Botswana has a growing housing finance sector. As the mortgage market does not yet meet the breadth of the population who might afford a mortgage, most households still finance their housing independently, with savings or non-mortgage credit.
The lowest recorded interest rate on a mortgage in Botswana is 9.1 percent, as of September 2016, and requires at least an 18 percent down payment. There are currently 20 000 mortgages in the country, with the average mortgage size being US$ 50 500. The cheapest newly built house by a developer recorded by CAHF is US$ 36 000, which is for a 60 square metre unit. Cement prices are lower than the continental average, at US$ 4.30 for a 50-kilogram bag.
With an urbanisation rate of 2.35 percent, demand for affordable housing will remain strong, both for rental and purchase. Housing microfinance will play an important role in increasing the supply of housing, and efforts to increase access should be undertaken. Botswana Building Society and the Botswana Housing Company, both African Union for Housing Finance (AUHF) members, continue to be important players in the market. There are efforts to increase affordaiblity, and the implementation of a national land registration system should support property market growth. With a good macroeconomic environment, sound policy, better data and increased access to affordable credit, an enabled housing market can increasingly provide housing that the average household in Botswana can afford.
Find out more information on the housing finance sector of Botswana, including key stakeholders, important policies and housing affordability:
- Access to Finance
- Housing Affordability
- Housing Supply
- Property Markets
- Housing Policy and Regulations
- Housing Sector Opportunities
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2016 edition, which has up-to-date profiles for 51 African countries.Download yearbook
Botswana is a land-locked country in Southern Africa, with a population of just over two million people, and known for its mining and natural resource base, especially diamonds and tourism. Home to the headquarters of the Southern African Development Community (SADC), Botswana has in the past been one of the fastest growing economies in the region. The global financial crisis of 2008– 9 had a major impact on demand for diamonds and other exports, resulting in a contraction in GDP of 7.7 percent in 2009, however, the economy recovered quickly and grew on average by 6.6 percent a year from 2010 – 2014. Nevertheless, as commodity markets weakened and global growth slowed, the economy contracted marginally by 0.3 percent in 2015, as a result of reduced diamond production. This was the first annual contraction since the global financial crisis in 2009. However, the economy is expected to recover in 2016 as the diamond market improves. The Botswana government has forecast that the economy will grow by 4.2 percent and 4.3 percent in 2016 and 2017 respectively.
A positive aspect of the economy in 2015 was that the non-mining sector recorded positive growth, of 3.8 percent. This was mainly driven by sectors such as Trade, Hotels & Restaurants and Transport & Communications. These sectors recorded a positive growth of 3.8 percent, and 5.3 percent, respectively in 2015. The Water & Electricity sector on the other hand continued to underperform, due to the drought situation and persistent technical problems at Morupule B Power plant. The sector contracted by 89.3 percent in 2015, reflecting the insufficient supply of water and electricity, and the adoption of power and water rationing. It is clear that the challenges of power and water provision will remain in the medium to long term, and government is making concerted effort to address such. The rate of growth of the economy, especially the non-mining sector, affects investment in housing directly through its impact on employment and household incomes, but also indirectly through its impact on the availability of housing finance from financial institutions and the government’s ability to provide housing subsidies.
To help boost growth, the government is embarking on an Economic Stimulus Programme (ESP) that will see it drawing down from accumulated savings. The funds will be used to develop infrastructure, mainly fast tracking the provision of serviced land for residential and commercial purposes, the construction of new housing units by the Botswana Housing Corporation; and the construction of additional housing units for teachers and nurses. The ESP package, which has a total of P3.6 billion allocated for the 2015/16 and 2016/17 financial years, also includes the construction of additional school classrooms and laboratories, as well as new roads and bypasses. The implementation of ESP projects started in late 2015.
Botswana is increasingly urbanised, with some 65 percent of the population living in settlements officially classified as urban, and almost one quarter living in the greater Gaborone area.
Access to Finance
Access to finance in Botswana is relatively high by African standards, but considered low globally. This is especially so considering the country’s relatively high levels of GDP per capita (US$6 041 in 2015). Commercial banks in Botswana are small by international standards. However, they are competitive and rapidly growing. Currently, there are ten commercial banks, namely, Barclays Bank, Standard Chartered Bank, Stanbic Bank, First National Bank, Bank Gaborone, Bank of Baroda, Capital Bank, Banc ABC, State Bank of India and Bank of India. In addition there are two other deposit-taking institutions, including a statutory bank, the Botswana Savings Bank, and the Botswana Building Society (BBS). All of these institutions except Capital Bank offer mortgages. The average lending rate on household mortgages from banks is currently 9.1 percent, and the average down-payment required is 18 percent of value. Mortgages are available for up to 25 years. Mortgages would typically be provided at an interest rate of prime to prime +6 percent (the prime rate is currently 7.5 percent).
According to the third FinScope survey undertaken in Botswana in 2014, 68 percent of the population is financially served, using either formal and/or informal products, while 50 percent of the population is formally banked and 24 percent is financially excluded.
The year-on-year increase in commercial bank credit fell from 13.5 percent in December 2014 to 7.1 percent in December 2015, due to a decline in growth of lending to the business sector, from 18.4 percent to -0.3. In contrast, the annual increase in household credit rose from 10.7 percent in 2014 to 12.8 percent in 2015. As at December 2015, the share of household credit in total private commercial bank credit was 59.4 percent, compared to 56.4 percent in December 2014. The bulk of lending to households is made of unsecured credit (in contrast to many middle income countries, where property mortgages make up the majority of household borrowing). Growth in unsecured lending to households rose from 7.4 percent in 2014 to 15.5 percent in 2015, while growth in mortgage lending declined from 18.4 percent to 7.2 percent. On the supply side, there has been weak growth in loanable funds in recent years, which suppressed credit growth through tighter lending conditions. The slowdown in the growth of mortgage lending appeared to be consistent with other indications for slower growth in incomes and that the market for residential property was weakening, especially for high-value properties. This was driven in part by tighter immigration regulations, which had a major impact on the demand for residential accommodation by expatriates, leading to excess supply of rental accommodation, especially at the upper end of the market.
Total banking sector assets reached P76.7 billion (US$6.8 billion) in December 2015, which is an increase of 12.8 percent from P68 billion (US$7.1 billion) in December 2014. This expansion in assets was driven by growth of 6.5 percent in loans and advances from P44.1 billion (US$4.6 billion) in December 2014 to P47 billion (US$4.2 billion) at the end of 2015, along with BoBCs (Bank of Botswana Certificate) held by banks, which increased by 91.9 percent. On the liabilities side, public deposits at commercial banks increased by 16 percent in the same period, compared to a much slower growth rate of six percent in 2014. A notable feature of commercial banks’ balance sheets is that funding is largely derived by wholesale business deposits (71.3 percent of total deposits), which sustains the net debtor position of households. The ratio of commercial bank assets to nominal GDP rose slightly to 53 percent in 2015, compared to 48 percent in 2014.
Amongst non-bank financial institutions (NBFIs), assets of the Botswana Building Society (BBS) rose by 24.6 percent from P3.4 billion (US$357 million) in December 2014 to P4.3 billion (US$383 million) in December 2015. However, BBS loans and advances – which are mostly household mortgages – only increased by 7.2 percent. The balance sheet of the Botswana Savings Bank (BSB) grew at a similar rate – 25.1 percent in 2015, as lending increased by 28.9 percent (20.3 percent in 2014). Mobilisation of savings was also sustained, with deposits growing by 14.8 percent in 2015, higher than the 10.8 percent growth in 2014. Amongst non-deposit taking institutions, the assets of the Botswana Development Corporation (BDC), increased by 10.7 percent to P2.3 billion (US$205 million) in December 2015, from P2.1 billion (US$221 million) in December 2014. The assets of the National Development Bank (NDB), however, shrank by 21 percent over the year, to P1.5 billion (US$134 million) in December 2015.
The banks have been keen to extend mortgage lending, and compete particularly on loan-to-value ratios, sometimes offering more than 100 percent to provide a contribution to property transfer fees and minimise the deposit required from borrowers. The government has also undertaken various policy initiatives to enhance access to housing finance. Government assists Botswana citizens to purchase or develop properties by guaranteeing 25 percent of each mortgage delivered through the BBS. In addition, Government employees can obtain housing loans from BSB.
Botswana has a large microlending industry, which provides short-to medium-term loans mostly to employed people, especially those in the public sector. This form of lending has generally been used for consumer spending, education expenses and emergencies. The largest microlenders is Letshego, which is bigger than some of the smaller banks, and which has expanded from its Botswana base to ten other African countries. There is no specialised housing microfinance. However, one of the microlenders has a dedicated housing finance scheme, in collaboration with a major employer, which offers loans from P80 000 (US$7 500) upwards, repayable over 10 years at an interest rate of 17 percent.
Botswana’s pensions industry is large with about 86 standalone registered pension funds and total assets accounting for about 60 percent of GDP. Pension funds’ assets grew by 21 percent from P59.4 billion (US$5.3 billion) in December 2014 to P73.8 billion in December 2015 (US$7.8 billion). Pension-backed loans are legally permissible; however, the industry is rather conservative and does not provide members with housing loans or allow third party loans secured by pensions. Some argue that the regulatory framework is not clear enough in dealing with pensions and that this has undermined the growth of this product.
According to the 2014 FinScope Botswana survey, 20 percent of adults in Botswana do not earn an income, while another third earn less than P500 (US$54) a month. Around half of urban households (49 percent) have only one income earner; in 28 percent of households there are two income earners, and in 15 percent there are three or more income earners. Some eight percent of urban households and 13 percent of rural households have no income earners.
The Botswana welfare state is extensive, and includes a wide range of welfare benefits such as old age pension, destitute allowance, orphan care allowance, disability allowance, public works employment, and subsidies to farmers. Around one-third of adults – and perhaps one half of those not in formal employment – receive their main income from government welfare schemes.
The most recent nationwide household income and expenditure survey, carried out in 2009/10, showed that approximately 50 percent of households had a monthly consumption expenditure of P1 600 (approx. US$240) or less. Using a benchmark that housing costs should not exceed 40 percent of household income, and updating these survey results to reflect growth and inflation to 2016, an average household can afford to spend approximately P1 100 (US$105) a month on housing – meaning that half of all households can afford less than this. Even if formal mortgages were available to such households, there is no affordable property that is available to them – or at least not property that would be acceptable security to mortgage lending institutions. Mortgages from banks and other formal financial institutions would only be relevant to the top 25 percent of the income distribution. Banks also prefer to finance the purchase of ready built structures as opposed to providing loans for housing construction.
Housing affordability for households in the lower 50 percent of the income distribution is a major challenge in Botswana. Such households cannot afford a modern, completed house, even at the lower end of the market, and hence are restricted to informal or semi-formal, incremental housing.
Hence government support for low-income housing is a crucial issue, and various forms of subsidy are provided. The Ministry of Lands and Housing has introduced an Integrated Poverty Alleviation and Housing programme, which trains households to acquire productive skills in the construction industry so that they might address their own housing needs while also earning an income. An evaluation of the programme carried out at the end of 2011 found that while training in various construction skills had been successful, this has not translated into housing delivery.
Government policy offers low-to-moderate income households (those earning between P367 (US$34) and P4 400 (US$410) a month) access to a house improvement loan through the Self Help Housing Agency (SHHA). A loan of up to P45 000 (US$4 200) is available, payable over 20 years at P187.50 ($17.5) a month, interest free. Repayment on this loan has not been good, however, and the capacity to enforce repayment is limited. Given the very high level of subsidy entailed, demand is high and uptake is limited by the availability of funding. In April 2015, as part of its effort to improve homeownership, government introduced a housing allowance for the employees in the civil service, though at only P200 (US$18.5) a month.
The supply of ready-built housing units in Botswana is low in all market segments, and most people self-build for occupation. The BHC, the primary housing developer in Botswana, was established by an Act of Parliament in 1971 to provide for the housing, office and other building needs of the Botswana government, local authorities and the general public. In April 2012, the BHC’s mandate was expanded so that it might operate as government’s single housing authority. As such, the BHC is now also responsible for the construction of housing units within the Self Help Housing Agency’s (SHHA’s) turnkey projects, as well as district housing.
The BHC has a large estate of flats and town houses, and a balanced mix of high, medium and low income houses spread throughout the country, with concentrations in Gaborone and Francistown. Although historically focused on developing housing for rental, it has recently begun to offer houses for sale as well (although according to their website, this scheme is currently suspended).
BHC’s smallest housing product is a 58m2 house on a plot of 400m2 or larger. Such a house would typically be priced from P600 000 (US$54 000) upwards. BHC suggests that the minimum mortgage instalment for such a house is P5 500 (US$500), which means that a household would have to earn at least P13 750 (about US$1 250) a month – which would imply a household in the top 10 percent of the national income distribution.
There are very few private sector developers providing housing for sale. However, indicative prices are that building costs for a 60m2 house would be P4 000 – P5 000 per m2 (US$375 – 460), with a total cost of P240 000 – P300 000 (US$22 400 – 28 000). The land cost would be in addition. The cost of land servicing (providing basic roads, water, electricity and water-borne sewerage connections) varies by location, but would typically be in the range of P200 – 300 (US$19 – 28) per m2, so that a standard “low cost” plot of 400m2 would cost P80 000 – P120 000 (US$7 500 – 11 000), making the total cost of the smallest house built by a formal developer around P400 000 (US$39 000).
The cheapest “formal” house is a standard “two and a half” house, comprising two rooms (bedroom/living room), toilet/bathroom and a cooking area. The house is built through the government’s turnkey scheme (SHHA turnkey project) and the cost of building the house is around P90,000 (US$8 500), including basic electrical fittings and running water. The turnkey housing loan assists low-income households and requires that applicants should already own a residential plot and must have not previously benefitted from the SHHA. The loan is interest free and is repayable at P375 (US$35) per month over a period of 20 years. The interest free nature of the loan means that the effective subsidy rate is very high. The number of turnkey housing loans provided by government is limited.
Land tenure in Botswana is divided into three types (i) Freehold; (ii) State Land and (iii) Tribal Land. Freehold land can be freely bought and sold (although with some restrictions on the purchase of freehold agricultural land by non-citizens). While State Land and Tribal Land cannot be bought and sold, leasehold tenure is available. State Land leases are freely marketable, while Tribal Land leases are generally only available to citizens. Every Botswana citizen is entitled to a residential plot on Tribal Land. Such plots are available either free (for un-serviced land) or at a heavily subsidised price (for serviced land); for instance, a serviced SHHA plot in urban areas is sold for P15 – 22 (US$1.4 – US$2.05) per m2, compared to a servicing cost of around P350 (US$32.7) per m2. In addition, citizens are entitled to free land for agricultural purposes. This system means that there are very few, if any, landless Batswana. However, not all land is equal, and there is excess demand for subsidised residential plots close to urban areas, especially close to Gaborone, whereas residential plots are readily available in smaller and more distant villages. Tribal Land is administered by statutory Land Boards. The (theoretical) availability of subsidised land means that there are long waiting lists for Tribal plots in peri-urban areas. However, this does not necessarily represent genuine demand for housing plots, rather, the fact that those who are lucky enough to obtain such plots can re-sell them at a substantial profit.
Most residential property is built for owner occupation. However, residential property has also been seen as a good investment, both by commercial investors and individuals. There is a significant build-to-let market, extending from high-cost (upmarket) housing down to small, low-cost, one-room accommodation for individuals. Commercial investors only provide upmarket accommodation, whereas individuals operate across the entire spectrum. High rates of rural-urban migration and rising urbanisation have fuelled demand for rented accommodation. Buying and selling property is still relatively unusual. According to the 2009/10 BCWIS, over 50 percent of households lived in their own self-built accommodation, while 42.5 lived in rental or institutional accommodation. Only 3.3 percent of households lived in a house that they had bought. The small number of residential mortgages – approximately 20 000 in 2016, out of approximately 500 000 households in the country – reflects the limited size of the formal property market. Secondary property markets are limited by the shortage of stock that can be mortgaged, a preference for self-built accommodation, as well as more generally by slowing economic growth and the high rate of unemployment.
At present there is no comprehensive nationwide land and property registry. Properties with formal title are recorded at the Deeds Registry, which also records mortgage bonds, but informal and semi-formal allocations may only be recorded by Land Boards, or not at all. According to the World Bank it takes about 12 days to register a property in Botswana in 2016 (versus 57.5 days for sub-Saharan Africa), and the process costs about 5.1 percent of the property value. Botswana is ranked 70th out of 189 countries globally in terms of this indicator.
In an effort to increase tenure security and support enhanced access to mortgage finance, the Ministry of Lands and Housing is implementing a nationwide land registration system to improve information on land and property ownership.
Housing Policy and Regulations
The Botswana government has prioritised savings and credit for long-term investments such as housing. One area of reform identified is the land administration system. The lengthy process for conversion from tribal to common law land as required for mortgage lending has been cited as a problem. Regulations about land use management such as building permits and related procedures are also considered unduly onerous and bureaucratic, and still need to be reformed.
While Botswana has a number of housing programmes under way (the SHHA, the Presidential Housing Appeal, the Housing Scheme for Poverty Eradication, the Botswana Housing Corporation, etc.) there is no underlying housing policy. In 2012/2013, a Bill to revise the Town and Country Planning Act was introduced to decentralise town planning functions to the Districts. The Bill was expected to reduce delays in the processing of planning applications. In 2013, the Development Control Code was also revised to assist in the management of land and activities thereon.
Housing Sector Opportunities
Botswana is a relatively stable, well-managed economy that has shown significant growth over the last few years. Finance for self-build housing still offers significant prospects for growth, due to this being the preferred method of building, even among the middle and higher income categories. Mortgage lending has been increasing, and while there is limited demand given low income levels, it also has potential for growth. Interest rates are low by historical standards, which assists with access to mortgages. However, most households will never be able to access conventional mortgage finance; as a result, housing microfinance may have potential, and is worth exploring further.
The state has recognised the need to reform in many key areas such as land administration, and it is also meeting the costs of land servicing in many areas. There is demand for student accommodation and low cost housing in urban areas due to the high levels of urbanisation. However, the overriding issue will continue to be affordability; most households are not able to afford formal housing, and are unattractive customers for formal financial institutions. Hence the majority of low-income housing is incremental, self-built or informally built, and is contingent upon access to free unserviced land or subsidised serviced land. In this situation, the demands on government to provide housing subsidies in one form or another are very high, and potentially very expensive, and hence need to be provided on a rational, analytically sound basis.