Filling the gap in the housing market

Published 10 years ago

The exponential growth of Africa’s middle class has been heralded as a key driver of economic prosperity by many analysts. Their spending capacity and disposable funds are cause for optimism among investors keen to cash in on Africa’s economic momentum. But while the super-rich can splash out on palatial homes and properties, the underbelly of Africa’s middle class (many of them state employees such as teachers, police officers and health care workers), struggle to become homeowners. Their dilemma: they earn too little for banks to risk providing them with credit, but too much to qualify for state assistance.

This applies to countries such as South Africa, where the government provides assistance that enables people to enter the mortgage market. But one company, International Housing Solutions (IHS), has turned this cris-is into an investment opportunity. A member of the Emerging Markets Private Equity Association, IHS is the only private equity company that focuses on affordable housing in Africa. It partners with financial institutions, real estate developers and local government authorities to provide equity finance for housing projects.

“I have always believed that one can do good business while also doing good,” says IHS managing partner Soula Proxenos.


A self-styled ambassador for Africa, Proxenos has been in the affordable housing industry and development sector for 18 years. She believes that if you want the “big dollars” to roll in, you need to find a profitable business. Although she hails from South Africa, Proxenos is based in Washington DC, close to her investors.

As a woman in the mortgage and development sector, she is candid about prevailing attitudes towards her gender. She says the sector is “pretty male-dominated”.

“One is not invited into the room, while at the same time one is not exc-luded from the room,” she explains.

While many women are involved in the non-governmental sector in housing, Proxenos believes they are selling themselves short if they only work for non-profit institutions. “Women still say: ‘we didn’t do this for the money’.” They need to get over this, she urges, arguing that charity, while noble, is not always sustainable.


Her company is a pioneer in recognizing the potential of affordable housing (so-called gap housing) in developing markets. It has opened up a valuable new sector for investors. Simulta-neously, IHS helps thousands of families afford a home and start the journey to wealth creation through property ownership, the bedrock of sustainable middle classes the world over.

IHS’s first fund, the South African Workforce Housing Fund, has committed more than $230 million to providing affordable housing in emerging markets, while also generating superior risk-adjusted returns. Buoyed by the success of her South African venture, Proxenos is now venturing into the rest of Africa.

The International Finance Corp-oration (IFC) and South Africa’s National Housing Finance Corporation (NHFC) have also recently announced investments of more than $63 million in IHS’s second fund. IHS Fund II will support the development of affordable housing in South Africa and sub-Saharan Africa. The financial commitments are timely, and come as IHS prepares to expand its footprint.

“With our second fund, our thesis remains the same… Because of urbanization and the growth of the middle class in Africa, the need for housing across the continent vastly outstrips supply, especially in the category of affordable housing.


“In countries with a functioning mortgage market, that need translates into market demand. This offers investors the opportunity to achieve superior risk-adjusted returns.”

She says the second fund will consist of two sleeves. One will invest in South Africa and the other will invest in Ghana while also targeting other sub-Saharan countries.

“Demand outstrips supply in many markets in Africa, and where the right conditions exist, the sub-Saharan sleeve of Fund II will invest in some of these markets. Our main focus will remain South Africa, but the sub-

Saharan sleeve will start to proactively source deals in Ghana, Botswana,  Namibia and Mauritius,” she says.


“There are many great opportunities for affordable housing investments across Africa, and we’re optimistic that Fund II will deliver excellent returns for investors, as our first fund is showing.”

However, operating in Africa is never hassle free. Nigeria, the second-largest economy on the continent, presents particular challenges for the mortgage market. These include sec-urity of tenure and ambiguity around title deeds, which makes investors risk-averse, Proxenos points out.

Prior to the removal of Mohammed Morsi in Egypt, that country had to spend millions building out its systems, trying to rationalize land and property that had to be titled.

“In Egypt there is a 12 percent tax to have your property re-titled!” she exclaims. And in Nigeria, under former president Olusegun Obasanjo, some measures were introduced but they did not yield the required dividends, she says.


However, the opportunities in Ghana leave her optimistic. While much of the land is traditionally owned, it is also clearly titled. Ghana is stable and the rule of law is entrenched and respected, which makes it an ideal growth opportunity.

“We are excited about Ghana. In Ghana, 5.7 million rooms need to be added to existing homes. There is a robust mortgage market in many countries on the continent. Namibia, Botswana and Mauritius are all examples and Ghana is taking the same direction,” Proxenos says.

Quality housing is a key deliverable for many African governments, which are tying their infrastructure rollout programs to economic growth. But without private sector buy-in, governments cannot deliver on their promises.

Saleem Karimjee, the IFC’s senior manager for Southern Africa, says: “Providing affordable basic services, such as access to quality housing, is a priority for IFC in Africa. IHS Fund II offers an attractive opportunity for private investors to gain access to a fast-growing market with significant positive social impact. IFC’s commitment will stimulate investment growth and job creation in sub-


Saharan Africa, demonstrating that our support can help catalyze additional fundraising.”

So far IFC has committed $25 million to the fund.

On the South African front, where housing remains a challenge almost 20 years into democracy, the IHS Fund II could not have come at a more opportune time. The general elections are just around the corner and the country’s public and private sectors have come to the housing party, enabling thousands to share in the joys of homeownership.

Samson Moraba, who heads up the NHFC, says the corporation is committed to ensuring that all South African households within the affordable housing market have greater access to appropriate homes, in terms of both size and location.

“Our goal is to enhance the well-being and quality of life of the low- to middle-income households with the security of a home, as well as an opportunity to create wealth. We firmly believe that our deliberate strategic partnership with IHS will unlock the delivery of housing at scale, and ultimately lead to the creation of sustainable and attractive communities, where people can live, play and pray.

“We are delighted with this investment because not only will it accelerate delivery of housing, but it will also contribute toward foreign direct and private sector investment, as well as job creation,” he says.

Among global investors, the narrative about Africa’s middle class is one of optimism. Proxenos says there is a buzz about the continent in the world’s capitals, including London, where many investors are based. She is adamant that countries such as South Africa, where the market is “huge”, need to get the fundamentals right.

“Don’t score own goals! We need to put a united foot forward that includes the government and the priv-ate sector. The trust deficit needs to be overcome.”

Proxenos singles out South African ambassador to the US, Ebrahim Rasool, praising his efforts to get investors excited about Africa. Because, ultimately, she says, “you can’t close the deal without an investor”.