Mainstreaming Incremental Housing The Case of Zambian Home ... · 80% of new homes in Africa are owner-built, rather than developer-built. People buy land and manage the home building

Mainstreaming Incremental Housing

The Case of Zambian Home Loans

………putting it in perspective…………

Informal Settlement growth

•Most civil servants live in

informal settlements

•Huge constraints on family

budgets as they build own

house

•Massive impact on child

education, health, etc.

Circ. 65% of working Adults own land

•Over 50% have either started

building or looking to start

building.

•9 out of 10 have no title.

Informal Construction workers

• They are building most houses

•Do not have certificates but

their product is there to see

• They need to be managed.

•ZHL model provides them with

some form of certification

………putting it in perspective…………

MoreHome for your Money…….

These systemic challenges have

created a housing crisis that cannot

be solved by conventional private

and/or public sector development methodologies.

…what we are and how we do it….

Detailed plan analysis and bill of quantities Relationships with suppliers w/ direct disbursements Stage Disbursement Payroll deduction / MOU with Employer Semi Project Management model Robust system to manage approvals, disbursements and

collections.

Selection of building plans and Title assistance

Affordability analysis and detailed BOQ Building materials discounts Construction oversight and insurance Up to 20 years to repay and ability to refinance More affordable lending terms than microfinance

ZHL is a specialized mortgage institution owned by African Life Financial

Services (Member of the Sanlam SA Group) and Sofala Capital (SA) that

helps borrowers to build or complete their houses.

How We Manage Our Risk

Value We Provide Our Clients

…why we do what we do…….

We believe shelter is a basic human right, undeniable for human dignity.

We believe housing improves the welfare of society and contributes to

social and economic development of a country.

Zambia has been facing a very critical shortage of housing since

independence.

Govt suggests a 1.5 million units deficit, and recommends an annual

delivery rate of 150 000 units to meet demand in the next 10 years.

UN estimate: 1 decent house every 2 minutes for the next 20 years.

We appreciate the role of private citizens in building their own houses, but

we recognise the ‘BIG ELEPHANT IN THE ROOM’ – THE LACK OF FINANCE.

……the process…….

……resulting in:- huge LTV savings…….

- which gives client a lot of equity..

- and reduces risk on the part of both ZHL & the client.

Clients typically reach completion

of their home spending up to 40%

less.

Beyond lending: Customer Support

We offer technical and professional advice

Bill of Quantities – Material lists

We offer an intense monitoring programme to ensure quality and

We provide Building Tips/workshops for first time house builders

We provide training & guidance to construction workers

Material sourcing assistance

Financial literacy programmes

Work place programmes

Decide your own interest rate/Pay off before time Sessions

Active Building material supplier programme – local and Int’l.

Material vetting

Discounts negotiation

…ZHL 3 years since…….

•201 houses financed

•25 informal contractors have been trained.

• 22 material suppliers enlisted.

•Circ. Zmw50m ($5m)

•Raised $4m of debt

•2nd year Ops break even

• Circ. 30%

Average Portfolio LTV Financials

Houses BuiltContractors

/supplier

MoreHome for your Money…….

“It is vital to recognize that the main housing supplier for

the 60-90% majority in developing countries is the informal

sector. The Housing Strategy must recognize that single

artisans and small-scale building contractors are the key

suppliers of housing to the majority; continuing to ignore

them in favour of the relatively small formal sector supply

would be perverse.”

:UN Habitat World Cities Report 2016

Developing Africa’s Mortgage Markets

20,000 New mortgages

5,000 Family homes built

5,000 SME’s financed

10,000 Micro-mortgages

5 Countries of operation

8 years is the average time it takes an owner-managed building project to reach

completion, in the absence of affordable finance.

Sofala Capital has pioneered an affordable mortgage financing model that unlocks this

owner-managed building market and allows families and SME’s to complete their projects quickly and effectively.

Banksdo not finance these owner-managed building projects, because supervision

requires specialized systems and staff.

80% of new homes in Africaare owner-built, rather than developer-built.

People buy land and manage the home building process themselves. Construction is performed by a network of semi-formal contractors and

labour.

20-30 million unitsis the estimated African housing backlog.

founded

Zambian Home Loans to pilot its vision for a Pan-African building mortgage platform

Exclusively offers building mortgages and micro-mortgages to individuals and SME’s

Fastest growing mortgage provider in Zambia

Partnership between Sofala Capital and the Sanlam Group (largest insurer in Africa)

Clients spend 40% less by building through ZHL than buying from a developer

200 houses completed

K50m ($5m) mortgage finance deployed

Partnerships with multiple local building material suppliers for material disbursements

Funded via K10m ($1m) equity and K40m ($4m) of mortgage-backed bonds issued to pension fund and DFI investors

Average loan-to-value less than 30%

Bespoke, online loan system used to originate and manage credit process. All loans jointly approved by local and offshore teams.

Zambian Home Loans at a glance

ZHL provides specialized building support that banks can’t offer:

1. In-house Quantity Surveyor accurately costs project.2. Project split into 5 phases (Foundations, Walls, Roof, Fixtures and

Fittings, Complete.)3. Mortgage disbursed in phases.4. Supervisor checks each phase for progress and quality.5. Larger loans disbursed directly to building material suppliers.6. Use of in-house fintech to control supervision costs and provide

scalability of model.

founded

IBUILD Home Loansa South African micro-mortgage product for low income borrowers

Renovate-to-rent micro mortgage

Funding MUST be used to enhance borrower earnings through rental income

Exclusively targets low income home owners and SME’s (borrowers earning from $200 per month.) Only mortgage provider in South Africa to target low income borrowers.

Partnership between Sofala Capital and Praesidium Capital Management

Building materials distributed through Cashbuild Limited, SA’s largest building material supplier

Funded with own equity

Average loan-to-value less than 40%

Clients typically earn 1.5 times the mortgage repayment in rental income

Significant growth potential. South Africa is home to 2.5 million, low income, title deed holders who cannot access mortgage finance.

IBUILD Home Loans at a glance

0%

10%

20%

30%

40%

50%

60%

Zambia Tanzania Uganda Kenya South Africa UK

Mortgages to GDP (%) AFRICA VS UK

Key findings from Zambian Home Loans and IBUILD Home Loans

Sofala Capital’s model is relevant and scalable to many African countries

PRODUCTMortgage products need to be relevant to local housing culture and

practices, not based on traditional western models.

PRODUCT SPECIALIZATIONProduct specialization allows us to compete with the banks

through better service and faster approval times.

FUNDINGLocal bond markets are ready to support well structured, long term

bond issues.

CREDIT RISKRegistering mortgages materially changes borrower behavior,

relative to unsecured loans, and allows for greater affordability.

ConclusionWith the right product design, Africa’s

mortgage markets are ripe for development.

Company name iBuild Africa

Legal Entity Global Business Company Category 1, Mauritius

Equity raise Preference shares with equity participation

Countries of operation

Zambia, Tanzania, Kenya, Uganda, South Africa, Other

Use of funds

Onward investment into local incorporated mortgage subsidiaries for provision of:

1. Building mortgages2. SME mortgages and SME rent-to-own3. Micro-mortgages

Onshore leverage

• No leverage at HoldCo level• Target leverage at subsidiary level of 5 x Equity

resulting in $300m of mortgages• Local currency bond programmes

Operations

iBuild Africa onshore subsidiaries to perform1. Deal origination2. Risk underwriting3. Mortgage registration4. Collections

Centralised functions of:1. Credit approvals2. Loan administration system3. Treasury4. Group MarketingCentralised functions outsourced to Sofala Capital under SLA.

Sofala Capital (Pty) Ltd

Zambian Home Loans Limited

iBuild Tanzania

iBuild Home Loans (SA)

iBuild Kenya

iBuild Uganda

Investor Syndicate

Preference shares

Service Level Agreement

Equity per country

Sofala Capital is launching iBuild Africa to consolidate and grow its existing building mortgage operations as well as launch 3 new country operations in Tanzania, Kenya and Uganda

FOR FURTHER INFORMATION CONTACT

Michael Waller+27 21 [email protected]

Sofala Capital (Pty) LtdPraesidium Capital Management Block G, Steenberg Office ParkCape Town, South Africa

www.sofalacapital.com