Monitoring Sector Performance

Understanding the Housing Asset

Over the past few years, CAHF has focused on several innovative ways to monitor the performance of the housing and housing finance sector in Africa in order to provide sound and useful analysis into the market to further develop the market and assist in promoting access to housing loans. The centre has been concerned with the experience that lenders have in offering housing finance to lower income people – and whether this experience supports ongoing lending or a revised strategy. The role of data in market development has been established in other countries.  Experience in the US has shown that when regulators and lenders shared their data and made it available for public analysis, this prompted innovation in product development and spurred investment decisions that would have otherwise not been possible.  Limitations in the availability of accurate and relevant data are one of the most significant factors undermining market development in Africa. 

In most countries in Africa the emphasis of origination in housing finance is on mortgage loans, which does not provide any detail on the barriers to access, while data

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Over the past few years, CAHF has focused on several innovative ways to monitor the performance of the housing and housing finance sector in Africa in order to provide sound and useful analysis into the market to further develop the market and assist in promoting access to housing loans. The centre has been concerned with the experience that lenders have in offering housing finance to lower income people – and whether this experience supports ongoing lending or a revised strategy. The role of data in market development has been established in other countries.  Experience in the US has shown that when regulators and lenders shared their data and made it available for public analysis, this prompted innovation in product development and spurred investment decisions that would have otherwise not been possible.  Limitations in the availability of accurate and relevant data are one of the most significant factors undermining market development in Africa. 

In most countries in Africa the emphasis of origination in housing finance is on mortgage loans, which does not provide any detail on the barriers to access, while data is much less accessible for pension-backed loans for housing, and housing microloans. For example, the South African Reserve Bank collates and publishes data on a monthly basis on the mortgages book that can be ascribed to households. It does not collate segmented data nor any information from non-bank lenders. The performance data is even less available. While it is possible to observe what is happening in the market as a whole, the data is not segmented by income and so one cannot determine the relative health or strain of different market segments.  This would be especially important information in the current environment where lenders are changing their approach and expanding into new markets.  Without segmented performance data, government has no basis for assessing the risk its money will actually underwrite. 

Ideally, the lenders should provide performance data directly and voluntarily to an independent entity capable of performing sound analysis. However, banks have expressed a reluctance to do so, citing concerns over the confidential nature of the data, the potential for misinterpretation of the data and the high risk that even if aggregated lending practises can be identified because there are so few players in the market. While these concerns may be valid, the clear need to address the data gap remains.

Under the theme, CAHF has in the past sought to assess the performance of FSC housing loans, with the intention of understanding the state of market development with respect to housing lending, and identifying policy recommendations for further support or a next-phase “FSC”. We expected that the five-year experience of the FSC (January 2004 – December 2008) would have many useful lessons for a new phase of the FSC, or for lenders’ own strategies to extend their housing finance products further into lower income markets.  Remarkably, however, we discovered that loan performance data in South Africa is reported by product type (mortgage, savings, etc.), but not by market segment.  It is not possible to determine whether the financial sector’s loans to lower income (FSC target market) households perform better or worse than to higher income households.  Without this data, it becomes impossible for investors, financiers, guarantors and other role players in the housing finance sector to understand the relative risk of different market segments, and so they gravitate towards what they know – higher income markets. 

Lending in the FSC target market was not an organic development in the South African market – it was an explicit attempt by both the banks and government to effect transformation in a particular segment of our society.  It acknowledged the imbalances of access that had prevailed, and sought to address these with an affirmative action-type intervention. But such explicit interventions cannot last forever, and at some point, must be replaced by organic market development that has learned from the experimental phase and has adjusted its products accordingly.  Or, perhaps it is a case where the market will take some time to develop, in which case State incentives may be necessary to ensure a sustained interest on the part of the private sector 

Also CAHF undertook another South African-based initiative relating to data availability is our Affordable Land + Housing Data Centre (al+hdc).  Launched in November 2010, the al+hdc is a joint venture between FinMark Trust and Urban LandMark, with support from Lightstone Property Consultants and the consulting firm Eighty20.  Drawing deeds data from the South African deeds registry and survey data from StatsSA and other sources, the al+hdc provides information (purchase price, type of buyer and seller, level of mortgage finance, etc.) on all suburbs in South Africa where the average property price is less than R500,000.  Consolidated analysis includes trends, levels of churn in different areas and the average value of properties. (Further, the latest research on this segment of the market can be accessed from the website, www.alhdc.org.za.). The al+hdc is intended stakeholders in the industry as a way to enhance product and service development for this market; as well as by households themselves so that they can better access market information and maximise the performance of their assets.