Housing Finance in Congo, Republic of the

Overview

The Economic and Monetary Community of Central Africa (Communauté Économique et Monétaire de l’AfriqueCentrale, CEMAC) is made up of six former French colonies in Central Africa – Cameroon, Central African Republic, Chad, Congo Republic and Gabon; and Equatorial Guinea, a former Spanish colony. It was created in 1994 and became operational after the treaty’s ratification in 1999 in N’Djamena, Chad.  The main objectives of the treaty was to converge and monitor national economic policies, to coordinate sectoral policies and to progressively create a single market. This will help promote the entire process of sub-regional integration through the forming of a monetary union, with the Central African CFA franc as a common currency. Discussions regarding forming a monetary union and a single market are still ongoing, it is still unclear if and when the monetary union and single market will be formed. CEMAC has its headquarters in Bangui, the capital of the Central African Republic. There are ongoing plans since 2011 to unify the Douala and Libreville stock exchanges into a unified CEMAC Securities and Stock Exchange. This is proving difficult as although the CEMAC heads of states opted for a regional stock exchange in Libreville in Gabon, the realities of the market are more favourable to the stock exchange of Douala, which was created by the Cameroon government. According to experts, the narrowness of the market does not allow for the existence of two stock exchanges in the region.

The treaty that specified the legal and institutional arrangements of CEMAC created the following four specialised institutions, each of which is regulated by a separate legal convention than the treaty:

• Central African Economic Union (Union Economique de l’Afrique Central – UEAC) with an Executive Secretariat based in Bangui, Central African Republic. The Customs Union is one of the central pillars of CEMAC. It has established a regime for trade between the countries and with other countries. Trade inside the community has been duty free since 1998.
• The Central African Monetary Union (Union Monétaire de l’Afrique Centrale), which specifies the responsibilities of the central bank, Banque des Etats d’Afrique Centrale (BEAC) and the Central African Banking Commission (COBAC). COBAC started functioning in 1993 with headquarters in Libreville, Gabon. It sets regulations and carries out on and off-site supervision of the region’s banks and finance houses. BEAC is a single central bank for the region and there is a single currency (CFA franc) and defined criteria for macroeconomic convergence. It was established in 1972 with headquarters in Yaounde, Cameroon. BEAC regulates the sector through its regional banking commission, COBAC, which shares responsibility with the national Ministries of Finance for licensing new banks and regulating microfinance institutions. There is also a budgetary agreement between the French Treasury (Ministry of Finance) and BEAC with fixed convertibility of the CFA franc and a droit de regard (oversight with veto powers) by the French Treasury.
• The other two institutions are the CEMAC parliament and the court of Justice. The court of Justice, which is in place since 2000, is located in N’Djamena. It assumes a judicial and audit function.

The region has an estimated population of 45 million (as of end of 2014) spread over more than 3 million km2. Half of the population live in Cameroon and 65 percent are below 25 years of age.  The average population growth rate is 2.8 percent. It has a combined GDP of US$88.2 billion (as of 2012).  The real GDP growth rate of 4.6 percent in 2014 was mainly driven by oil, timber and agriculture exports. Cameroon is the largest economy in the region, with half of the region’s total financial assets and contributes up to 29 percent of the region’s GDP. The mineral wealth includes deposits of gold, diamond, natural gas, oil, bauxite, aluminium, manganese and uranium. Other export products include natural rubber, tobacco, cocoa, coffee, sugar, Tobacco and Banana. Due to inadequate private investments, there has been little exploitation of petroleum and other mineral resources, with the exception of oil and timber. Crude petroleum is an important resource for these countries, apart from the Central African Republic: it accounts for 86 percent of the community’s exports; Equatorial Guinea depends on it for 70 percent of its GDP; Congo, 61 percent; Gabon, 50 percent; Chad, 40 percent; and Cameroon, 10 percent. Timber is the community’s second largest export product. The countries in the region are about 50 percent urbanised. Gabon has the highest level of urbanisation at 86 percent, with a third of the country’s population living in the capital Libreville.

Access to Finance

The formal financial system across CEMAC countries is not well developed. Most of the large banks are foreign-owned and are subsidiaries of foreign banks. There are also a few small to medium‐sized banks from other African countries such as Nigeria, Togo and South Africa. Recently, banks from Cameroon have also moved into other countries in the region, including Gabon, Congo, Chad and Equatorial Guinea. The CEMAC banking system currently comprises of 48 active banks with Cameroon having the most banks in the region (14), followed by Gabon (10) and Chad (nine).  Congo has six banks, Equatorial Guinea has five banks, and Central African Republic has four. The number of savings banks in the region remains low. On average, in the six countries, there are three bank branches per 100 000 adults. The mortgage finance market is still in its infancy, but with huge potential for growth. Very few banks in the CEMAC region provide medium-term and long-term credit. Some of the banks that grant this type of credit are the Gabonese Development Bank, the National Investment Company (in Gabon and Cameroon), Afrilands First Bank (Cameroon), and SOCOFIN in Congo Republic.

Mortgage finance is mostly granted by government agencies, and the people who benefit most are government employees. Only a very small percentage (5%) of private sector employees have access to mortgage finance from commercial banks. This percentage is now increasing with ongoing efforts by real estate companies in partnership with local commercial banks to extend end-user financing opportunities to the growing middle class. Those in the informal sector and a large percentage of the middle class and lower income groups get housing finance (directly and indirectly) from different forms of MFIs. The microfinance sector is developing in all countries in response to difficulties associated with accessing credit through traditional banking channels. There are now over 800 microfinance institutions in the region, with Cameroon having the most, followed by Chad, Congo, Central African Republic, Gabon and Equatorial Guinea respectively. Links with the traditional, formal banking sector are weak and the consolidation of micro lenders is not sufficient to allow for meaningful regulation and oversight, or the development of strong links with the banking sector. However, BEAC, through COBAC, has developed a strategy for controlling the informal financial sector. COBAC, jointly with the Ministries of Finance of all six countries, now regulates the MFI sector in all six countries. There is an urgent need to develop mortgage finance products that address the needs of the growing middle class and lower income groups who have no access to formal housing finance. There are ongoing efforts by both government and private sector interests to provide and extend access to end-user financing to the rapidly expanding middle class in these countries. Access to credit has also been improved through amendments to the Organisation for the Harmonization of Business Law in Africa known through its French acronym OHADA Uniform Act on Secured Transactions that broadens the range of assets that can be used as collateral (including future assets), extend the security interest to the proceeds of the original asset, and introduce the possibility of out-of-court enforcement.

Housing Affordability

In the formal sector, the state is the largest employer, offering an average monthly salary of about   150 000 CFA francs (US$300). Though rapidly growing, the formal private sector is still very small. Most people are involved in the informal sector with a high percentage of people living under the national poverty line. These people cannot afford to finance their homes through existing banking funding instruments. Construction costs in the urban and semi-urban areas are high and increasing. It costs about 9 million CFA francs (US$18 000) to build a standard three bedroom house in the main urban areas. This is mainly because of the high costs of inputs such as cement, sand, plates, iron, finishings and decorations. These costs may decrease as new property developers come into the market with a business model that favours large scale procurement of inputs and with the capacity to influence and better manage input costs. In Cameroon, the government has set up local production facilities for some of the inputs to help bring down the cost. It has also set up an agency to develop and promote the use of local materials for construction. These materials are exported to other CEMAC countries like Gabon, Congo Republic and Equatorial Guinea. In the rural areas, the construction costs are lower as most of the houses built are of a semi-standard and sub-standard, with local materials such as sun-dried bricks made from clay. Rental costs in the urban and semi-urban centres are also high. It costs on average about 150 000 CFA francs (US$300) a month to rent a three bedroom house in the main urban areas. In the smaller towns, it is generally about 40 percent cheaper. This is not the case in N’djamena and Libreville, however, which are the second and third most expensive cities in Africa for expatriates, as demand for accommodation far exceeds supply. It costs up to US$6 500 a month for a standard three bedroom apartment in these cities. The government and the private sector are currently exploring and putting in place mechanisms to increase the number of affordable housing units that enter these markets each year, either through ownership or rental, and also to ensure that middle class people and those in the lower income groups get access to affordable housing finance.

Housing Supply

The number of new housing units that enter the market annually for rental and purchase for ownership is insufficient to meet the demands of the increasingly urbanised population in all CEMAC countries and the growing middle and upper class population. The growing economy has swelled a middle class that needs to be housed. A third of the Gabonese population lives in the capital Libreville, and a quarter of the Congolese population in the capital Brazzaville, both cities with huge housing backlogs. The demand for housing has increased without a subsequent increase in supply. The discovery of oil in Equatorial Guinea, and new economic sectors that have opened up such as mining, telecommunications, retail, construction, energy, agro processing has seen the influx of expatriates, migrant workers, and skilled diaspora populations returning to their countries, thus accentuating the demand for housing. This increasing mismatch between demand and supply for housing continues to push up house prices both for ownership and rental.

The current stock of housing units is produced mainly through incremental self-construction, and less so by government agencies, and private developers. The poor live in sub-standard accommodation, often on land that is not well-serviced with poor infrastructure like access to regular and clean water, electricity and sewage disposal facilities. With the newly set up cement factories in Cameroon that also aim to service these markets, the costs of cement has stayed the same, which may help to increase supply of new affordable housing units. It is hoped that when the new Dangote cement plant becomes operational, it will help to bring down the cost of cement. There is an increasing number of local housing companies and developers from the USA, Canada, China and South Africa who are going into these markets using a BOT (Build, Operate and Transfer) model. There are also ongoing efforts by some governments to increase housing supply. For example the government of Cameroon, through partnerships with private developers, set up a project to provide over 100 000 new units over the next five years of which, half of these units are already in the market.

International oil and construction companies are driving the demand for high quality residential units in Malabo and Bata, Equatorial Guinea. There has been a great deal of volume of home building in Malabo II and reserved government residential areas in the east of the city. Mainly expatriates live in these new areas as they are expensive and not affordable to the average middle class person. The central Klemat area in N’djamena, which is near the presidential palace, is also an important residential district with new developments. Again, it is mostly for the expatriate community and not affordable to middle class people. In Gabon, Congo and Central African Republic, the new housing developments are driven by demand for high quality housing by expatriate communities. There are no large-scale development activities to provide housing for middle-income people in these countries, except for Cameroon. This situation will surely improve in the very near future with the recent interest and activity of developers in the region.

Housing Policy and Regulations

Governments in the CEMAC countries have been slow in putting in place reforms that would address the constraints in this sector. The main constraints are in the areas of land ownership and property registration (getting land title certificates), access to serviced land, construction and development, and the availability of finance. According to the World Bank’s 2015 Doing Business Report, when compared to the 2014 report most of the countries in the region have made some progress on ease of doing business, issuing construction permits and  access to credit. Getting credit and registering property is still an issue. These need urgent attention. Gabon made transferring property more costly by increasing the property registration tax rate while Chad reduced the property registration tax rate. Cameroon improved its credit information system by passing regulation that provides for the establishment and operation of a credit registry database. Cameroon also made dealing with construction permits more complex by introducing inspection and notification requirements. At the same time, government made it easier by decentralising the process of obtaining building permits and by introducing strict time limits for processing the application and issuing the certificate of conformity. Governments should continue to introduce reforms on land administration, construction, property registration and access to housing finance. The government of Cameroon has taken a step to provide sovereign guarantees to private developers. Because of the potential role that MFIs could play, reforms and policies should also focus on tapping into that potential.

Property Market and Housing Sector Opportunities

With fairly strong and sustainable economic growth due to economic reforms and the strong demand for its natural resources from emerging economies such as China, India, Brazil, Russia, and developed economies like the USA and the EU, a growing middle class, increasingly urbanised populations, a huge housing backlog, and a large diaspora that is seeking to invest in real estate in these countries, huge opportunities exist for residential high end and middle/low income housing in all areas of the value chain – real estate development, construction, finance and real estate management services. There are also huge opportunities for retail, commercial and industrial real estate in the urban and semi-urban areas. The prospects for the property market are very good. For the potential to be realised, governments in the various countries and other stakeholders must continuously find ways to increase supply and make them affordable to the middle and lower income groups. This is already been done in Cameroon with existing partnerships between government and the private sector. Some global property development companies have started to take advantage of existing opportunities in the market, and through local subsidiaries and partnerships, are putting in place new housing development units for middle to high income end-users. An example is Options for Homes GTA Canada, which through its local subsidiary (Options for Homes Cameroon) is building housing units in Cameroon with the objective of building 10 000 units per year in the next five years.