Housing Finance in Cameroon

Introduction

Cameroon is a low to middle income Sub-Saharan African country with a population of 23.93 million, an annual population growth rate of 2.5%. By virtue of its population, position, resource endowments and level of development compared to other countries in the region, Cameroon is the gateway into Central Africa. It is the most significant market in the Economic and Monetary Community of Central Africa (Communauté Économique et Monétaire de l’Afrique Centrale, or CEMAC).

Cameroon’s economy – CEMAC’s engine in terms of agricultural/industrial production and services – has continued to be resilient despite an unfavourable regional environment, a stagnating world economic context attributable to weak recovery in OECD countries and slow growth in emerging economies. This has led to a stable macroeconomic environment. The country achieved a ranking of 172^th in the World Bank’s 2016 Doing Business Report for ease of doing business. . Growth in 2014 was 5.7%, against 5.6% in 2013 and below 5.9% in 2015. The growth came slightly lower than the projected six% set in the 2010-2020 Growth and Employment Strategy Paper (GESP). Economic growth, increasing local and foreign direct investments and a growing population have created a growing middle class with a strong demand for products and services, including housing.

Modest oil resources and favourable agricultural conditions provide Cameroon with one of the best-endowed primary commodity economies in Sub-Saharan Africa. Cameroon’s primary sector accounted for 22.3% of GDP in 2015. The country has natural resources such as petrol, gas, diamonds, aluminium, uranium, bauxite, timber, hydropower and iron ore. It produces agricultural products including rubber, cotton, banana, cocoa, , coffee, grains, livestock, timber, ,  palm oil. Over the last five years, growth has been driven strongly by the oil and agriculture sectors.  Oil remains Cameroon’s main export commodity accounting for 40% of export earnings and 10% to GDP despite falling global oil prices. 70% of the active labour force is engaged in agriculture. The mining industry is experiencing a boom. New deposits are continuously discovered as new exploration and mining licences continue to be issued, with new opportunities for construction and the provision of subsidised, affordable housing.

The secondary sector accounted for 29.9% of GDP, a two% growth compared to the previous year. Industrial production growth rate continues to increase. Major industries include petroleum production and refining, aluminium production, food processing, light consumer goods, textiles, lumber and ship repairs. Huge investments in infrastructure and enhancing the business environment is required to increase this sector’s value.. This is currently being addressed by the government with ongoing projects to increase electricity supply through the construction of new hydroelectricity power plants and incentives to encourage private sector investment in specific manufacturing sectors. E.g. the deep sea port in Kribi and the Lom Pangar hydropower project. A natural gas-powered electricity generating plant has been opened to diversify the energy sector. Growth in this sector and the increasing investments in infrastructure will enable the expansion of the residential real estate market.

The tertiary sector accounted for 47.95% of GDP in 2015,. It is the most dynamic sector of the economy, and has grown at six% on average since 2007 due to good performance in business and mobile telecommunications, the recovery of the construction and transport sectors, retail trading, hotel and catering industries and the financial services industry. This sector is projected to grow continuously, employ more people and contribute more to GDP.

The growth of these sectors has contributed to a growing middle class with increased demand for housing. This presents new opportunities for subsidised affordable housing and housing finance given the current inadequate end-user housing finance opportunities.

Access to Finance

Though Cameroon’s financial system is the largest in the CEMAC region, it is still in its infancy. There are 14 commercial banks, 11 non‐banking financial establishments, 418 licensed microfinance institutions, many foreign exchange bureaus and the Douala Stock Exchange. Government accounts for only 10% of the social capital of banks, while the private sector accounts for 90%. The banking sector is highly concentrated and dominated by foreign commercial banks. The top three banks control 50.1% of the loan market and 52.2% of deposits.. Microfinance institutions officially account for 15% of total loans granted.  All 14 commercial banks provide some form of housing-related finance.

About 15% of the population use banks. According to the World Bank’s 2016 Doing Business Report, Cameroon ranked 69^th in terms of ease of getting credit. Mobile banking has been identified as one way of increasing financial accessibility. Mobile Telecom companies like MTN are already offering this service.

The Bank of Central African States (Banque des Etats d’Afrique Centrale, or BEAC) regulates the banking and MFI sectors through the Central African Banking Commission (COBAC). Both COBAC and the Ministry of Finance and Budget must licence banks, and there are special regulations for small‐scale credit co-operatives. The system is bank-centred, and the commercial banks in the country mainly fulfil traditional banking functions, with a tendency to prefer dealing with large, established companies, government and medium to high net worth individuals. The long-term credit market remains underdeveloped. The distribution of banks is heavily skewed towards the main urban centres, with a significant part of the semi-urban and rural parts of the country denied access to formal banking facilities.

Access to housing finance is low, available mainly to government employees through the government agency Crédit Foncier du Cameroun. Only about five% of Cameroonians have access to mortgage finance from the formal private banking system. The government has injected more funds into Crédit Foncier and instituted other reforms like providing financial guarantees and broadening assets that can be used as collateral to make it easier to access housing finance. Property developers and private equity funds with money are looking for local partnerships to provide end-user financing for housing. A few partnerships are already in place, like Ecobank and Credit Foncier, which is helping to provide end-user financing to individuals to buy or build houses. Title deeds are attached to only a very small percentage of land because implementing the legal provisions on land ownership has been impeded by jurisdictional disputes. In 2012, the country made amendments to the Organisation for the Harmonisation of Business Law in Africa (OHADA) Uniform Act on Secured Transactions that broadened the range of assets that can be used as collateral. This has made it easier for people to access finance. The World Bank’s 2016 Doing Business Report shows  improvement on the legal rights of borrowers and lenders, and  access to credit.

Microfinance is mainly managed by associations, or savings and credit co-operatives. It has 418 licensed establishments ,  1.5 million clients, total savings of US$800 million, and over 1 000 branches across the country. Of these, 187 are independent, while 178 belong to the largest network of MFIs, the Cameroon Cooperative Credit Union League (CAMCCUL).

It has become increasingly important, but its development has been hampered by a loose regulatory and supervisory framework for MFIs. . The conditions to carry out microfinance activities are defined at the sub-regional level by CEMAC.

Liquidity is a problem, many MFIs are only able to satisfy a third of their customers at any time, depending on their credit requirements. To address the liquidity issue and to make more funds available to finance activities, including providing housing finance, the government has established a wholesale fund, financed by the African Development Bank (AfDB). The fund is worth CFA Francs 21 billion (US$40 million) and has helped to usher financial reforms.

The most popular credit institution is called njangi by English speaking people and tontines by French speaking people. This rotating savings model is usually made up of people of the same social class, same community or same cultural affiliation who have similar incomes or who engage in similar activities. Two types are commonly used for housing purposes, rotating funds, and savings and loans funds.

Rotating funds involve groups of individuals who come together on a regular basis with agreed fixed sums of money that is interest free. At each meeting, a lump sum is given to one of the group members. The member who receives the money is agreed in advance by consensus among the group, and the number of members determines the loan period.  A slightly different rotating savings model, made up of individuals with different income brackets, is more flexible. The money collected is auctioned and those who have not yet received a loan may bid for it. The person with the highest bid gets the loan.

Savings and loans funds allow members to contribute more than the agreed regular sum of money into a savings fund that is then loaned to other members in need with Interest of 10 to 15%. The saver may withdraw the money but only after sufficient notification has been given to the association. This money earns interest for the saver.

Housing Affordability

The official unemployment rate is high, with underemployment reported to be about 76%, with a poverty rate of 38%. The national Gini-index currently stands at 0.38, down from 0.390 in 2007, 0.416 in 1996 and 0.404 in 2001, suggesting relatively high, though improving levels of inequality. Most people (70%) are employed in the informal sector in subsistence agriculture and in small, micro and medium scale businesses. The formal private sector is not well developed, employing a very small percentage of the population. The government through its agencies and parastatals is the largest formal sector employer. The average monthly income per household in the formal sector is CFA Francs 225 000 (US$386), which is slightly lower than the average income per household in the private sector which is CFA Francs 275 000 (US$472). Average rental prices for a three bedroom accommodation range from CFA Francs 125 000 (US$214) to CFA Francs 60 000 (US$103) in urban and semi-urban areas respectively. Most families receive remittance income from abroad thanks to the growing population in the diaspora.

Building costs are fairly high. It is difficult to build houses with uniform standards at a cost accessible to most people.  resulting in a discrepancy between production costs and purchasing power. Government has helped to reduce housing production costs to make housing more affordable by establishing agencies like Maetur to encourage the use of local materials and to reduce the price of land and inputs such as cement, sand, and has stepped up funding for government agencies in this sector. Companies like Quality Habitat Corp have set up factories to manufacture building materials, which should reduce cost of inputs. The government has decided to roll out projects to construct affordable housing across the country. Individuals will provide 20% as their equity investment upfront and take a loan for the remaining 80%, which government guarantees. This is improving access to quality housing as individuals in the private and informal sectors are also beneficiaries.

Housing Supply

With an annual population growth rate of 2.5%, and an annual urbanisation growth rate of four%, Cameroon is 55% urbanised. The challenge is to provide housing to this growing and urbanising population, almost half of which live in informal dwellings and settlements. The opportunity is to establish partnerships across the housing value chain to meet the increasing demand for high-end and affordable housing. In 2014, an estimated 53% of households owned their own homes, 30% are tenants and 11% are accommodated free of charge.

Cameroon’s housing backlog is significant. The government is looking to overcome the growing deficit of over 100 000 units a year. A few years ago, the government estimated that up to one million homes needed to be built within a ten year period to adequately house the growing population. Of these, 300 000 are needed in the main cities of Douala and Yaounde. Demand for housing in the lower and upper ends of the market increases by up to 10% annually. Government is using public private partnership approach in projects to build new social housing units countrywide.

The housing market is not well developed. The main players include the state-owned Cameroon Real Estate Corporation (Société Immobilière du Cameroun, or SIC), founded in October 1952 as a centrally funded company in charge of social housing and developing the real estate market for government. It works in partnership with local and foreign private construction companies to handle large-scale projects and train the local workforce. SIC aimed to build 100 000 new houses by 2022. 40 000 have already been built. Crédit Foncier du Cameroun, a building and loan association, is the top mortgage bank and provides funds for social housing to individuals and developers. The National Investment Corporation of Cameroon (Société Nationale d’Investissement du Cameroun) invests government funds in profitable projects in different sectors.

A government agency, Maetur, acquires and develops land, which are sold to willing buyers at affordable prices. Mipromalo, the local material promotion authority, develops local materials for use by construction companies. The number of private developers is increasing.  Options for Homes in Cameroon,a local subsidiary of a Canadian Housing company, is involved in a mixed-use development in the coastal city of Limbe aimed at high income earners. Phases I and II, a total of 102 units of its current development is completed and sold out. Phase III of the project is ongoing. Quality Habitat Corp, a Cameroon subsidiary of a US-based company, has a plan to build 2 000 houses annually. Most private developers build and sell houses to the upper middle income and high-end market through the BOT (Build, Operate and Transfer) model. Private developers also partner with municipalities to build affordable housing.

There are institutional problems. Although the country has developed catalytic real estate institutions, they suffer from dwindling public finance and new strategies are urgently needed for the effective functioning of these institutions. Government together with its partners (local councils, energy utility company ENEO, National Water Supply Company of Cameroon, SIC and Crédit Foncier), launched a project in Douala and Yaounde in 2009 to build 10 000 houses for low and middle income earners. The partnership has completed Phase I with 6 000 new low cost houses. Phase II is near completion with 4 000 houses. There are many new housing units built by individuals entering the market for ownership and rental.

Phase I of a city council of Douala project which started in 2012  to build more than 1 000 social, affordable and private houses along with community, commercial, retail and leisure facilities in the Mbanga-Japoma area of the Douala III council, at a cost of CFA Francs 122.23 billion (US$264 million) is complete. It consists of 50 buildings, comprising 300 apartments with one parlour and four bedrooms, and 700 apartments with one sitting room and three bedrooms. The city council of Douala also has a project to deliver 2 500 affordable houses in Bonamatoumbe.  Phase I is almost complete.

Government policy has placed more emphasis on home ownership. However a significant proportion of the population is seeking rental housing. There is a huge shortage of rental housing units. Government must recognise the benefits of regulating and supporting rental markets to complement ownership.

The three new cement companies established in 2015 have helped to increase the supply of cement, currently estimated at 3.5 million tonnes a year, short of the required domestic demand estimated at five million tonnes a year.

Property Markets

The formal real estate market is concentrated in the urban and peri-urban areas, and churn is concentrated in the middle-to-higher value market. 53% own their own homes and 30% are tenants. Both housing for ownership and rental is in demand. Despite the focus on ownership, there is increasing opportunities for rental. Because supply lags behind demand, there is a constant minimum 10% year-on-year increase in house prices for ownership and rental. On average, it takes at least one month to find quality accommodation in Douala, Yaounde and other main cities. This time is projected to decrease to two weeks in the next few years with the increasing number of new housing units that enter the market for ownership and rental. There is very few real estate companies providing buying/rental services to clients. On average, It costs up to CFA Francs 125 000 (US$214) a month to rent a standard three-bedroom house in Douala and Yaounde. This amount is about 40% cheaper in the smaller cities like Limbe, Bafoussam and Bamenda. It costs up to CFA Francs 10 million (US$17 153) to build a standard three-bedroom house, excluding the cost of land in the main cities like Douala and Yaounde. This cost is about the same and can even be more expensive in the smaller cities due to input costs. The cost of standard inputs increases the further away from Douala as most of the standard inputs are imported or manufactured around the main cities. The cost can be cheaper in the smaller cities depending on the inputs used. On average, the size of a standard three-bedroom house is 300 m². The cost of a serviced 500 m² piece of land in the urban areas is CFA Francs 5 million (US$8 576). This cost drops to CFA Francs 4 million (US$6 861) in the smaller cities like Buea, Limbe and Bamenda.

Housing Policy and Regulations

The national housing policy in Cameroon has evolved through three discernible periods: 1950 – 1976; 1977 – 2003/4 and 2004 to date. During the first phase, emphasis was on direct construction of houses by the government. During the second phase, emphasis and focus shifted from housing as shelter to development and improvement of the total housing environment including provision and improvement of housing services and infrastructure. The current policy phase is focused on reassessing the habitat agenda. Emphasis is on construction of social infrastructural amenities and provision/upgrading of basic services in informal settlements in partnership with local and international private sector partners.

Land tenure is still characterised by the coexistence of a traditional or customary land tenure system, and a modern land tenure system. . A land reform programme was introduced in 1974 to unify the legal land systems used. Since then, Ordinance No. 74/1 and 74/2 of 6 July 1974 established rules governing land tenure and state lands respectively, and laws and decrees to amend and implement them. Law No. 85/09 of 4 July 1985 relates to expropriation for public purposes and conditions of compensation, and constitutes the regulatory framework for cadastral survey and land management. Decree No. 2005/178 of 27 May 2005 organises the Ministry of State Property and Land Tenure (MINDAF), while Decree 2005/481 of 16 December 2005 amends and supplements some provisions of Decree No. 76/165 of 27 April 1976, which lays down conditions for obtaining land certificates. These constitute the institutional framework for the implementation of land legislation. The delay in implementation of this framework is the main reason for the chaotic nature of land reform and the fact that title deeds are attached to only a small percentage of land.

There is legislation to regulate the establishment and operation of a credit registry database. This has improved the credit information system. Government also passed legislation that requires inspection and notification before construction permits are issued. Government has decentralised the process of obtaining building permits with a time limit of 90 days.

Housing Sector Opportunities

Cameroon’s housing sector continues to attract investment as there is a huge need for housing in all segments of the market and housing value chain. Companies like Options for Homes in Africa, Quality Habitat Corporation, Cameroon Property Company are investing in the sector. The government continues to implement reforms recommended by the AfDB. Better regulation is making it easier for people to get title deeds for their land, enhancing security of tenure and additional investment. Financial market reforms are continuously being implemented to play an enabling role towards developing the housing sector. These reforms have helped to alleviate the problems related to lack of serviceable land, delays in issuing construction permits and property registration, undeveloped capital markets and an unresponsive banking sector. . Government should continue with reforms, including building standards, product innovation and financial stability to help realise the potential of the sector and enable it to play a more significant role in housing finance and housing development.

With economic growth, a huge housing backlog, growing middle and upper classes, increasing capital inflows from Cameroonians in the diaspora and other international investors, increased local investment and better legislation and reforms, the housing market is destined for sustainable growth. Despite the demand for up-market housing and the current focus of developers on the high-end housing market as a result of affordability and easier access to finance, there are new and emerging developers who are focusing on the middle class and lower income groups, as this presents the biggest opportunity for development and financing now and in the future.