UK development finance institution CDC has committed $20m to African private equity firm Phatisa’s Pan African Housing Fund (PAHF), which claims to be the first and only private equity fund dedicated exclusively to housing development in Africa.
PAHF, which has reached a $41.5m first close, has been sponsored by Shelter Afrique, the pan-African institution that aims to mobilise financial and technical resources for housing development.
The fund will provide risk capital to developers building middle and lower-middle income residential housing in Kenya, Zambia, Tanzania, Uganda, Mozambique and Rwanda.
It aims to catalyse finance for the construction of up to 7,500 new homes over ten years and create an estimated 22,500 jobs, CDC said in a statement released today.
The vehicle will also invest in mixed use projects that combine residential and commercial units.
All developments will be in urban areas and the housing provided will be for both sale and rental markets, while rent-to-buy schemes may also be introduced where appropriate.
CDC said years of under-investment in housing across Eastern and Southern Africa coupled with rapidly growing populations have combined to create a severe lack of housing below the top and luxury levels of the market.
The perilous state of many of Africa’s large cities is well documented by UN Habitat1. Rapid rates of urbanisation combined with cities unable to provide core infrastructure and serviced land has resulted in 65 per cent of sub-Saharan Africa’s urban population living in slum conditions.
In the six countries targeted by PAHF the lack of decent, reasonably-priced housing stock prevents families moving out of the low-quality, informal housing sector.
This exacerbates the pressures of urbanisation. For example, in Kenya the total housing backlog is estimated to be two million units, and in Tanzania the annual demand for housing construction nationwide is 200,000 units.
A key objective of the fund is to address the lack of equity capital available for housing development in Africa and help alleviate the housing shortage.
PAHF will work with selected local SME developers and improving these partners’ environmental, social and governance (ESG) standards will be a focus area.
During the fund raising period CDC has worked with other investors, notably the African Development Bank and FMO, the Netherlands’ DFI, to enhance the PAHF’s ESG policies and implementation procedures.
As a result, each development will have an ESG action plan covering efficient sewage treatment and recycling units, provision of health and safety training and equipment and the imposition of better construction practices and standards.
Thorough due diligence will also be carried out on land history, land title, and land use, the firm added.
“The construction industry is recognised as an essential provider of jobs to both skilled and unskilled workers,” Jeremy Cleaver, CDC Portfolio Director, Africa, said in the statement.
“As well as the direct employment created by developments, we envisage significant additional employment in the supply chain.
“PAHF is one of the few funds providing the equity financing essential for the growth, development and institutionalisation of middle-income housing as an asset class.
“By investing in the Fund CDC aims to increase the provision of housing, a basic human need, as well helping to raise ESG standards in the sector.”
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