Housing Finance in Cameroon

Introduction

Cameroon is a low to middle income Sub-Saharan African country with a population of just below 24.5 million people, and an annual population growth rate of 2.5%. Cameroon 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 – saw a slowdown in economic activity in 2016. This slump has continued into 2017 partly due to the ongoing civil disobedience. The country achieved an improved ranking of 166^th in the 2017 Doing Business Report for ease of doing business. Growth was at 4.7% in 2016, down from 5.9% in 2015. Due to the decline in the secondary sector, especially extractive industries. Economic growth, increasing local and foreign direct investments and a growing population has 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 21.3% of the GDP in 2016.Over the last five years, Cameroon’s growth has been driven strongly by the oil and agricultural sectors.  Oil remains Cameroon’s main export commodity accounting for 40% of export earnings and 10% of the GDP despite falling global oil prices. As part of its industrialisation efforts, there is an increasing effort to develop agricultural, forestry and pastoral production. The mining industry has huge potential with new deposits continuously discovered, creating new opportunities for construction and the provision of subsidised, affordable housing.

The secondary sector accounted for 30% of the GDP in 2016 and industrial production is increasing. Major industries include petroleum production and refining, aluminium production, food processing, light consumer goods, textiles, lumber and ship repairs. Huge investments in infrastructure and enhancement of 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. Such as the deep sea port in Kribi and the Lom Pangar hydropower project. A natural gas-powered electricity generating plant has also 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  services sector is very dynamic and has been growing over the last five years. Accounting for 47.9% of the GDP in 2016, with continued growth predicted, dominated by transport, business and mobile telecommunications, construction, retail trading, hotel and catering and the financial services industry. 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 and 412 licensed microfinance institutions (MFIs), as well as non‐banking financial establishments, foreign exchange bureaus and the Douala Stock Exchange. The banking sector is highly concentrated in the main urban areas and dominated by foreign commercial banks. The top three banks control 50.1% of the loan market and 52.2% of deposits. MFIs officially account for one percent of total loans granted. Banks readily lend to government, multinationals and businesses but neglect retail and small businesses. Cameroon has a large unbanked population as only 15% of the population bank with commercial banks. Commercial banks provide some housing-related finance in the way of mortgage loans.

According to the 2017 Doing Business Report, Cameroon ranking dropped to 133^rd in terms of ease of getting credit due to limited progress on access to credit information. Mobile banking  is increasing financial accessibility with companies like MTN and Orange offering this service.

The Bank of Central African States (Banque des Etats d’Afrique Centrale/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. This is a gap that MFIs are exploiting.

Access to housing finance is very low, available mainly to government employees through the government agency Crédit Foncier du Cameroun. Only about five percent of Cameroonians have access to mortgage finance from the formal private banking system. The government continues to inject more funds into Crédit Foncier, instituted 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,  Ecobank and Credit Foncier, China Development Bank and Afriland First Bank, which help 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,  Cameroon 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, making it easier for people to access finance.

Microfinance is mainly managed by associations, or savings and credit institutions and co-operatives. The  licensed establishments have over 1000 branches across the country a growing client-base, and total savings of just under US$ one billion. About half of the MFI belong to the largest network of MFIs, the Cameroon Cooperative Credit Union League (CAMCCUL). While MFIs have become increasingly important, their development has been hampered by a loose regulatory and supervisory framework. 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  21 billion (US$40 million) and has helped to usher financial reforms.

Under Article 5 of the governing regulations, an MFI may be classified as a category one, two or three. Category one are co-operative institutions that provide savings opportunities exclusively to members, cannot seek profits and exist solely to empower its members. Category two are profit-seeking MFIs that offer and savings and credit facilities to the public. Category three MFIs are profit seeking, and provide credit services to the public but do not accept savings.

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 loan 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 unemployment rate in Cameroon is high, with underemployment reported to be about 76%. The population below the poverty line is reported to be 40% as of 2014. The national Gini-index currently stands at 0.47, suggesting relatively high, levels of inequality. Most people (70%) gain an income or survive on the informal economy through subsistence agriculture and small, micro and medium scale businesses. The formal private sector is not well developed, employing a very small percentage of the labour force. The government through its agencies and parastatals is the largest formal sector employer. The average monthly income per household in the formal public sector is CFA 225 000 (US$386), which is slightly lower than the average income per household in the private sector which is CFA 275 000 (US$472). Average rental prices for a three bedroom accommodation range from CFA 125 000 (US$214) to CFA 60 000 (US$103) on average in urban and semi-urban areas respectively. Most families receive monthly remittance from the growing population in the diaspora. Official figures show that money transfers from the diaspora to Cameroon has doubled and has reached US$1.2, billion, a contribution of up to 33% of the Public Investment budget of Cameroon. These funds are used primarily for the basic needs of families back home in Cameroon and to fund projects for those in the diaspora.

Building costs are fairly high. It is difficult to build houses with uniform standards at a cost accessible to most people.  This situation has led to a discrepancy between production costs and purchasing power. Government has helped to reduce housing production costs to make housing more affordable by establishing government agencies like Maetur to encourage the use of local materials and to reduce the price of land and inputs such as cement and 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 the government guarantees. Though at a very slow pace, this is helping to improve  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 percent, Cameroon is 55% urbanised. The challenge is to provide housing for 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 urban and semi-urban areas of the country. In 2014, an estimated 53% of households owned their own homes, 30% were tenants and 11% were accommodated free of charge. As the middle class is growing and rate of urbanisation is increasing, there is a shift from ownership towards rentals especially for first time or new entrants.

Despite ongoing efforts towards increasing housing supply, Cameroon’s housing backlog is still significant.  Government, private companies and individual investors (both local and in the diaspora)  are looking to overcome the growing deficit of over 100 000 units a year through ongoing investments in housing. A few years ago, the government estimated that up to one million homes needed to be built within a 10 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/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.

Maetur, acquires and develops land, which is 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 have been completed and sold out. Phase III of the project is ongoing and will be completed by the end of 2017. Quality Habitat Corp, a Cameroon subsidiary of a US-based company, has a plan to build 2 000 houses annually. MG Constructions, a builder and property developer, is planning two major developments in the heart of Yaounde and also in Douala. The delivery date is September 2019. Individuals (both locally and in the diaspora) are also heavily investing in housing, building standalone houses, mini cites (mini cities) and small estates. 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  Cameroon 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 122.23 billion (US$220 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  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 high 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 in the market. There is  a growing number of real estate companies providing buying/rental services to clients. On average, it costs up to CFA 125 000 (US$223) 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 10 million (US$17 885) 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. The average 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 5 million (US$8 943). This cost drops to CFA 4 million (US$7 154) 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 is improving 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. This is yet to be achieved as it takes up to 135 days to obtain a building permit.

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. Private companies like Options for Homes in Africa, Quality Habitat Corporation, Cameroon Property Company and MG Constructions as well as an increasing number of individuals both local and in the diaspora are investing in the sector. Government at all levels is also investing in the sector mainly to provide social housing. 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 the 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 in all segments of the housing market, 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 is still a shortage of prime real estate. Also, 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.