Housing Finance in Chad

Introduction

Chad, is a land-locked country in central Africa that is bordered by Libya to the north; Sudan to the east; Central African Republic (CAR) to the south; and Cameroon, Niger and Nigeria to the west. Since gaining independence from France in 1960, the country has been plagued by religious and ethnic instability and conflict. President Idriss Deby and his party, the Patriotic Salvation Movement, have dominated politics since 1990, and he was recently re-elected as president in April this year.

Chad holds substantial oil reserves which account for around 60 percent 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 Chadian economy; and caused a slowdown in the construction and services sector. Growth has slowed from 7.3 percent in 2014 to 2.6 percent in 2015, and is likely to be below two percent at the end of 2016.[1]

The Plan national de development for 2013-2015 has provided the framework for the country’s economic policy. The government is currently working on a 203o National Development Plan that is expected to address issues of boosting productive capacity, increasing job creation, reducing poverty and strengthening governance. The country’s external debt burden is also likely to fall significantly from 2016 onwards due to the debt relief it has received from the IMF and World Bank. While this should, in theory, allow for additional resources for investment and poverty reduction, securing socioeconomic development will be difficult given the current oil prices.

Chad is one of the ten least developed countries in the world. 60.5 percent of the population lives below the poverty line of US$ 2 per day[2]. According to statistics from a UNICEF study released in 2015, 78 percent of young people and adults 15 years and older are illiterate and 68 percent of the population of 15-24 years are not enrolled in any educational institution?  Only two percent of the population have access to electricity. The Gini coefficient of 43.3 demonstrates an unequal distribution of income despite high levels of oil revenues. 77.66 percent of households (just over two million) are rural, with only 9.17 percent (just under a quarter of a million) living in major urban areas. 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. Urban households bring down this average, with an average size just above five.

Despite the warming of relations with Sudan and the resultant downturn of insurgent activity in the east, the risk of renewed violence remains high given the Boko Haram activities in the west and the Libyan crisis in the north. Chad has over half a million registered refugees and internally displaced persons due to neighbouring conflicts. 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.[3] Chad is currently ranked 183 out of 189 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 prioritizes controlling inflation and maintaining the CFA franc’s peg to the euro. The BEAC is expected to continue to broadly track European Central Bank policy, given the region’s economic and currency ties to the EU.  At the BEAC’s latest meeting in March 2016, the Central Bank’s key lending rate was left unchanged at 2.45 percent. [4]

Chad’s financial system is amongst the least developed in the CEMAC region and is characterized by limited depth and low monetization. Access to financial services remains a major issue for the vast majority of Chadians, with banking services almost non-existent outside of urban areas. With less than one branch per 1 000 km², Chad has the least dense banking network in the region. Only 12 percent of the population has formal bank accounts, just 30 percent of the richest 20 percent; and only 2.4 percent of the adult population has access to credit. Mobile phone subscriptions are also limited and below the regional average.

There are eight commercial banks, two insurance companies, two pension funds and over 200 microfinance institutions. Despite the impacts of the economic downturn on the banking sector as a whole, at the end of July 2015 total assets of banks amounted to CFAF 824 billion (US$1.38 billion), an increase of 6.8 percent year-on-year. Over the same period, deposits also increased by six percent. However, the credit portfolio has suffered with non-performing loans increasing to 14.2 percent of gross loans in July 2015, from 12.7 percent a year earlier. [5]

According to Findex 2011, 7.3 percent of adults had an outstanding loan to purchase a house. Data from Findex 2014 shows that 4.5 percent of adults have an outstanding mortgage (note that these numbers are not directly comparable). At 5.4 percent, 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 percent (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, or to private companies or multinationals. BSIC also offers property loans.

The microfinance sector plays a marginal role in the financial sector- estimated at only three percent of the banking system lending. While this sector is largely unsupervised, authorities have taken steps to strengthen the system and improve credit access.

Housing Affordability

According to Numbeo, the rental cost of a formal one-bedroom apartment in urban Chad is CFAF 498 712  (US$874) a month. In contrast, the average annual general expenditure per capita, in 2011, was CFAF 231 190 (US$388), ranging from CFAF 66 321 (US$111) for the poorest households to CFAF 617 292 (US$1 037) for the wealthiest. Taking into consideration Chad’s GDP per capita (US$1 039 in 2016), which includes the significant contribution to the economy by the oil sector and its poverty rate (60.5 percent), the rental figures collected in Numbeo highlights how unaffordable formal housing still is.

Typical of low income countries with dominant oil sectors, N’Djamena is ranked as the ninth most expensive city to live in for expatriates by Mercer’s Cost of Living Survey, in its worldwide assessment of 209 cities in 2016, up from tenth position in 2015.

The World Bank claims that the inadequate and informal nature of housing is because of the extremely high cost of building materials, stating that this is the reason 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 2016 report states that the standard price of property was CFAF 24 855 899 (US$41 740). There is still little data available on the cost of constructing a house but what there is suggests that it continues to be high. An example of this is demonstrated by Chad having the most expensive cost per a classroom in Africa: the average construction costs for a classroom, according to the World Bank, was US$57 229 in 2009, compared to a continental average of US$6 740. At this cost, US$741 per m^2, a 40 m² house would cost US$30 000 to build, though it is likely cheaper to build a classroom than a house. In terms of developments, 405 houses were constructed by Lutheran World Federation (LWF) for refugees at a cost of US$45 500 a house in 2013; in 2014, LWF report 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 percent 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 in Chad, it appears that improvements in affordable housing have been slow; 77.5 percent of urban housing was inadequate in 2003, decreasing to 73.1 percent in 2011. Supply of housing in Chad is predominantly provided informally. Its remote, land-locked location drastically increases the price of imported building materials, while local manufacturing in the local economy is limited. Chadians tend to construct incrementally, accessing financing through family and informal sources, both in urban and rural areas, predominantly with traditional building materials.

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 percent, (from 28 percent in 2011). More recently, the government has stated that it foresees the construction of 125 000 new housing units by 2025.  In 2014, the Chadian government announced the construction of 14 000 social housing units, to be constructed by Morocco, but it is not clear what progress has been made with this initiative.

While the oil boom has increased demand for formal housing at the top of the market it has done little to increase the supply in the affordable market. 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. In the mid-market, there are plans for thousands of units close to the new Toukra University, which is currently under construction.

Property Markets

Property rights are adequately defined by law, with formal law (including Islamic law) and customary law, recognising public and private land rights in Chad. 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 individuals and entities can obtain private ownership of state-held and other private land, through land grants, concessions and land purchases. The land laws require land purchases to register the land with the Land Registry and obtain a titre foncier, a land title. Leaseholds are also recognised under formal law, though the extent to which it is formally present is uncertain. Traditionally, most land held under customary tenure could not be sold as land was considered to be held by the lineage rather than the individual. However, land is increasingly being considered a commodity and informal land markets are emerging.[6]

In Chad, property rights are not adequately enforced and there is a great deal of insecurity relating to ownership rights. According to Human Rights Watch, in 2008, the government forcibly evicted an estimated 10 000 residents from the capital, 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.

The World Bank’s Doing Business Index 2016 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 12.7 percent—down from 15.2 percent from 2015—of the price of the property. This means that Chad is ranked as the 155^th country in the world in terms of ease of registering a property.

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 states that, as ‘an emerging regional power by 2025, supported by diversified and sustainable sources of growth that create added value and employment and assure every Chadian adequate access to basic social services [and] decent housing.’ As part of the PND, Chad has allocated CFAF 12.05 billion (US$20.2 million) to housing and provided the Ministry of Urban Development and Housing with a budget CFAF 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 established, 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 to medium term, the country 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 strengthen the development and supply of financial services to the broader population- in particular housing finance products.