Housing Finance in Congo, Democratic Republic of the

Introduction

The democratic republic of Congo covers an area of 2 344 858 km² for about 77.27 million of population[1]. The country’s fragile economy is re-emerging from years of conflict and instability. Strong economic and social challenges remain, with 87.7[2] percent of population living in poverty, unemployment rates exceeding 45 percent and weak public institutions.

Economic growth has slowed down in 2015 due to the fall of commodity prices. Mining sector activities are the driving force for growth, with public sector investment, agriculture, and manufacturing broadening the economic base. The country’s mineral resources are: Diamonds, Gold, Tantalite (vital material for mobile phones), Copper, Cobalt, Tin, Manganese, Lead and Zinc, Coal uranium and Oil. It is the world’s first producer of cobalt and ranked fifth producer of copper in the world. However, the agricultural sector employs more than 70 % of the population and its contribution to GDP is over 40%. Inflation has declined significantly. The DRC has a highly dollarised economy, where almost all prices are indexed to the dollar.In 2015 the number of administrative provinces was increased from 11 to 26 with the objectives to improve urban infrastructure development and poverty alleviation in the country.

Access to Finance

The Congolese financial sector is made up of 20 licensed commercial banks, 117 micro finance institutions and cooperatives[3];2 insurance institutions, i.e. a state insurance company (SONAs),and the National Social Security Institute (INSS); 59 transfer institutions;, and 16 forex exchange bureaus; all operating under the control of the Central Bank (BCC). There is neither a stock market nor a debt capital market.

Financial sector improvement is showing positive result. Rawbank recorded one billion US$ turnover in the 2015 performance report, with focus on small and medium enterprises (SME)[4]. Rawbank also holds 30% of Congolese exchange market. General public access to private loans and credit is still very low in the country. Most of the private commercial bank’s products are designed for established business entities such as mining companies and SME’s[5].

In partnership with Equity Group Holding Limited, Procredit plans to improve its current services to existing core sector made of SME but also to develop and launch attractive product for retail market based on technology banking[6]. Financial inclusion in DRC has remained poor in contrast to other Southern African Development Community (SADC)[7] nations. According to the International Monetary Fund Report (2015)low income earners are the most financially excluded especially those operating in the farming sector. In addition, 43 percent of enterprises operating in the DRC do not hold a cheque and/or savings account as compared to 13 percent of other sub-Saharan African countries[8]. Access to loans remains problematic, 90 percent of enterprises suffer to get a loan or a line of credit[9].Nonetheless there has been improvement of electronic transfer and financial inclusion systems, increasing from 3.5% in 2012 to 7.5% in 2016. In 2015 the government approved a Fund for the Financial Inclusion scheme with the aim to refinance banks, micro finance institutions and cooperatives. In addition, there is a national campaign to educate communities about the needs and advantages to access the financial system.

Total commercial bank asset deposit is estimated at US$ 4 billion, with 5 million people connected to the financial system[10]. Banks’ funding is dominated by deposit collection. Credit has been increasing fast but remains scarce, expensive, short-term, and highly concentrated. Between 2006 and 2013, domestic credit tripled but rose only to an estimated 11 percent of GDP. In 2011, only two percent of adults had obtained a bank loan and only four percent of adults held an account at a formal financial institution. In 2012, short-term credit represented 68 percent of all credit, and medium-term credit represented 21 percent, an increase in the share from 16 percent. Furthermore the banks’ profitability and earnings are weak and deteriorating, reflecting high operational and foreign exchange costs. Fees are a main source of banks’ revenue. Operating in U.S. dollars is highly costly, especially for some banks, given foreign currency settlements are done via correspondence.

The sole public non-life insurance companies, SONAS, and the INSS are both in precarious financial situations and unable to satisfy the majority if it clients.

The microfinance sector is rapidly growing but, remains underdeveloped with a US$222 million balance sheet in 2013. With over a million accounts opened; 60 percent belong to savings and loans cooperatives. Between end-2009 and June 2013 deposits and loans more than doubled US$144 million in deposits and US$113 million in loans, a similar trend to that of banks.

Rawbank indicated that they received US$10.6 million from Shelter Afrique in March 2015 to launch a real estate credit offer for the country’s emerging middle class Very few Congolese have an outstanding loan to purchase a home: 0.5 percent of the top 60 percent of income earners and 0.3 percent of the bottom 40 percent of income earners.  Loans for home construction were slightly more prevalent, with 2.9 percent of the top 60 percent of income earners and 0.5 percent of the bottom 40 percent of income earners having home construction loans currently outstanding.

The economy has a score of zero on the Depth of Credit Information Index and a score of six on the Strength of Legal Rights Index —higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Globally, DRC stands at 131 in the ranking of 189 economies on the ease of getting credit.

Housing Affordability

The country is ranked 176 of the UN Human Development index[11]. The Congolese economy growth decelerated in 2015 from 9.2% in 2014 to 7.7%. This decline is predicted to continue throughout 2016, but recovery is expected to take off in 2017 if the current political instabilities and international demand for commodities improve[12]. The cost of health care in DRC is very high, poor communities and low income earners cannot access nor afford decent hospital. The country suffers from government inability to plan and finance urban development for poverty alleviation, improve quality of life, and capitalise on many opportunities that urbanisation has to offers[13]. Access to affordable and sustainable housing is almost impossible by low income earners for lack of low cost housing supply and low wages.

Poverty is pervasive, and despite the significance of agriculture to the DRC’s economy, three-quarters of the population do not have enough for basic needs such as food.  African Economic Outlook reports that the country will not achieve its Millennium Development Goals by the 2015 deadline.  Access to the labour market is constrained because of limited number of jobs on offer, mismatch between training and skills sought by employer slow rate of retirement among public employee and lack of political will[14]. As a result, 49 percent[15] of the Congolese population is unemployed. Two-thirds of the population live below the international poverty line of US$2a day. In DRC, approximately 70 percent of household expenditure goes towards food, whereas in most Sub-Saharan African countries food consumption accounts for approximately50 percent, according to the UN-Habitat HDI. In the quality and safety category, DRC has been ranked at the bottom for lack of basic national nutritional guidelines.

Most commercial banks in the DRC do not provide financing for low income earners, catering primarily for the middle and high income earning population.  Even so, long-term capital is scarce, and most personal standard houses are financed through an instalment sale arrangement facilitated by the developer, and personal savings. Typically this arrangement requires a 50 percent upfront payment, with the remaining debt paid in instalments over 24 months from the date of delivery at a mortgage interest rate of16 percent.  A deposit of between US$10 – US$1 000 is required to open an account with some commercial banks. Commercial banks’ general lending rates are high (at an estimated16 percent for the year in 2015) while microfinance institutions’ lending rates are significantly higher (at an estimated 54 percent a year in 2015)[16]. High lending rate by commercial banks, made it difficult for the majority of local population to access financial services. This means that the majority of the population cannot afford to access finance

Housing and offices built mainly by Congolese, Lebanese and Chinese companies are largely too expensive for locals. For example in Kinshasa, high price of properties is pushing middle class and poorer people farther away from Kinshasa’s business city centre. In less central areas like Route de l’Aéroport, rental price varies between US$400-US$500 per month, but yet this price is expensive for many Congolese, as civil servants monthly salary is about $100.

Housing Supply

Housing demand in DRC outweighs housing supply, and the backlog is estimated at 3,945,555 million houses countrywide that is, 263,039 houses to be built per year. Kinshasa alone has a housing deficit estimated at 54.4%of the overall national deficit[18]. As a result of improved socio-economic conditions, population growth, urbanisation and internal migration housing demand will keep increasing in the city.

The majority of housing in the DRC is developed by household’s themselves. The planned districts represent 22.9 percent, while self-built districts represent 77.1 percent. Most of private housing developments especially low cost housing is characterised by non-compliance to local development master plans and municipal building standards. Almost 70 percent of urban fabric extensions are unlawful and over 70% of urban population live in slums, of which 50% percent do not have access to water, clean sanitation system and waste disposal[19].

Housing sector is characterised by limited number of developers and access to finance, as a results of this situations housing supply is very limited in the case when there is supply, it is limited and afforded by the minority elites. The majority of households use locally sourced materials such as trees, mud and sticks to build houses for themselves.

There are some private sector developments underway, spurred primarily by the economic growth as well as labour migration in mining areas.  In 2009, a Chinese company, China Machinery and Equipment Import and Export Corporation, announced a plan to build 2.5 million social houses. The project was expected to start construction in 2015, but has since been delayed. The project will be undertaken in four phases and is expected to be affordable to all income levels.

In 2011, the DRC government launched a housing project, namely “Kin-Oasis” which allowed the building of 1 000 social houses in Kinshasa by the Chinese company Zhen Gwei Technique Congo (STZC). This project has now been completed, however, local communities complained about the affordability and high price of houses in this area.

In 2012, a catholic NGO “Action pour la Solidarité et le Développement (ASODEV)” announced a plan to build 3 080 social houses in Kinshasa, this project is also currently underway. The project “UnToit pour Tous” consisting of 3 000 units started construction effectively in 2012 and is expected to be completed in 2016. House prices will vary between US$28 000 and US$80 000 payable in 15 years.

Housing development in the capital city of Kinshasa has increased with an ambitious, 400-hectare development in Kinshasa, La Cite du Fleuve, involves the reclamation of land in the Congo River, thus creating a new is land. However this project has been challenged with contested title deeds, a common problem in the DRC.  Marketed as a lifestyle development with public space, social and economic amenities, the development is being undertaken by Harkwood Properties, a specialist fund manager.  Harkwood’s majority shareholder, Mukwa Investment, is an African specialised investment fund based in Lusaka, Zambia run by a group of international managers. From August 2013, the project which is now completed hasoffered 18150m² apartments for sale, at a price of US$195 000 each.

In Lubumbashi, a US$1.4 billion housing development called Luano city launched in 2010, is currently underway. Located 15 minutes drive from the city centre and 5 minutes from the Lubumbashi international airport. The development is taking place on 220 hectare of prime litigation free land. Luano city is a mixed-used development project comprising of 2 and 3 bedroom houses, office park, retails space in the form of a shopping mall and industrial park. Stage one of the project has been completed.

The “Maison au prix d’une voiture” project is being launched in January 2016which is a partnership between Baeef Architecture and MoladiSA.  This project aims to build social housing and low cost housing throughout the extent of the DRC.  The project consists of four bedroom units with a garage on a land size of 300 m², the average house sizes is 117 m² and costs US$45 000.

Most of housing development projects in the country are located in the capital city of Kinshasa, however there are sporadic housing developments currently in the pipeline in other areas such as Fungurume a mining district of the newly created province of Lwalaba.

In the past 5 years, there have been a slightly increase in housing supply and private housing development. However, most of the houses put on the market do not target low-income earner and are not affordable.

Property Markets

The property market in DRC is underdeveloped and not accessible to the majority of populations countrywide. Limited accesses to finances pose problems as the majority of the local population do not have access to the financial systems, and foreign investment in this sector is very slow. In addition, in urban areas such as Kinshasa, Lubumbashi and Goma, the cost of land, title deed registration process and building materials are slowing down the development of the property market.

The city of Kinshasa is ranked the third fastest growing city in Africa with urban population growth expected to reach 71.8 % by 2025[20]. Urban growth offers opportunities for economic growth; however the property financial scheme has taken on different forms in the country and characterised by private partnerships, off plan sales, land swap, and flexible instalments in some cases. Therefore, in order to stimulate property market in the country, the constitution of 2006 introduced innovations that guarantee the right of private property ownership and encourages foreign property development in the country.

Property prices are high and generally aimed at the high end of the market. According to Knight Frank, in 2014 the industrial property market surpassed the retail property market in prime yields compared to 2012 figures. The industrial property yields made up 14 percent at US$8 per m² a month, followed by retail, which made up 12 percent at US$40 per m²a month, and office space at 11 percent with a prime rate of US$35 per m²a month. The residential market yields were at nine percent, down from 10 percent in 2012, with rentals of US$8 000 a month for a four-bedroom executive house in a prime area.

Dealing with construction permits requires 11 procedures, takes 60 days and costs approximately  three percent of the property value. Globally, DRC is ranked131[21]out of 189 economies on the ease of dealing with construction permits.

Beyond the limited, high-end market, a clash between statutory and customary land laws undermines property developments and achieving legal titles. Land administration systems are lacking.  As a result, where land titling does exist, the price is high (US$800 to US$1 000 per hectare).  In Kinshasa, land values are even higher – an estimated US$100 000 per hectare in well-serviced residential areas.

Housing Policy and Regulations

Historically, the DRC’s banking system has struggled with financial and organisational imbalances — however; there are solutions in place that the central bank is working towards. Since President Joseph Kabila came to power in 2002, the central bank was restructured as an independent body, setting interest rates and implementing the country’s monetary policy to ensure that the price level is stabilised and performing all central banking tasks. A special ministry, created in 2000, dedicated to microfinance, which was seen as being important for post-conflict reconstruction. Progress has been made to strengthen the legal framework for the financial sector such as monetary improvement, financial sector improvement and central bank restructuring. In 2002, the government passed new laws to improve the central bank’s role as regulatory and supervisory authority and increase its independence.

To facilitate mass banking and the establishment of a sound financial system inclusion, the Central Bank also defined a specific legal framework for microfinance. This Act 11/020 of 15 September 2011 defines rules relating to the activity of microfinance. DRC is committed to improve domestic revenue mobilisation through VAT performance, reduce business procedure and administration[22]. Structural reform of the financial sector is also taking place to boost intermediation and financial inclusion of the country[23].

In 2011, the country adopted the ‘bancarisation’ policy system, consisting of paying civil servant salaries through bank. InMarch 2016,a new insurance legislation No 15/005 of 17 March 2015 was adopted with the objectives to liberalise the insurance sector and attract private insurance companies

The government’s housing policy is based on four main areas: (1) The reorganisation of the housing sector (institutional reform and capacity building); (2) Improved habitat (land development policy and supervision of real estate); (3) Resource mobilisation for housing (funding); and (4) The reversal of urban poverty areas (emergency action). This policy was first introduced in 1973 and has been amended a number of time with the last one that took place in 2004

Land regulation is based on the Land law No 73-021 of 20 July 1973, it regulates the purchase, sales and leasing of land. It is the general regime of property, land tenure, property and collateral regime[24]. The ministerial order No cab/MINA/TUHITPR/007/2013 of 26 June 2013 regulates the process and regulations of granting building permits in the Democratic Republic of Congo. The transfer period of land and property right is done in accordance with the ministerial circular Note No 005/CAB/MIN/AFF FUNC/2013 of June 2013. The rental is regulated under a new policy that protects tenants from unscrupulous landlord who charge more than three months’ rent in advance. The legal framework governing urban planning and its code is still the Royal Decree of 20 June 1957, supplemented by order number 013CAB / MIN.URB HAB / 2005 of 6 May 2005 amending order number CAB/CE/URB-HAB/012/88 of 22 October 1988 regulating the issuance of the authorisation to build.

Housing Sector Opportunities

DRC has many rich sources of natural minerals, and the mining sector mainly attracts many international companies — which makes it one of the biggest areas of economic activity. In 2009 the biggest deal in Africa was made between the DRC and China, in which China agreed to invest US$9 billion in extensive construction and other rehabilitation projects over a period of approximately10 years in return for mining and timber concessions. In addition to Kinshasa, important cities offering opportunities include the mining centre of Lubumbashi, Matadi (on the banks of the Congo River), and the eastern city of Goma. New roads and transport initiatives in Kinshasa are making access easier. The affordable housing sector is still relatively underdeveloped and offers significant potential for growth.

DRC is still economically attractive with business opportunities that offer good returns on investment. The country has gained 3 places in the global ranking of doing business[25]. Progress has been made in facilitating and simplifying the establishment process of new companies and granting of building permits through the creation of “guichet unique” system[26]. The government has put in place urban land reform strategies (RAT), which consists of construction in specialised economic zones (SEZs), and agricultural-industrial parks across the country. Through land reform, the government want to achieve equitable and reasonable urban space planning that promote equitable resource distribution between regions and production sector as well as streamline urban development without neglecting rural development.

The first SEZ was lunch in Maluku, Kinshasa to host a variety of private business operators and an agro industrial centre in Bukanga Lonzo. However, much effort and investment is still needed in the energy sector, to improve the country’s energy supply deficit. The government has also put in place customs and tax benefits system to support real estate projects approved under the Investment Code. Tax benefits for real estate project include: import duty-gear, equipment, hardware and building materials, exemption from land tax and income tax).