Johannesburg – Elsewhere in Africa home loans are scarcer than hen’s teeth, offering lending institutions huge potential.
Although African countries have huge populations, access to home loans is limited and home loan debt is negligible as a percentage of gross domestic product (GDP).
In some countries lending institutions do indeed enter the home loan market, but are reluctant to participate on a large scale. Interest rates on home loans are also sky high.
As a result most housing transactions on the continent are done for cash.
Players in South Africa’s property industry reckon these unexploited home loan markets offer lending institutions considerable potential to broaden their horizons, specifically against the background of a massive appetite for accommodation.
Responding to enquiry, Absa said it - together with Barclays - would continue working with their peers to investigate opportunities in Africa.
“But it's important to note that the investigation extends beyond the home loan market and that the relevant countries’ legal systems form part of the analysis.”
What this amounts to is that the legal system has to recognise ownership and the rights of the lending institution.
Dr Andrew Golding, chief executive of Pam Golding Estates (PGE), said South Africa has the most sophisticated home loan market on the continent, followed by Namibia.
Nigeria, which has one of the largest populations, in contrast has a mainly cash market.
He said one might ask whether there is any reason why a sophisticated home loan market could not be developed in Africa.
According to research by the Centre for Affordable Housing Finance in Africa, a division of the FinMark Trust, countries like Rwanda, Uganda, Tanzania and Zambia have a functioning land registration system.
PGE, which opened an office in Nairobi earlier this year, is further spreading its footprint in East Africa, with additional offices due to open in Kenya during the course of this year.
Golding said a huge obstacle in that country is the lack of an established financing structure for home loans.
PGE chief executive of Kenyan operations, Andy Collett, said there are fewer than 25 000 home loans in the country - a drop in the ocean compared to the population of 39.8 million people.
He said home loans were established as a financial product in 1978, but the country’s home loan debt as a percentage of GDP amounted to 2.6% in 2010.
The housing backlog in Kenya is around 150 000 units a year, mainly in the middle and lower end of the market. Only 30 000 to 40 000 units are built annually.
Collett said banks in that country have actively begun to market home loans and are also offering 100% mortgages to suitable applicants.
“Interest rates are however cripplingly high at around 24% a year – which might be expected in a country whose inflation rate is running at 19%.”
As a consequence, house prices are sky high. According to the latest Prime Global Cities index from Knight Frank, in the first quarter of this year Nairobi headed the index’s list with nominal house price growth of 24.2% year-on-year.
With inflation running at 19%, this amounts to real growth of more than 5%.
The index is compiled from the top 5% of the mainstream housing markets in 23 cities.
The prime residential areas include Runda, Riverside, Muthaiga, Karen and Gigiri in Greater Nairobi, with middle-income accommodation in Parklands, Riara Road, Kilmani and Westlands.
Collett said middle-income accommodation costs 12m to 20m Kenyan shillings and prime properties 40m to 50m shillings.
The group is currently marketing three new leasehold developments, including three-bedroom townhouses on the luxurious Aberdare Hills Golf Estate, Africa’s first five-star, eco-friendly golf development. Prices start at 18m shillings.Microloans
Although various African countries’ financial systems have undergone intensive reform in the past couple of years, access to finance is limited and inhabitants generally depend on microfinance.
In 2009, 360 910 Ghanaian residents took microloans worth $131.8m. Home loan debt as a percentage of GDP was 0.25% in 2010. The figure is low because of the limited supply of home loans.
Ghana Homeloans, which started up in 2006, by 2009 had approved only 550 mortgages worth $40m.
In Nigeria home loan debt as a percentage of GDP is a meagre 0.4%, despite the size of the economy. Most home loans are provided by 24 commercial banks, which in 2010 had a consolidated balance sheet of $400m in home loans.
To put this in perspective: in the past 10 years Union Homes, the biggest player, has approved fewer than 10 000 home loans. Housing finance is therefore inaccessible for by far most members of the population.
Savings, small loans and money donated by families is largely used to finance homes.
According to the World Bank only 3% of Africa’s population earns enough to afford a home loan. Source: FinMark Trust
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