Housing Finance in Chad

Introduction

Chad is a land-locked country in Central Africa, beset by regional instability, internal tensions between ethnic groups and environmental challenges of desertification caused by climate change.[1] Its geography results in a reliance on neighbouring countries and a sensitivity to regional conflicts.[2] Furthermore Chad has been heavily reliant on financial support from the international community.[3] President Idriss Deby and his party, the Patriotic Salvation Movement, have dominated politics since 1990, and in 2016 was re-elected as president for a fifth term.

Classified as one of the ten least developed countries in the world, Chad has 46. 7% of the population living below the national poverty line and 38.4% below the international poverty line of less than US$2 per day.[4] According to statistics from a UNICEF study released in 2015, 78% of young people and adults 15 years and older are illiterate, only 22.4% are enrolled in secondary schools and only four percent progress to further technical and vocational programmes.  Only two percent of the population have access to electricity and only 12% to sanitation. The Gini coefficient of 43.3 demonstrates an unequal distribution of income despite high levels of oil revenues. 77.7% of households (just over two million) are rural, with only 9.2% (just under a quarter of a million) living in urban areas. The country has three small cities (100 thousand-1 million) with the largest city being its capital, N’Djamena with a population of 721,081 people.[5] According to UN Habitat, Chad’s average household size has consistently been around eight for the past two decades, though it is gradually decreasing, and is expected to be 7.5 in 2025.

Chad holds substantial oil reserves which account for around 60% of fiscal revenue. However, the recent collapse in oil prices since 2014, rainfall deficits and the deterioration in the security situation have severely affected the economy.[6] Persistent violence in neighbouring countries creates humanitarian, military and political risks for the country. Chad plays a key role in regional efforts to combat Boko Haram and supports an estimated 750 000 refugees and internally displaced persons mainly in its border regions. [7]

Authorities are implementing an emergency action plan to address the fiscal crisis, due to exogenous shocks, which has resulted in significant spending cuts and a reduction in the expenditure envelope to about half the 2014 level (in nominal terms). In recognition of the economic vulnerability caused by an overreliance on oil based sector there have been efforts made toward economic diversification.[8] In this regard, a new five-year National Development Plan (NDP) has been prepared that will provide a framework for economic policy from 2017. This policy focuses on: diversifying the sources of growth, lifting productive capacity, boosting job creation, strengthening governance, and restoring public finances and external accounts. The implementation of this plan is supported by the IMF’s Extended Credit Facility (ECF) which has reportedly made satisfactory progress to date. Approval of the conclusions of the Third and Fourth Reviews of the programme enabled the country to benefit from financial help in November 2016.[9] These budgetary assistance supplements were provided by the African Development Bank, the European Union, France and the World Bank.[10]

The dynamics of Chad’s political instability are complex and continue to pose a threat to regional and national stability, and have a negative effect on the country’s investment climate.[11] Chad is currently ranked 180 out of 190 countries on the World Bank’s Doing Business Index.

Access to Finance

Chad is a member of Central African Economic and Monetary Community (CEMAC), which has a regional central bank—the Bank of Central African States (BEAC). All banks in Chad are subject to oversight by the Central Africa Banking Commission (COBAC), which is part of BEAC. Monetary policy is managed by BEAC, which prioritises controlling inflation and maintaining the CFA peg to the EUR. The BEAC is expected to continue to broadly track European Central Bank policy, given the region’s economic and currency ties to the EU.  In May 2017, BEAC has kept its policy rate at 2.95% in order to boost regional credit growth and enhance economic activity in the non-hydrocarbon sector.

Chad’s financial system is amongst the least developed in the CEMAC region and is characterised by limited depth and low monetisation. Access to financial services remains a major issue for the vast majority of Chadians. In 2014, the number of commercial banks per 100 000 adults was 0.96, a 0.57 increase from 2004, but still significantly lower than regional averages.[1] Between 2011 and 2014, the number of ATMs increased from 30 to 64.[2] In 2011, only 2.7% of the population over the age of 15, and 0.56% of women, held a debit card from a financial institution.[3] In the same year, the vast majority of loans taken to purchase a home were held by women (7.17% of the 17.37%) as well as just over half of the mortgages in 2014 (2.85% of 4.51%).[4]

There are nine commercial banks, Ecobank, Banque Arabe Soudano – Tchadienne, Commercial Bank of Tchad, Banque de Développement du Tchad, Banque Internationale pour la Reconstruction & Développement, Banque Internationale pour l’Afrique au Tchad, Banque Tchadienne de Crédit et de Dépôt, Banque Sahélo-Saharienne pour l’Investissement et le Commerce, additionally there are two insurance companies, two pension funds and over 200 microfinance institutions. In 2015, it was estimated that 200 000 people benefit from microfinance packages with a credit stock of around CFA 18 billion (US$ 31 104 180) and a savings stock of CFA 12 billion (US$ 20 736 120).^[5] These packages include commercial loans, construction/housing loans, agricultural loans, and educational and social loans.[6] Collateral for which include cattle, land, or equipment and lending rates are usually significantly lower than that offered by commercial banks, at an average of 24% as opposed to the 12% offered by banks.[7]

The deteriorating economy has impacted the banking sector. Banks’ links to the government are significant because of their exposure to government debt, and the private sector’s dependence on government spending. The ongoing economic crisis, has therefore led to a drop in credit to the private sector (about 5.4% year-on-year as of end-June 2016), and an increase in non-performing loans from 11.7% of gross banking loans at end-2014 to more than 17 % at end-June 2016.[8]

According to Findex 2014, 4.5% of adults have an outstanding mortgage. At 5.4%, a greater percentage of adults in rural areas had a mortgage than those in urban areas. Some of the banks do provide mortgage and rates are set at between 12-17 % (2011). Orabank offer a mortgage for a loan repayment term between five and 10 years, at an average rate of nine percent to those who are formally employed, to private companies or multinationals. The Sahel-Sahara Bank for investment and Commerce (BSIC) also offers property loans.

Housing Affordability

The capital city of N’Djamena is ranked as the 15th most expensive city to live in for expatriates by Mercer’s Cost of Living Survey, in its worldwide assessment of 209 cities in 2017.According to Numbeo, the rental cost of a formal apartment in the city centre ranges between CFA 700 000 (US$1 252) and CFA 1.14 million (US$2 038) a month. Prime residential rentals are around CFA 2 million (US$3 576) a month, which is slightly down from a year ago as the market is generally stagnant. Furthermore, to buy an apartment costs approximately CFA 4.5 million (US$ 8 046) per square meter in the city centre and CFA 2.6 million (US$4 649) outside the city centre. In contrast, the average annual general expenditure per capita, in 2011, was CFA 231 190 (US$413), ranging from CFA 66 321 (US$119) for the poorest households to CFA 617 292 (US$1 104) for the wealthiest.

According to the World Bank, the absolute number of people living under the poverty line is projected to rise from 4.7 million to 6.3 million between 2012 and 2019.[1] This is reflected in the low affordability levels for formal housing in cities with 88.2% of the urban population living in slums or informal settlements. Chad has a relatively low unemployment rate of 4.2% of women, 6.8% of men[2] and nine percent of the country’s youth. However, 32.6% of the employed population live below the international poverty line of US$1.90 per day and can therefore be classified as the working poor.[3]

The World Bank claims that the inadequate and informal nature of housing is because of the extremely high cost of building materials, and an average waiting period of over 90 days to obtain a building license from municipal officials, are the main reasons that the rental market is predominantly informal. While there have been initiatives to decrease the cost of imports, such as road paving funded by the World Bank, the remoteness of N’Djamena and the lack of initiatives to provide affordable housing—marked by the fact that none of the loans provided by international donors have been for housing—means that the high cost of formal housing is likely to remain.

For the resale market, the World Bank’s Doing Business 2017 report states that the standard price of property was CFA 22 330 414 (US$ 39 935 ) down from CFA 24 855 899 (US$44 452) in 2015. There is still little data available on the cost of constructing a house but what there is suggests that it continues to be high. The Lutheran World Federation (LWF) constructed 405 houses for refugees at a cost of US$45 500 a house in 2013. However, in 2014, LWF reported that it was able to build more houses at a cost of US$25 000. The lack of supply of adequate and affordable housing means that data on the cost of construction is scarce.

Housing Supply

With over 90% of its urban inhabitants living in informal settlements, according to UN Habitat, Chad suffers from a severe affordable housing shortage. While there is little information available on the actual supply of housing, it appears that improvements in affordable housing have been slow; 77.5% of urban housing was classified as inadequate in 2003, decreasing to 73.1%t in 2011.

Chadians tend to construct incrementally, accessing financing through family and informal sources, both in urban and rural areas, predominantly with traditional building materials. According to the United Nations Settlement Programme, only 4.7% of all houses are built with durable materials.[1] A relatively high percentage of houses have roofs built with durable materials (52.9%), but only 15.3% of houses have a durable floor and only 5.3% of houses have durable walls.[2] This presents a major challenge to construction regulation and price standardisations in mortgage markets. Its remote, land-locked location drastically increases the price of imported building materials, while local manufacturing in the local economy is limited. There are four cement producing factories (CimenTchad, DEPGEC SANIMEX and SONACIM, SONACINE USINE)  all are located in the capital city. Despite this local production of cement, the price of concrete and other building materials are high and most construction materials must be imported from neighbouring countries.

Since 1998 the government has made numerous efforts to improve urban development and housing conditions in the country. In 2003, the government officially declared it would provide all citizens with decent homes, which at the time, reflected the willingness to use a significant part of the country’s oil revenues to improve the living and housing conditions of the poor. Under its 2013 – 2015 National Development Plan, the government aimed to increase access to decent housing to 32%, (from 28% in 2011). More recently, the government has stated that it foresees the construction of 125 000 new housing units by 2025; and in 2014, government announced the construction of 14 000 social housing units. However, it is not clear what progress has been made on both these initiatives. In the 2017 Budget, The Ministry of Urban Development and Housing, Ministre du Logement et de l’Habitat durable, was allocated CFA 223 billion (US$38 547 500). The majority of urban development funding is centred around informal settlement upgrade with a focus on water and sanitation provision.

While the oil boom had increased demand for formal housing at the top of the market it has done little to increase the supply in the affordable market. At the higher end of the market property is generally developed for owner-occupation or for leasing to expatriates. The current expatriate leasing market is dominated by the diplomatic sector as oil companies have downsized operations.[3] Most new formal construction happens at the high-end of the market, with the government constructing 60 deluxe houses for an African Union summit in 2015 (halted due to the cancellation of the summit) along with residential developments alongside the Ledger Plaza hotel. In the mid-market, there are plans for thousands of units close to the new Toukra University, which are currently under construction, although there are no new updates that are publicly available at this stage.

Property Markets

Protection of land rights is enshrined in Chad’s 1967 codified Land Law. As with many African countries, the state holds all private and public land. This means that all land that is considered vacant or unoccupied is the property of the State. However, the Law prohibits the expropriation of land without due process and states that the government may only take possession of land 15 days after compensation is paid. Furthermore, Article 41 the constitution stipulates that land should only be expropriated in instances of urgent public need.[1] However individuals and entities can obtain private ownership of state-held and other private land, through land grants, concessions and land purchases.

New land purchases require registration with the Land Registry and buyers must obtain a titre foncier (land title). However, enforcement of land rights are challenging partly because the majority of land owners do not have a title or a deed for their property. According to Human Rights Watch, in 2008, the government forcibly evicted an estimated 10 000 residents from N’Djamena and demolished some 1 798 homes in order to make improvements to the city. There was reportedly no recourse or due process and neither compensation nor resettlement assistance was offered to those affected.[2] The office of Domain and Registration (Direction de Domaine et Enregistrement) in the Ministry of Finance and Budget is responsible for recording property deeds and mortgages. In practice, this office only asserts authority in urban areas; rural property titles are managed by traditional leaders who apply customary law. Chadian courts frequently deal with cases of multiple or conflicting titles to the same property. In cases of multiple titles, the earliest title issued usually has precedence. The government does not provide clear definitions and protections of traditional use rights of indigenous peoples, tribes, or farmers. Given that the government recognises that registering land titles is a priority, in 2013, the Ministry of Land created the One-Stop Land Titling Office (Guichet Unique pour les Affaires Foncière).[3]

The World Bank’s Doing Business Index 2017 reveals some of factors that inhibit the development of Chad’s property markets: registering property involves 6 procedures, taking 44 days and at a cost of 12.8% of the price of the property. As a result Chad is ranked 157 out of 190 countries in terms of ease of registering a property. Furthermore, the majority of title or deed records in the country are in paper format and there is no electronic database for checking for encumbrances (liens, mortgages, restrictions and the like). There are no publicly available official statistics tracking the number of transactions at the immovable property registration agency.

Housing Policy and Regulations

Chad has a National Housing Strategy (SNL), which is implemented through the Ministry of Urban Development and Housing and was adopted in 1998/1999. The most recent policy document for housing is the 2013 – 2015 National Development Plan (PND), which is framed around the: “(i) the creation of new productive capacities and opportunities for decent jobs, (ii) human capital development and the fight against inequality, poverty and social exclusion; (iii) environmental protection and climate change adaptation; and (iv) improved governance.”[1] As part of the PND, Chad has allocated CFA 12.05 billion (US$20.2 million) to housing and provided the Ministry of Urban Development and Housing with a budget CFA 6.29 billion (US$105 million), for the period 2013 – 2015.

Furthermore, the government has undertaken the following initiatives: it intends to clarify the laws governing property and land ownership, modernise the land-registry services, and launch property surveys in N’Djamena. Additionally, according to the World Bank, in N’Djamena and a few other cities and towns, 4 082 lots have been established by subdividing land. A Land and Real Estate Promotion Corporation (SOPROFIM) was recently formulated, and the Corporation intends to set up the Housing Mortgage Bank. However, it seems that the Bank will largely be concerned with the upper-end of the market.

 

Housing Sector Opportunities

While Chad will face significant economic and political challenges in the short term, analysts predict that the economy will revitalise from 2018. The need for fiscal austerity measures will also start to moderate from next year, supporting public investment in construction and manufacturing. Chad offers an interesting market to work in, and one in desperate need of affordable housing developments. The high cost of formal construction provides developers with the opportunity to gain substantial market share by manufacturing building materials locally and/ or innovating in the affordable segment of the market. Furthermore, there are enormous opportunities for both the public and private sectors to learn from the microfinance sector which has remained flexible and adaptive to the livelihood characteristics of the Chadian people, for example the use of livestock as collateral for loans. With relatively poor financial infrastructure (compared to regional standards) the growth in the mobile money sub-sector presents an opportunity for increased financial access, especially in remote rural areas for which there are two main mobile money banks, Airtel and Tigo.