – some South African banks are global already. And with that will come a slow, maturing, mortgage solution that is particular to every country. It will open it up. It takes a mindset with a bit of an education as well for people to understand that they can create wealth through property by using the bank’s money.”
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