The Pan African Housing Fund (PAHF), managed by Phatisa, provides risk capital to affordable and middle income housing projects on a joint venture basis to selected developers across eastern and southern Africa.
The fund will initially target a limited set of geographies in order to demonstrate the opportunity to investors. The fund will only execute transactions where it has the capability to execute and manage all risk aspects of the investment. The initial geographies that have been identified include the major urban areas of Kenya, Zambia, Rwanda, Mozambique, Tanzania and Uganda. In this regard, PAHF deploys equity into Special Purpose Vehicles (SPV) that own housing projects and always partners with experienced local developers.
Housing needs on the African continent
African city populations will grow more than three-fold during the course of the next 40 years. For the first time, in 2009, the African population exceeded 1bn people, of which almost 40% lived in urban areas.
This urban population is anticipated to grow to 1bn by 2040, and to 1.23bn by 2050. The urbanisation process is likely to lead to an exponential increase in the demand for housing and service delivery.
Many of the areas facing these challenges are already battling the challenges posed by the existence of slums, and a tripling of the urban populations could spell genuine disaster, unless rapid action is taken.
There is evidence that suggests that urbanisation, by itself, is neither good nor bad and, in many cases, it is even positively associated with improving conditions and life expectancy. It should, however, be noted that these benefits cannot be expected to result automatically and are only likely to accrue off the back of good governance that allows housing and basic services to be effectively rolled out.
According to the UN-Habitat report, there is currently an hourly need for the development of 4,000 new houses globally. Research undertaken by Phatisa illustrates the demand in Africa and highlights the requirement for more than US$2.5bn per annum for housing development. Housing is a high-impact sector, critical to growth and stability in emerging markets and Africa’s burgeoning middle classes demand affordable homes. Unfortunately, due to inadequate funding, housing and decent accommodation are likely to continue to be in short supply.
With reference to individual financing, the PAHF does not provide finance to individuals. Banks or specialist mortgage institutions typically provide this sort of finance.
Unfortunately though, private capital for formal sector mass and middle income housing is largely absent in many African countries.
This observation is not an inevitable consequence of development but is the consequence of policy and market constraints surrounding a few key issues, which include the following:
- The affordability of housing and the willingness of developers to abandon ‘top of the pyramid’ development;
- The ability of investors to make large profits on vacant land on the urban fringe;
- The inflation of costs by inappropriate building regulations and inefficient construction sectors;
- A lack of clarity in land titling and legal enforcement, which slows down development, not necessarily precluding it;
- The lack of innovation in supply of housing and mortgage finance;
- The relative inability of cities to supply supporting road, sanitation, power, water and social infrastructure; and
- A failure to plan cities in a manner conducive to employment creation.
Improving the provision of housing on the African continent
A host of research suggests that African low and middle income urban households are the markets of the future. Other industries such as FMCGs have made an early start into this market.
To improve the provision of this type of housing in Africa, a multi-pronged approach is necessary across the entire housing value chain.
By increasing investments into the supply side and supporting the value chain, cheaper building materials, as well as cheaper and more efficient access to services and titled land lots are likely to result.
Further to this, activating financial intermediation across development and end-user finance we will be able to develop the middle of the value chain and provide more effective financial solutions.
As for the demand side, mortgage originators, large corporate schemes and more open legislation for both institutional and private investors can play a significant role in opening up demand constraints.
Phatisa is a private equity fund manager, operating across sub-Saharan Africa, from offices in Port Louis, Johannesburg, Lusaka, Nairobi, Accra and London. Phatisa comprises a team with a significant track record of managing private equity funds and agricultural businesses throughout the continent. The Phatisa team is located in Africa and spends a considerable amount of time developing relationships with strategic partners in all countries where funds under management are active. This ensures that funds have reliable networks and information in the countries in which they invest. Team members have a reputation built up over the last decade, which can be seen in their track records, on-the-ground network, and access to agricultural players and facilities on the continent. Phatisa provides the experience necessary to invest, manage and successfully exit what will be one of Africa’s most pioneering agricultural private equity funds.