Real estate developers and other stakeholders in Africa’s housing market will need to re-evaluate some of their strategies in order for the industry to thrive.
Across the continent’s fastest growing economies, housing developers have been focusing their efforts on luxury housing and high end urban development that many would say is too expensive for the common consumer.
Recent research now confirms that they should focus their efforts on low to mid-end consumers.
“What Africa needs right now is housing for the middle and lower middle classes,” states an analysis from Estate Cloud Kenya, a regional player in the housing sector.
The group argues that this should not just be a serious development goal for Africa, but also an important part of a developer’s business strategy.
Real estate developers in Africa have been known to follow the trend of many businesses by targeting the continent’s growing middle-class. What they sometimes fail to notice is that many of today’s consumers are not always able to afford a home, much less take up a mortgage.
According to the International Finance Corporation (IFC), African cities attract 40,000 people every day, underpinning the need for affordable housing.
A report from market research group, Knight Frank notes that at the end of 2014 there were 169,000 millionaires in the continent. This is expected to rise by 53% over the next 10 years, according to the Knight Frank Wealth Report for 2015. This is a drop in the ocean compared to the continent’s total population of 1.2 billion people.
The group’s researchers estimate that the total wealth held by Ultra High Net Worth Individuals (UHNWIs) – those with a net worth of at least $30 million – was $200 billion in 2015. Wealth advisers expect their UHNWIs in Africa to spend more on luxury goods than the previous year as a result.
Meanwhile, a similar report from The Economist confirms that in many parts of Africa, including Ghana, Nigeria, and Kenya, in particular, a middle class has started to emerge, propelled by growth and urbanisation.
The new middle classes have raised their voices in demanding clean and accountable government and public services.
Housing developers would do well to listen to these voices.
In Kenya, which boasts a population of roughly 48.5 million people, less than 30,000 have taken up housing loans over the past few years, the country’s Statistics Bureau confirms. This means that in the urban parts of the country there are hundreds of thousands who live in rental units while very few actually own a home. This is the case in the Kenyan capital of Nairobi, Ghana’s capital of Accra, and many other cities across the continent.
Nonetheless, the plight of the would-be homeowner has not fallen on deaf years.
Kenya’s government for instance, is working to develop 10,000 low –cost housing units as part of its famous ‘Tatu City’ project. Critics of the development, however, have argued on the definition of ‘low-cost’ since Kenya’s poor population far outnumbers its middle-class.
Like Kenya, IFC has committed to do more to develop Africa’s property sector. The Corporation last year, announced plans to provide new and affordable housing and to encourage an industry that requires significant building materials and has the potential to be a major employer.
In May, the IFC and Chinese multinational construction and engineering company, CITIC Construction launched a $300 million investment platform, CITICC (Africa) Holding Limited, to develop affordable housing in multiple African countries.
The platform plans to partner with local housing developers and provide long-term capital to develop 30,000 homes over next five years. IFC estimates that each housing unit will create five full-time jobs – resulting in nearly 150,000 new jobs on the continent.
“Kenya and Nigeria are high on the priority list for the new effort. Kenya’s housing shortage is estimated at 2 million units, while Nigeria is in want of 17 million units,” the organization said in a previous statement.
“In Angola, through planning, financing, construction and post-construction operation, CITIC Construction has successfully completed the 200,000 units housing program, new city of Kilamba Kiaxi, with relative infrastructure and utilities in four years. CITIC Construction has also founded the CITIC BN Vocational School in Angola which helps youth acquire the skills they need to become professionals”, said Hong Bo, Assistant President of CITIC Group and Chairwoman of CITIC Construction, at the time.
In September 2017, the Nigeria Mortgage Refinance Company and the Centre for Affordable Housing Finance in Africa jointly committed to deepening understanding of the housing finance market in Africa. They discovered that in order to address the continent’s housing deficit, there is a pressing need to advance public and private initiatives so as to increase access to housing finance.
By 2030, 3 billion people across the world will need new housing units, according to World Bank Group estimates. It has become clear that if Africa is to keep pace with this rising demand, governments will need to work hand in hand with the private sector or risk a possible collapse within the sector.