Chimphondah: Shelter Afrique Actively Financing Nigeria’s Housing Sector

Nigeria’s housing deficit remains a cause for concern among industry stakeholders, especially with the nation’s population expected to double by 2050. According to PWC, 700,000 housing units must be built annually for the next 20 years to bridge the gap. Pan-African housing financier Shelter Afrique has successfully financed the real estate sector on the African continent for 40 years. The Group Managing Director/Chief Executive Officer of Shelter Afrique, Andrew Chimphondah in this interview explored the road map to bridging the gap and Shelter Afrique’s contribution to achieving this goal.

How are industry players like Shelter Afrique contributing to bridging Nigeria’s housing deficit?
At Shelter Afrique, our contribution to achieving this goal is two-pronged. First is project finance – where we finance the developers directly. At present, our investment appetite is to consider large-scale projects of nothing less than 1,000 units. Secondly, we provide lines of credit to banks to bolster the provision of mortgages. Recently, we provided $10 million to Wema Bank for this specific purpose.

However, to solve the affordable housing problem, we believe it should be addressed as a volume business – to make commercial sense for developers. We have addressed this by proposing Private-Public-Partnerships (PPPs) of no less than 1,000 units; this is our primary product under our revised strategy. We have made progress in Rwanda, Togo, and Cameroon, and are concluding conversations here in Nigeria to deliver similar projects. We are also advocating for strengthening the capital markets as a source of financing. African capital markets generally lack size and liquidity due to the low depth and liquidity of local markets; trading is often limited to a few stocks that represent most of the market capitalisation.

Additionally, there are capacity issues to address. It is difficult to find many real estate developers who have the experience of delivering 1,000 units at once. Through our Centre of Excellence (COE), we are also working to address capacity issues by holding training sessions, masterclasses for developers interested in delivering large-scale affordable housing. We have signed MoUs with the Real Estate Developers Association of Nigeria (REDAN) and the Nigerian Institute of Quantity Surveyors to provide certified sessions to professionals within their networks.

The vastness of your footprint across the African continent is quite commendable. What challenges have you encountered as a vibrant real estate player in Africa, and how have you managed these issues?
Typically, the continent’s challenges can be categorised into four broad areas; government policy and regulation, high cost of finance, prohibitive loan tenor and lack of capacity. The lack of access to affordable finance and credit is a common theme across Africa.

In Nigeria, this is reflected in mortgage penetration, which is still minimal with interest rates at 25 per cent for a tenor of 20 years. We have addressed this by establishing a primary mortgage institution like the Nigerian Mortgage Refinance Company and providing lines of credit to financial institutions.

Regulatory challenges are common across Africa as well. Governments will need to drastically improve the registration of land titles and digitisation of records. Governments need to make housing policy and housing projects a front-of-mind issue which has not been the case before now. Relatedly, transportation and infrastructure policies have to be drafted with housing in mind—this has a knock-on effect on housing concerning the accessibility of land. Governments should also consider incentivising developers and developments and reducing administrative bottlenecks. We have found that money tends to follow government interest and direction. As an organisation, we have tried to address these gaps with the Yaoundé Declaration—a policy framework agreed to by our 44 member countries at the 40th Annual General Meeting to address affordable housing and governance frameworks.

Against the odds, Shelter Afrique has facilitated affordable housing on the African continent for 40 years. Tell us about this journey.
The attainment of a 40th year is an achievement in itself; it means as a business, you have remained as a going concern but, more importantly, remained relevant to your shareholders. It is my privilege to be at the helm of affairs now, I have not been here for 40 years, but the moment is not lost on me. One thing that I am proud to see is how the organisation redefines itself, how it has adapted and grown. Today we have 44 member countries – from 17 in 1981, and three regional African organisations as shareholders.

The landscape is quite different from when the organisation was instituted; many other organisations now mimic what we do. Others are on the border of our activities; commercial banks, other development finance institutions, but our member countries still have recourse to us regarding matters of affordable housing and, increasingly, matters of large-scale development. It should give our shareholders some comfort that the organisation will always be fit-for-purpose and remains committed to its founding vision of providing affordable housing for all Africans.
We also directly impact livelihoods and quality of life; in 2019, we estimate that we delivered 3,821 housing units, impacted 19,015 beneficiaries, created 26,747 jobs, and empowered 242 women with housing units.

In 2020, we delivered 5,101 housing units, housing 25,505 individuals; this translates to 15,303 direct jobs and 20,404 indirect jobs created. This is the real way we impact livelihoods and improve the quality of life in Africa.

We also have a very vibrant stakeholder universe with other organisations such as the UN-Habitat, the African Union, the European Investment Bank, the West African Development Bank, BOAD, the Islamic Development Bank, Commonwealth Development Bank, the German Development Agency, KFW, Trade Development Bank, TDB, Agence Francaise de Developpment, the French Development Agency. We are also equity partners in such institutions as the Kenya Mortgage Refinance Company (KMRC), Tanzania Mortgage Refinance Company (TMRC), and the Nigerian Mortgage Refinance Company, where we were instrumental in its creation.

Congratulations on your recent award as Africa’s Best Real Estate Finance Company by Capital Finance International. What were the major drivers of this award?
It is gratifying to see that our efforts to house Africa have not gone unnoticed. The award reflects our longevity, relevance, and impact in the industry. It is not coincidental that they awarded us as we celebrated our 40th year. The CFI recognised our organisation had remained true to its mandate but had also grown and expanded its membership. The award also realised the role of advocacy, which I believe is usually muted when we discuss our role in Affordable Housing and development in Africa. Beyond anything else we do, we have to continue to shine the light on the emergency; I dare say, on the housing crisis in Africa. I am fond of declaring it a human rights issue, not just for effect, but because it is. Our Centre of Excellence estimates that there is a 57 million housing deficit on the continent that requires a minimum investment of at least $2.8 billion annually, according to a World Bank Report.

Earlier in this conversation, you mentioned limited access to finance and specifically cited the lack of access to credit facilities as a significant challenge many Nigerians face. How is Shelter Afrique poised to solve this challenge?
We believe that the capital markets are an under-utilised avenue for fundraising. Beyond this, we continue to leverage our partnerships and relationships to crowd-fund for affordable housing. We have relationships with other multi-laterals such as the African Development Bank, the European Investment Bank, the Islamic Corporation for Development, the German Development Bank (KFW) and the French Development Agency (AFD), among others.

We also have member countries contributing capital. Over the last four years, we have received over $100m from member countries which commits us to participate in their affordable housing programmes. Indeed, this is our second strategic pillar—shareholder value and developmental Impact. It guides our investment philosophy in our member countries.

From all indices, we expect a massive population boom, with Nigeria’s population expected to hit 400 million by 2050. How do you see this boom panning out for the real estate sector in Nigeria, and what measures should be put in place as we prepare to house 400 million Nigerians within the next 30 years?

The impending population boom reflects the investment horizon for Africa; the African continent is increasingly young and is poised to enjoy a population dividend. Simply put, Africa will have more people eligible to enter the workforce than leaving it. This is a situation that many developed countries in the West are still looking for a solution. Japan, for instance, is dealing with an incredibly ageing population. Across the West, America and Europe are all experiencing decreased fertility rates, which demographers and economists will tell you directly bearing on future projections.

Africa finds itself on the other side of the debates, but this comes with opportunities as it does challenges. This is likely to put more pressure on our urban centres; according to the UN-Habitat urbanisation, Africa is projected to hit 60 per cent by 2050, the same year we anticipate the population boom. That is not a coincidence. At the same time, the housing deficits across Africa will not remain static. Here in Nigeria, although contested, our Centre of Excellence estimates a deficit of 17 million houses; Ghana has a shortage of 1.7 million; in East Africa, Kenya has a shortfall of 2 million units. Our COE estimates that the housing across the continent stands at 56 million.

In Nigeria, like many other countries, the challenge is managing rapid urbanisation and the expectations that come with it—the anticipation of a better life in urban centres that include gainful employment and decent housing. Without proper planning, in our experience, when these expectations are not met or planned for, informal housing settlements sprawl and with that, the associated social ills. The increased demand also means that construction can be an engine room for economic growth. We believe real estate will be central to this boom, but whether the boom is realised as an opportunity or a challenge is down to planning. We as an organisation have made this advocacy central to our strategy.

Nigeria has maintained its position as the African country with the highest real estate investment for two decades. What factors would you say have been responsible for this sustained trend? Do you expect this upward trend to continue?
The entry point for most investors and the attraction, really, is the significant consumer base. With a teeming population of 200 million and growing, the most populous black nation will always attract investment because the investment horizon is quite broad. Additionally, there is proven demand for housing at all price points; the financial sector is quite liberalised and dynamic, and in recent years the technology and start-up space has boomed.

This is usually an indicator of innovation and diversification of factors of production. These all typically contribute to an uptick in investment, not just in real estate but also in the broader economic sector. If they remain constant, you will continue to note the upward trend. The population and the youth dividend alone are sufficient for pressure on housing demand; Shelter Afrique believes the investment horizon for Nigeria will remain constant, and we are willing to bet on the market. It informed the decision in establishing a regional office for West Africa here and all the other ambitious plans we have for Nigeria.

How has the coronavirus pandemic affected this outlook, and how have stakeholders managed to navigate these uncertain times?
The pandemic has affected the industry, and we are not exempted from that. To begin with, the lockdown measures enacted by many African nations in response to the pandemic forced work stoppage on many construction sites. Additionally, there is a current aversion to risk, so many companies cannot access credit or finance, which is likely to remain for the foreseeable future. There has been disruption to supply chains the world over, which directly impacts the housing industry as many of our African countries are still import-reliant economies.

There is also the very apparent human toll the pandemic will have on the industry. Many of the temporary and permanent workers who work in the industry or who have created a mushroom industry around construction have been rendered jobless; many African countries do not have the same welfare safety nets offered in more developed nations.

In our day-to-day business and operations, like most businesses, we have created systems that allow our employees to work remotely and initiated strict COVID-19 protocols and measures. Travel, an integral part of our work, has been suspended for the year, so we are holding all major meetings virtually, including our Annual General Meeting.

However, we cannot deny that it has had a material effect on our business. Initially, when the pandemic broke and countries initiated lockdowns, the level of new business activities reduced due to the employee-related, social and economic issues customers had to deal with. Recently, as customers have adapted, there has been an improvement as customers embrace the use of technology. Additionally, our inability to engage with the customer physically (specific to due diligence processes in the underwriting process) has affected the level of new business activities leading to reduced new business underwriting.

However, we also see an opportunity to address the policy surrounding informal settlements; research has shown a direct relationship between the spread of contagion and informal housing where social distancing cannot be successfully implemented. Our Centre of Excellence is considering this as an important area of research. It also forces policymakers and decision-makers to begin developing and encouraging industrialisation, manufacturing and inter-African trade. The pandemic has exposed our lack of self-sufficiency as a continent. We, as an organisation, will be exploring how we can leverage the African Continental Free Trade Agreement for affordable housing. Beyond this, we acknowledge the human cost of the pandemic. We worked through the Shelter Afrique foundation at the height of the pandemic when most African countries went into lockdown and provided relief materials to 4,000 low-income beneficiaries across Africa.

Last month, the Nigerian Senate passed a bill to establish the Real Estate Regulatory Council of Nigeria. How do you see this changing the industry?
We commend the Nigerian Senate for passing this into law; it shows leadership and foresight. We also commend and congratulate one of our partners – REDAN, whom we know was instrumental in getting this over the finish line. Regulatory revision and updating are incremental and gradual. However, the establishment of the Council will aid in providing much need oversight over the Real Estate Industry.

In recent times, the government has shown forward-thinking in revising regulations and creating new ones. I recall that about a decade ago, Lagos State passed the tenancy law that addressed predatory rent practices. From our experience, regulatory overhaul happens piece-meal. We have recently been invited to review building codes with the Nigeria National Building Code Advisory Committee, so we see the Senate’s action as a continuous trend in the right direction.

As a player in the Nigerian real estate market, what forex-related challenges have you battled? What measures have you put in place to navigate them?
Our history in Nigeria goes back 28 years. Since we entered the Nigerian market in 1993, we have approved $191 million for Nigerian counterparties. However, we have been lending to the Nigerian market in US dollars. As the source proceeds of the loan repayment have been in local currency (naira), especially in the project finance, this has put a lot of pressure on the borrowers due to currency depreciation. Therefore, to mitigate the foreign exchange risk, we have established a naira-denominated medium term-programme to access naira and on-lend in local currency. This will ensure a perfect currency match between the borrower’s debt and the source of repayment. We are also confident in the programme, given our experience and success in the capital markets.

What is the local bonds issuance update, and what can the market look forward to?
I am pleased to say we have come quite some way. In October 2021, the Security and Exchange Commission (SEC) approved our shelf prospectus of N200 billion. Following that, we filed a Series 1 issuance of N40 billion, and we expect to receive approvals shortly.
We will begin to engage with the investor class on roadshows in January 2022. We are excited about this as it can directly engage with the market and sell our value proposition. We are on course to launch the bond in March 2022.