Housing Finance in Congo, Democratic Republic of the

Introduction

The Democratic Republic of Congo (DRC) covers an area of 2 344 858 km for about 83 million of population.[1]  This, added to its immense natural resource reserve, provides an abundant set of assets for all kinds of business and investment opportunities in the DRC. However, the country continues to rank among the poorest in the world, with a GNI per capita estimated at US$680,[2] and two-third of its population living below the poverty line.[3]

Based on current economic data there is some concern relating to deterioration in macroeconomic stability as of 2016, with economic growth falling from 6.9% in 2015 to 2.5 percent in 2016; inflation rising to 11.24% in December 2016, and the national currency (Congolese Franc – CDF) depreciating against the US dollar, currently trading at the rate of CDF 1 545 for one US$, compared to CDF 1 269.13 in December 2016 and CDF 942.13 in December 2015.[4]  This situation is caused by both external factors – the decline in world prices of the country’s main exports (mineral resources) – and the extremely volatile political and security situation that has prevailed since the current president’s official term ended in December 2016, with elections being delayed for logistical reasons and both opposition parties and activist groups calling for the president to step down. These various factors have resulted in the further slowdown of the national economy, the decline in the population’s purchasing power and decrease of domestic revenue mobilisation.[5]

Moreover, these recent developments have also been felt in the finance sector and have, in particular, a direct effect on both the conditions for granting (employment status and high interest rates) and on the methods of repayment (short and mid-term only) of loans in general, and of housing loans in particular.

Access to Finance

The Congolese financial sector is made up of 18 licensed commercial banks,[1] 117 micro finance institutions and cooperatives; 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.  Noteworthy is the recent initiative to liberalise the insurance sector – formerly dominated by the national insurance company, SONAS, which held a monopoly in the sector. This initiative was reflected in the launch this year of an Insurance Regulatory and Control Authority (ARCA – Autorité de Régulation et de Contrôle des Assurances), which is aimed at both promoting and monitoring the insurance sector and its market.[2]

The country’s financial system has also suffered from the effects of the recent political instability and unpredictable monetary policy which, in turn, has affected the portfolio of loans provided by commercial banks and other financial institutions. Moreover, the financial sector soundness and vulnerability remain an important issue: one local bank, Banque International pour l’Afrique au Congo (BIAC) and one cooperative, MECRECO, has showed signs of distress and have been under the Central Bank’s supervision since last year. One additional bank, FiBank, was declared bankrupt, subsequently dissolved and taken over by another bank, Afriland First Bank.

In a bid to contain the inflation, the Central Bank has increased its base interest rate by over 100 percent, thereby influencing the lending capacity of the banking and non-banking financial sector and affecting the demand for loans from borrowers.[3]  This has had an impact in particular on loan sizes and terms, especially on duration and repayment terms. This concerns in particular housing finance, where conditions are quasi-restrictive and significantly limit access to the market.

Only a few banks (Bank of Africa, ProCredit Bank, Rawbank and Trust Merchant Bank) and microfinance institutions (FINCA RDC, I-Finance) offer both mortgage and construction finance, requiring, however, that borrowers be employees and have their employers sign agreements for the domiciliation of their salaries in these institutions.[4] Trust Merchant Bank, I-Finance and FINCA RDC, however, offer the possibility of borrowing on the basis of the borrower’s commercial activity, this being assessed on a case-to-case basis and the conditions being fixed according to the nature of the activity as well as the income generated.[5] These housing loans are secured either by mortgage or by the commitment of their employers that, in case they leave their companies, the borrowers’ terminal payments will be paid to them through the lending banks (this must be clearly stipulated in the agreements signed with the employers). The amount of debt that can be secured by terminal payment cannot, however, exceed US$ 20 000, while the maximum for mortgages is set at an average of US$ 150 000.[6]

Financial inclusion in DRC has remained poor in contrast to other Southern African Development Community (SADC) nations.[7] Nonetheless, there has been improvement of electronic transfer and financial inclusion systems, increasing from 3.7 percent in 2011 to over 17.5 percent in 2016.[8] In 2015 the government approved a Fund for the Financial Inclusion scheme with the aim to refinance banks, micro finance institutions and cooperatives.[9] Further, in early 2017 the International Finance Corporation, an institution member of the World Bank Group, and the MasterCard Foundation, signed a US$1 million agreement with FINCA, a local microfinance institution, to support the expansion of its digital financial services and access to credit for the low-income population and small-scale entrepreneurs.[10]   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 the end of 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.

Housing Affordability

The country is ranked 176^th on the UN Human Development index.[1] Its growth rate fell from 6.9% in 2015 to 2.5% in 2016 given the decline in world prices of its main exports (raw materials).[2] However, the growth rate is likely to pick up by the end of 2017 and early 2018, given the expected rise in prices of the same primary commodities.[3] This recovery will, nevertheless, depend on the country’s ability to solve the current political tensions, to ensure a stable political and security climate, as well as to implement measures to promote economic stabilisation and stimulus.[4]  Access to affordable and sustainable housing is almost impossible for low income earners due to a lack of low cost housing supply and low wages.

Both the duration and the interest rates for housing loans are very restrictive. While the interest rate is at an average of 24 percent (higher for microfinance institutions) – an indirect consequence of the Central Bank’s high base interest rate – the maturity of most loans is set at a maximum of 60 months (5 years) due to the unpredictability of the current economic situation.[5] High lending rates by commercial banks make it difficult for the majority of the local population to access financial services. A very high unemployment rate – roughly 46.10 percent in 2013[6] means that almost half of the population is excluded from access to housing finance.[7] 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.

Despite a decline in the overall incidence of poverty (69 percent in 2005 vs. 64 percent in 2012), the number of people living in poverty remains high (increased by 6 million) due to rapid population growth.

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 percent of the overall national deficit, i.e. an average of 143 092 houses to be built per year.[1] As a result of improved socio-economic conditions, population growth, urbanisation and internal migration housing, demand will keep increasing in the city.

The country is undergoing a rapid but chaotic urbanisation process, the 12 largest cities growing by approximately 4.7 percent a year. The urbanisation process has increased from 9.9 percent in 1956 to over 42 percent in 2015, which reflects a relative surge in construction and housing supply.[2] However, cities continue to grow in a disorderly fashion, with little coordination and planning, lack of urban construction standards, and inappropriate land management practices.[3] Increased coordination and planning are required, to ensure that the populations are not at risk of disasters, especially in cities such as Goma, Bukavu or Kikwit, with areas prone to volcanic eruptions, flooding and erosion.

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 percent of the urban population live in slums, of which 50 percent do not have access to water, clean sanitation systems and waste disposal.[4] The housing sector is characterised by limited number of developers and very restricted access to finance. As a result of this situation, housing supply is limited, in the case where there is supply, it is only accessible to the elite minority. The majority of households, especially in rural areas, use locally sourced materials such as trees, mud and sticks to build houses for themselves.

In the past five years, there has been a slight increase in housing supply and private housing development. However, most of the houses put on the market do not target low-income earners and are not affordable.[5] In 2011, for example, the central government launched a housing project named Cité Kin Oasis, which accommodated the construction of 1 000 social houses in Kinshasa/Bandalungwa. This project has now been completed; however local communities have complained about the affordability and high price of the houses built in this area.[6]

In Lubumbashi, a US$1.4 billion housing development called Luano City, launched in 2010, is still under construction. Located 15 minutes from the city centre and five minutes from the Lubumbashi international airport. The development is located on 220 hectares of prime litigation free land. Luano City is a mixed-used development project comprising of two and three bedroom houses, office park, and a retail space in the form of a shopping mall and industrial park. Phase one of the project has now been completed and phase two is underway.

Most of housing development projects in the country are located in the capital city of Kinshasa, including Cité du Fleuve, Cité de l’Espoir, Cité Belle Vie, Cité Moderne, etc. 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 Lualaba.

The construction and public works sector has grown significantly, thanks, inter alia, to a better supply of cement in the country, which has improved in recent years due to the launch of two new local companies – CIMKO and PPC. Local production, combined with the increased quota of imported cement boosted by lifting taxes on cement imports, have resulted in the decline of its price. Construction costs have nevertheless remained relatively high, due to limited supply and high cost of other construction materials.

Property Markets

The property market in DRC has experienced relative progress in recent years, on the back of private property reforms and the increased demand for housing from a fast-growing population, hence offering significant business opportunities for investors.[1] However, limited access to finance remains the major constraint, as the majority of the local population do not have access to financial systems, and foreign investment in the sector is very slow. In addition, most of the recent development projects have been focusing on urban areas such as Kinshasa, Kisangani, Goma and Lubumbashi. In these urban areas, the cost of land, title deed registration process and building materials are relatively high, therefore slowing down the development of the property market. The number of real estate agencies has increased in recent years.[2]

Dealing with construction permits requires 12 procedures, takes 122 days and costs approximately six percent of the property value. Globally, DRC is ranked 114 out of 190 economies on the ease of dealing with construction permits, which constitutes positive change from 129 in 2016.[3] Property registration, on the other hand, can be completed in 44 days through seven procedures. There is potential for further development, through a recent initiative on the digitisation of land titles and titling procedures executed by a local firm, Congo Check, which could both implement and improve the current land administration systems, by increasing transparency.

Housing Policy and Regulations

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. Act 11/020 of 15 September 2011 defines rules relating to the activity of microfinance.

A new insurance legislation, Act No. 15/005 of 17 March 2015, was adopted with the objectives to liberalise the insurance sector and attract private insurance companies. This legislation has allowed the creation and the effective establishment of the Insurance Regulatory and Control Authority (ARCA – Autorité de Régulation et de Contrôle des Assurances) this year.

Land regulation is based on the Land Law No 73-021 of 20 July 1973, which regulates the purchase, sales and leasing of land. It is the general authority for property, land tenure, and property and collateral structures.[1] This Land Law is supplemented by Law No. 15/025 of 31 December 2015 on leasing and non-professional rents, which regulates the real estate sector and circumscribes the role of real estate agencies. 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 rights is done in accordance with the Ministerial Circular Note No. 005/CAB/MIN/AFF FUNC/2013 of June 2013. Rental is regulated under a new policy that protects tenants from unscrupulous landlords who charge more than three months for deposit. The legal framework governing urban planning is the Royal Decree of 20 June 1957 (adopted during the colonial period), supplemented by order number 013 CAB / 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 construction permit.

Housing Sector Opportunities

DRC is immensely rich in terms of natural resources, its mining and other peripheral sectors attract many international investors and companies — which makes it an ideal destination for business and investment opportunities. 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 approximately 10 years in return for mining and timber concessions. In addition to Kinshasa, important cities offering opportunities include the mining centre of Lubumbashi in the Haut-Katanga province (South-East), Matadi (West – on the banks of the Congo River – which has the country’s biggest port and constitutes the main transit hub for imported goods), 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 due to high demand and growing population needs.

DRC is still economically attractive with business opportunities that offer good returns on investment. Progress has been made in facilitating and simplifying the establishment process of new companies and granting of building permits through the creation of a special agency (Guichet Unique de Création d’Entreprises) to speed up the process.[1] Moreover, through the adoption of laws to establish a national equalisation fund and provincial and local civil services, the DRC government has taken initiatives to promote the decentralisation of the country and provide local authorities with the means to advance their local property markets. Subject to the resolution of the current political crisis, the adoption of application decrees to implement these laws would create a significant number of new opportunities in the sector.

Furthermore, 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 wants 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. This is encouraged, inter alia, through the allocation in each province of specific areas dedicated to the construction of social housing.[2]

However, much effort and investment is still needed in the energy sector, to improve the country’s energy supply deficit. Although access to electricity has significantly improved in recent years,[3] more work still needs to be achieved in order to boost the property sector and market. The government has also put in place a customs and tax benefits system in recent years, to support real estate projects approved under the Investment Code. Tax benefits for real estate projects include: import duty-gear, equipment, hardware and building materials, exemption from land tax and income tax).

Lastly, recent initiatives launched by local banks and microfinance institutions, such as PEPELE Mobile (Trust Merchant Bank), FINCA Mobile, ProCredit Cash Express, etc. as well as the establishment of new private equity companies, have the advantage of promoting more financial inclusion and providing for more housing finance opportunities and options.

Nevertheless, the smooth implementation and further expansion of all these initiatives will depend of the country’s ability to solve the current political crisis caused by the delayed elections and tensions between the ruling party and other political forces, as well as its capacity to further improve both its security and business environments.