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.
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, 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 6.9 percent a year from 2010-2014. In 2015, the economy contracted by 1.7 percent due to weak commodity markets and diamond sales, but recovered in 2016, recording real growth of 4.3 percent, supported by large improvements in diamond sales. Moreover, the government embarked on a fiscal stimulus to encourage aggregate demand in the economy, by running budget deficits financed by drawing down on accumulated savings. The Botswana government has forecast that the economy will grow by 4.1 percent and 4.2 percent in 2017-18 and 2018-19 respectively.
A major development in 2016 was the release of the 11th National Development Plan (NDP), covering the period from 2017 to 2023. In NDP 11, the government states its intention to boost economic growth by developing diversified sources of economic activity, in order to address the main macroeconomic problems of unemployment, poverty and income inequality. NDP 11 projects an average annual GDP growth rate of 4.4 percent through the plan period.
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. 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$6 788 in 2016). According to the third FinScope survey undertaken in Botswana in 2014, 68 percent of the population was financially served, using either formal and/or informal products, while 50 percent of the population was formally banked and 24 percent was financially excluded (not using either formal or informal financial products).
Commercial banks in Botswana are small by international standards. Currently, there are ten commercial banks, namely, Barclays, Standard Chartered, Stanbic, First National Bank, Bank Gaborone, Bank of Baroda, Capital Bank, BancABC, 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 (BSB), and the Botswana Building Society (BBS), and a non-deposit-taking development finance institution, the National Development Bank (NDB). Most of the banks, as well as BSB, BBS and NDB, offer long-term residential mortgages.
The average interest rate on household mortgages from banks is currently 8.81 percent, and the average down-payment required is 10 percent of the value. Mortgages are available for up to 25 years, or up to the age of 60 years. Mortgages are typically provided at an interest rate of prime to prime +6 percent (the prime rate is currently 7.0 percent).
Annual growth in commercial bank credit fell from 7.1 percent in 2015 to 6.2 percent in 2016, due mainly to a decline in growth of lending to households. As at December 2016, the share of household credit in total private commercial bank credit was 60.1 percent. The bulk of lending to households comprises unsecured credit (in contrast to many middle income countries, where property mortgages make up the majority of household borrowing). Bank mortgage lending to households grew by 6.3 percent in 2016, down from 7.2 percent in 2015. There are an estimated 12 000 mortgages from banks in Botswana (with an average size of around P750 000 (US$75,000)), plus another 5 500 from BBS. 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.
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 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. Arrears rates have also been rising; arrears on bank lending to households reached 6.2 percent in 2016.
In a sign of slowing growth in the banking sector, the ratio of commercial bank assets to nominal GDP declined from 53 percent in 2015 to 48 percent in 2016.
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 those employed in the public sector. Such loans have generally been used to finance consumer spending, education expenses and emergencies. The largest microlender 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, nor indeed much in the way of micro-finance for productive activities. However, Letshego has a dedicated housing finance scheme, in collaboration with Debswana, a major mining company, which offers loans from P80 000 (US$7 804) upwards, repayable over 10 years at an interest rate of 17 percent.
Botswana has a large pensions sector, with total assets equivalent to around 45 percent of GDP, almost as large as those of the banking sector. Around 62 percent of pension fund assets are held offshore. Pension-backed housing loans are legally permissible; however, the industry is rather conservative and in practice 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$48.7) 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, although the level of income from these schemes is very low; for instance, the universal Old Age Pension for adults aged 65 and over is P430 (US$42) a month.
The most recent nationwide household income and expenditure survey, carried out in 2009/10, showed that approximately 50 percent of households then had a monthly consumption expenditure of P1 600 (at that time, 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 fifty 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. These include the Home Improvement Loan, Turnkey Housing, the Integrated Poverty Alleviation and Housing programme, the Public Officers Housing Initiative (POHI), the Instalment Purchase Scheme (IPS) and Youth Housing (all under the Ministry of Infrastructure and Housing (MIH)). In addition, the Self-Help Housing Agency (Ministry of Local Government) provides subsidised serviced plots.
Home improvement loans are available to low-to-moderate income households (those earning between P367 (US$35.7) and P4 300 (US$419) a month), up to a value of P60 000 (US$5 850), repayable over 20 years at P250 (US$24.2) 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 supply is limited by the availability of funding (approximately 1 000 loans are available each year).
Government also provides housing through the turnkey scheme. The standard dwelling is a “two and a half” house, comprising two rooms (bedroom/living room), toilet/bathroom and a cooking area, including basic electrical fittings and running water. Beneficiaries receive an interest-free loan of P90 000 (US$8 780.5), repayable at P375 (US$36.5) per month over a period of 20 years. The houses are constructed by BHC at a cost to government of P123 000 (US$12 000). Income qualification criteria are the same as for the home improvement loan, and applicants should already own a residential plot. The initial subsidy P33 000 (US$3 219) plus 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 to around 1 000 a year countrywide, and the waiting list is currently 4 452.
Under the Integrated Poverty Alleviation and Housing Programme, low-income households are assisted to establish brick-making projects, and can use the money earned and skills learnt from these projects to construct their own houses. Other initiatives to provide housing to low-income households through include the Destitute Housing Programme and the President’s Housing Appeal. These initiatives are all targeted to remote area communities or settlements.
The MIH has commissioned a national housing needs assessment to guide future housing provision and policy, which is expected to be completed before the end of 2017.
The nature of housing structures in Botswana has changed a lot over the past two decades, shifting from the traditional hand moulded brick construction with a thatched roof to a more modern tiled or corrugated iron roofed house, built of concrete blocks. According to the 2011 Population and Housing Census, traditional housing units decreased from 64 percent to 13 percent of the total between 1991 and 2011. Most Batswana traditionally maintained three residences – in a village/city/town, at the “lands” (for arable agriculture) and the cattle post; however, the core residence is in the villages or cities/towns. The type of housing structure is even changing at the lands and cattle post, mostly because of the durability of the materials used for a modern house.
According to the Population and Housing Census there were 550 846 housing units in Botswana in 2011. Out of these, 357 567 were in urban areas and 193 379 in rural areas. The average household size in Botswana has been declining over the years, from 5.5 in 1981 to 3.7 in 2011; many are single member households (27.8 percent).
The government-owned Botswana Housing Corporation (BHC), established in 1971, is the primary housing developer in Botswana. Historically it provided for the housing needs of government, local authorities and the general public, by providing housing for rental, although in recent years it has also been offering houses for sale. BHC has a large estate of flats and town houses, with a mix of high, medium and low income houses spread throughout the country, with concentrations in Gaborone and Francistown. 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$58 536) upwards. BHC suggests that the minimum mortgage instalment for such a house is P5 500 (US$536), which means that a household would have to earn at least P13 750 (about US$1 317) a month for this to be affordable – which would imply a household in the top 10 percent of the national income distribution. The rentals charged by BHC for tenanted accommodation are subsidised – as a matter of government policy – but even so, BHC properties are still more suited to the formally employed than low income households.
In April 2012, the BHC’s mandate was expanded so that it would operate as government’s single housing authority. As a result, BHC is now also responsible for the construction of “turnkey” housing units, and is in charge of implementing the Public Officers Housing Initiative (POHI),the Instalment Purchase Scheme (IPS) and Youth Housing. In 2016, a total of 1 837 houses were started by BHC, out of which 1 000 are turnkey houses, 372 for IPS and 465 for the POHI. The IPS targets the youth and middle income groups with monthly incomes of P3 000 (US$292.5) to P7 000 (US$682.5).
Besides the BHC, there area few private sector developers providing housing for sale. Indicative prices are that building costs for a 60m2 house would be P4 000-P5 000 per m2(US$390-487), with a total cost of P240 000 – P300 000 (US$23 414-29 268). 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$19.5-29.3) per m2. However, housing provision by private developers is typically aimed at upper-middle and upper-income households, with incomes of P10 000 (US$975) a month or more.
Home ownership is important to Batswana, and the 2011 Census data shows that 57 percent of housing units were owner-occupied. Most of the remainder were rented privately, but around one-quarter of rented accommodation was provided by government or its agencies.
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 per m2, compared to a servicing cost of around P350 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 in or around 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 subsidized 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 urbanization have fuelled demand for rented accommodation.
Buying and selling property is still relatively unusual. According to the 2009/10 BCWIS, 50 percent of households lived in 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 17 000 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 (which sometimes is not of a sufficient standard to be mortgaged), 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 2017 (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 190 countries globally in terms of this indicator.
In an effort to increase tenure security and support enhanced access to mortgage finance, the government is implementing a nationwide land registration system to improve information on land and property ownership. All plots in tribal land have been surveyed and data capturing is ongoing. Different land boards nationwide are at different stages of completing data capture.
Housing Policy and Regulations
Several reforms have taken place to improve land administration system. In the 2017 Doing Business review, Botswana improved in the area of getting construction permits, which had previously been subject to lengthy processes and delays. The adoption of the 2015 Land Policy also helped with land transfers and conversion from tribal to common law land as required for mortgage lending. The principle of “one person one plot” was revived, to improve the distribution of land ownership. This meant an individual is only entitled to be allocated a plot once by the land boards on tribal land (although they are allowed to purchase additional land on the open market).
Botswana has several policies and acts for land management and administration. The main policies are the National Settlement Policy (1998), the National Policy on Housing (2000), Revised National Policy for Rural Development (2002) and Land Policy (2015). The only recent act related to land and housing is the Sectional Titles Act (2003), which provides for the division of buildings into sections for the acquisition of separate ownership of building blocks.
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. At present, access to subsidised housing is determined by various rationing mechanisms, but there is a need for a more efficient mechanism to deliver targeted housing subsidies.