SA Affordable Housing September / October 2020 | Page 27

RENTAL
have affected commercial real estate as well as residential
and hotel real estate. Other players such as mortgage and
commercial banks, private and institutional investors,
landlords and tenants have also been affected.
For each of the players in a rental market, the economic
impact is different. Residential tenants question their ability
to pay rent and what will happen with reduced working
hours and wages for some, and the loss of income and/
or employment for others. Those homeowners, who rely
heavily on regular income from the rent of their property,
allowing them to sometimes determine their annual liquidity
plan, financing or mortgage refinancing, are now exposed to
uncertainty and are having to question how best to manage
a large-scale loss of rental income in the event of economic
difficulties experienced by their tenants.
This article explores rental residential markets in Africa
with a focus on the owner-tenant relationship. The aim is
to highlight the impact of the Covid-19 pandemic on these
markets and to explore solutions and measures, inspired
by the measures taken in industrialised countries that have
attempted to reduce the negative effects of this pandemic
in this segment of the real estate market. It first defines the
rental residential market and then presents the reasons for
its fragility in the face of the pandemic. Second, it explores
some measures taken by developed countries to control the
level of exposure of landlords and tenants. Finally, it makes
suggestions for the adoption of some of these measures on
the African continent.
DEFINING THE RESIDENTIAL RENTAL MARKET
A rental residential market is composed of all real estate
properties intended for simple or social rental in a given
space. Simple tenancy is the rental of a fixed-term property on
an open market where the costs of rents are not determined
beforehand. Social renting refers to low-rent or supervised
housing estates for people with modest incomes who are
unable to access the offer available on the open market. Social
rental is usually concluded for an indeterminate period.
This rental relationship is often framed by a real estate
lease or lease agreement. This document is established
between two parties, the landlord/lessor and the tenant, and
defines the provision of the property subject to the tenancy
(term of the lease, cost of the lease, obligations of the tenant,
obligations of the landlord, and conditions for renewal). Why
the African residential rental market?
In 2013, according to a survey by Credit Foncier on
property in Europe, there were 70% of homeowners and
30% of tenants across Europe in these three European areas
as follows: Eastern Europe (Romania, Slovenia) with 87% of
homeowners, Southern Europe (Spain, Greece, Portugal, Italy)
with 71% and Northern Europe (England, Germany) with 60%.
In contrast, home ownership in Africa, particularly in the
urban sector of major African cities and capitals, remains low.
In 2017/18/19, the Centre for Affordable Housing Finance in
Africa (CAHF) undertook a series of studies on rental markets
in Côte d’Ivoire, Senegal, Uganda, Tanzania and Angola. CAHF
has also published a paper setting out a methodology to
identify key indicators for understanding rental markets in
African countries. These studies show that in Côte d'Ivoire,
three-quarters of households living in Abidjan (78 percent)
are renters; in Dakar, Senegal, the rate is 50%; in Kampala,
Uganda, 71% of households are renters, and in Dar es Salam,
Tanzania, the rate is estimated at more than 55%.
Moreover, data on the performance of the mortgage
market in Africa, when available, remain limited compared to
European countries. According to the 2019 Housing Finance
in Africa Yearbook, the top five African countries with a
relatively operational mortgage market are (in descending
order) Namibia, Cape Verde, South Africa, Tunisia and Eswatini
(according to ratio of mortgages to GDP). The number of
mortgages outstanding in these countries is 73 396 (Namibia)
and 1 700 436 (South Africa), with data for Cape Verde, Tunisia
and Eswatini not available. The mortgage credit-to-GDP ratio
is 24.57% in Namibia compared to 5.60 percent for Eswatini
(last of the African top five). In most countries across the
continent, the mortgage-to-GDP ratio is less than one percent
(such as for Côte d’Ivoire, Senegal, Ghana, and the Democratic
Republic of Congo (DRC)).
In Europe, real estate markets are more active. Mortgage
credit is often the largest debt in the household, with
housing representing the family’s most important asset at
the same time. For example, in Holland, the total stock of
mortgages represented 83% of the GDP; in Switzerland,
it represented over 90% of GDP; whereas in Denmark it is
estimated at over 109%.
The mortgage-to-GDP data are crucial for understanding
the relevance of rental residential markets in Africa. Indeed,
they show that, contrary to European practice where mortgage
credit remains the major form of housing finance and access
to housing for households, this practice remains weakly
developed in Africa. Mortgage credit is available only to a
small segment of the population in Africa, thereby limiting the
direct impact of banks and financial institutions on housing
finance. If the greatest housing risk arising from this Covid-19
pandemic is the high probability of default of mortgage
borrowers, this issue is less of a concern in the context of
banks and financial institutions in Africa.
From this analysis it appears that, in Africa, the pandemic
will have a greater impact on residential rental markets and
landlord-tenant relationships, since this formula represents
the most common formula for homeownership. Unlike In
Europe, where mortgage markets would be most exposed
because of the depth of their mortgage markets (as illustrated
by their total volume by GDP by country), African mortgage
markets will not really be affected by the decline in economic
activity and the reduction in human capital.
The Centre for Affordable Housing Finance in Africa (CAHF)
has been operating as an independent think tank in South
Africa since May 2014, pursuing its mission of making
Africa’s housing finance markets work. CAHF’s work extends
across the continent, with the aim of bringing information
to the marketplace to enable stakeholders in the public and
private sector to make policy and investment decisions in
favour of improved access to affordable housing.
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