African Development Bank approves R570m loan for South African housing

17 Oct 16

The African Development Bank has approved a loan of 570m rand to help finance affordable housing in South Africa.

Last week, the bank’s board of directors gave the green light to the loan, which will go to the country’s Housing Investment Partners Trust 2, also known as the Vulumnyango Trust.

The aim is to improve access to long-term affordable housing finance for lower-income earners in the country, who currently have limited opportunities to access affordable mortgages. Also, the loan will help to consolidate the growth of a strong affordable housing sector within South Africa.

According to a statement from the bank, the project is an example of tapping local currency capital from the AfDB, local asset managers and a state-owned enterprise to foster growth in affordable housing. It will also relieve fiscal pressure on the South African government in respect of housing for a specific section of the population.

HIP2 will also mobilise funding from other sources, including, eventually, South Africa’s capital markets.

Although South Africa is one of the continent’s most developed countries, it still faces an acute shortage of affordable housing in its main areas. The shortfall was estimated to be in the region of 3 millions units in 2014. This has resulted in the growth of more than 2,600 informal settlements around 70 major urban areas. The AfDB said this was making it difficult for the government to reduce inequality and achieve inclusive growth targets.

The bank recognised that the government had attempted to intervene in the sector in the past, for example, through the Reconstruction and Development programme, which delivered more than 2.9 million low-cost homes for vulnerable and low income households between 1994 and 2015.

However, it said, “the housing needs of the lower-middle income earning households remain huge and unaddressed.” Consequently, HIP2 will offer 4,000 affordable mortgages to South Africa’s lower-middle income earners.

The scheme will also generate other significant benefits including moving between 2,500 and 6,500 people out of informal settlements and creating about 3,250 permanent jobs mainly for young people. Financing 4,386 affordable housing units is expected to generate more than 10,000 jobs, including 950-1,296 direct jobs for women.

Stefan Nalletamby is acting vice president for infrastructure private sector, and director, financial sector development, at the AfDB. He said the intervention “will assist HIP2 in expanding and deepening South Africa’s housing finance sector and encourage orderly urban development for the provision of basic utilities such as water, sanitation, roads and electricity”.

He added: “In this respect, it will improve the lives of South Africans whilst also assisting in creating new employment opportunities.”

Presenting the project to the AfDB board, Stella Kilonzo, head of financial markets division, noted that “by extending this senior loan, the AfDB adds onto its existing initiatives to support affordable housing, development of mortgage finance institutions and deepening of local currency capital markets on the continent.”

The bank’s senior vice president, Frannie Leautier, who chaired the board meeting, said this was an excellent example of how the AfDB could intervene in middle-income countries with developed financial systems, “where we generate impact through the private sector on the quality of life of lower-middle income earners in a sustainable manner.”

She said it also opened up opportunities for the bank to intervene in the sub sovereign debt market and offer policy solutions on urbanisation. “This is hugely important given the fact that, at 3.4%, Africa’s urbanisation rate is the fastest globally.”

The intervention is also in line with the bank’s High 5 priorities that build on the Ten Year Strategy for 2013-2022, in particular the commitment to improve the quality of life for people in Africa.

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