Capital Markets

Shelter Afrique to finance only cheap affordable housing projects


Shelter Afrique headquarters in Upper Hill, Nairobi. PHOTO | POOL

Pan- African mortgage lender Shelter Afrique has developed a ‘Housing Affordability Calculator’ to vet proposals by developers pitching for financing of affordable housing.

The calculator requires the user to input four data points including household’s monthly income, distance from the city centre, country of residence, and the local currency or US Dollar to gauge affordability.

The calculator then applies background data and assumptions based on the prevailing mortgage terms in individual countries, percentage of monthly household income spent on transport based on distance of house from city centre, and percentage of monthly household income spent on transport and housing for each income band.

Head of Policy, Research and Partnerships at Shelter Afrique Dr Muhammad Gambo said currently developers claim they are setting up affordable units but price them expensively creating a risk of slow uptake of completed projects.

He said the bank will now vet projects using the criteria to ensure affordability of the purchase price, finance and the cost of living.

“The housing affordability calculator is vital for Shelter Afrique in evaluating housing project proposals submitted, with respect to whether the units proposed are likely to be affordable to a low income target market in that location,” said Dr Muhammad Gambo

“If household affordability is not accurately gauged by public or private sector developers, then there is a serious risk that there will be insufficient effective demand by households to purchase or rent the houses produced,” 

The housing affordability calculator, which was developed in partnership with the Center for Affordable Housing Finance in Africa (CAHF), also seeks to enhance understanding of housing affordability as it pertains to the demand and supply sides in the context of African countries.

The calculator will put pressure on developers whose price range are still very high despite claiming to put up affordable houses.

It may also sway state policy on beneficiaries of tax incentives for affordable housing where government has scrapped stamp duty for first-time buyers, has promised provision of bulk infrastructure such as drainage and utilities and reduced corporate tax from 30per cent to 15 per cent for developers.  

Affordable housing is a lucrative venture especially after government gave incentives in bid to encourage private sector involvement in attaining the half a million housing units.

A report by real estate firm Broll said the affordable housing project has become attractive to investors given the tax incentives for developers such as tax rebates and infrastructure cost subsidies.

“Average yields range between 7 per cent and 13 per cent, with government projects achieving the highest yields due to low or no land cost,” the report said.

The Affordable Housing Project has, to date, delivered over 1,600 units cumulatively, including an additional supply of 510 units in 2020.

The industry is expected to deliver more than 15,000 units in the next three years. The highest projected annual supply of approximately 11,000 is anticipated during 2024.