Housing Finance in Congo, Democratic Republic of the

Overview

The Democratic Republic of Congo (DRC) covers an area of 2 344 858 for approximately 84.2 million people.[1] Nine (9) border countries surround the country. This, added to its immense natural resource reserve, provides an abundant set of assets for business and investment opportunities in the DRC. Despite the wealth of fertile soil, hydroelectric power potential, and mineral resources, the Democratic DRC struggles with many basic socioeconomic problems.[2]

Mineral wealth has allowed for some levels of real gross domestic product (GDP) growth, as the extractive sectors produce large quantities of copper, cobalt and gold. A growing population in the DRC also drives economic growth from a consumer spending perspective. However, growth is still restrained by the challenges of developing adequate infrastructure throughout the country. In 2018, stronger mining sector production, led by copper and cobalt, and stabilising external accounts will support a slight acceleration of economic growth to 3.3 percent from 2.8 percent in 2017.[3]However, FocusEconomics analysts see a growth of approximately 3.7 percent in 2019[4]while the predictions from the African Development Bank indicate that economic growth will reach 4.2 percent in 2019.[5]

Headline inflation increased from 67.5 percent y-o-y in July to 70.8 percent y-o-y in August. Low commodity prices and insufficient inflows of US dollars have caused the Congolese franc to weaken significantly. The lack of financing will continue to drive double-digit inflation in 2018 and the government’s ban on common imports will contribute to the spiralling inflation rate. To try to curb inflation, the central bank increased the country’s base interest rate from 7 percent to 14 percent in February 2017 and to 20 percent in June, with further increases likely in 2018. Although the formal economy is largely dollarised and operates unhindered by local interest rates, the current shortage of hard currency and reductions of key imports will have an adverse effect. The IMF expects inflation to average 44 percent in 2018.[6]

The recently released Plan National Stratégique de Développement (PNSD) 2017-2021 focuses on making the DRC an emerging market economy by 2030 and a developed country by 2050. However, the country’s deteriorating security situation and uncertainty over policy direction have reduced donor assistance and dissuaded foreign investment. The release of the election timetable in November 2017 – indicating polls will be held in December 2018 – will provide slightly more certainty about the country’s political dynamics.[7]

The DRC made starting a business easier by eliminating the requirement that a woman obtain her husband’s permission to start a business and by combining multiple business registration procedures. Furthermore, the country made dealing with construction permits more transparent by publishing all regulations related to construction online. The DRC is ranked 182^ndout of 190 in the World Bank’s Doing Business Index in 2018.[8]

The Gross National Income per capita is estimated at US$680,[9]and two-thirds of the population live below the poverty line, meaning that approximately 74 percent of the population live on less than USD 1.25 a day.[10] The Congolese franc depreciated against the U.S. dollar by 23.7 percent in 2016 and 22.5 percent in late September 2017, which raised inflation from 0.8 percent in 2015 to 6.9 percent in 2016 and to 42.9 percent in 2017. The current account deficit was 3.2 percent of GDP in 2016 and an estimated 2.4 percent in 2017 and is projected to continue to improve in 2018.

[1]Worldometers (2018). DRC Population. http://www.worldometers.info/world-population/democratic-republic-of-the-congo-population/ (Accessed 16 August 2018).

[2]Central Intelligence Agency (2018). World FactBook, Africa: Congo, Democratic Republic of The. https://www.cia.gov/library/publications/resources/the-world-factbook/geos/cg.html

[3]KPMG DRC (2018). DRC Economic Snapshot H2, 2017. https://home.kpmg.com/content/dam/kpmg/za/pdf/2017/12/DRC-2017H2.pdf (Accessed 16 August 2018).

[4]Focus Economics (2018). DR Congo Economic Outlook. https://www.focus-economics.com/countries/dr-congo(Accessed 16 August 2018).

[5]DABIRE, J.M.V. (2018).Perspectives Économiques en Afrique 2018, République démocratique du Congo, Groupe de la Banque Africaine de Développement. Pg. 4.

[6]KPMG DRC (2018).

[7]African Development Bank Group (2018). Democratic Republic of Congo Economic Outlook. www.afdb.org/en/countries/central-africa/democratic-republic-of-congo/democratic-republic-of-congo-economic-outlook/(Accessed 16 Aug 2018).

[8]World Bank Group (2018). Flagship Report Reforming to Create Jobs, Economy Profile, Congo Democratic Republic.http://arabic.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Profiles/Country/ZAR.pdf(Accessed 16 August 2018).

[9]United Nations Development Programme (2016). Human Development Report 2016: Human Development for Everyone. http://hdr.undp.org/sites/default/files/2016_human_development_report.pdf(Accessed 16 August 2018).

[10]Food and Agriculture Organisation of the United Nations (2018). The Democratic Republic of the Congo – Response Plan 2017–2018.http://www.fao.org/emergencies/resources/documents/resources-detail/en/c/1046444 (Accessed 16 August 2018).

Access to Finance

The Congolese financial system is growing but remains fragile and operates primarily through the Congolese central bank (BCC). The financial sector comprises 17 licensed banks, a national insurance company, the National Social Security Institute, one development bank, Société Financière de Development, a savings fund, 102 microfinance institutions and cooperatives, 72 money transfer institutions which are concentrated in Kinshasa, Kongo Central, North and South Kivu and the former Katanga provinces, three electronic money institutions, and 23 foreign exchange offices. There is no secondary equity or debt market.[1]

Bank penetration is roughly six percent or approximately 3.9 million accounts, which places the country among the most under-banked nations in the world. Based on its strategic plan, the BCC seeks to create more than 20 million bank accounts by 2030. Banks are increasingly offering savings accounts that pay approximately 3 percent interest, but few Congolese hold savings in banks. According to the Banking Association of Congo (ACB), of an estimated 65 percent of the population that saves, only 4.7 percent do so through a bank.[2]

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 to place their salaries in these institutions. 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.  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.[3]

Financial inclusion is increasing, but substantial progress is needed to develop payment systems, facilitate the use of financial services, and strengthen regulation of the non-banking sector. Consolidation and strengthening of microfinance along with reform of the insurance and pension sub-sector could facilitate the expansion of financial services and attract long-term investors.[4]

The DRC’s capital market remains underdeveloped and consists mainly of the issuance of treasury bonds. There are no stock exchanges operating in the country, although a small number of private equity firms are actively investing in the mining industry.

The central bank developed a market for short-term bonds, but most of these bonds are bought and held by local Congolese banks. In the absence of private debt securities, the fixed-rate market is limited to government-issued treasury bonds with maturities of up to 28 days traded through commercial banks.

Borrowing options for Small and Medium Enterprises are limited. Maturities for loans are usually limited to 3-6 months, and interest rates typically hover around 16-18 percent.

In early 2017 the International Finance Corporation, a member of the World Bank Group, and the MasterCard Foundation signed a US$1 million agreement with the Foundation for International Community Assistance, known by its acronym FINCA, a microfinance institution, to support the expansion of its digital financial services and access to credit for the low income population and small-scale entrepreneurs.[5]

[1] US Department of State (2018). Bureau of Economic and Business Affairs, Investment Climate Statements for 2018. https://www.state.gov/e/eb/rls/othr/ics/investmentclimatestatements/index.htm#wrapper (Accessed 19 July 2018).

[2]Ibid.

[3]Interviews with customer service representatives of the relevant banks and microfinance institution.

[4]US Department of State (2018).

[5]FINCA DRC (2017). FINCA Fights Financial Exclusion with Banking Agents in DR Congo. https://www.finca.org/blogs/financial-exclusion-banking-agents-drc/(Accessed 16 Aug 2018).

Affordability

The country is still ranked 176^th on the UN Human Development index out of 188 countries and territories worldwide.[1]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 interest rates for housing loans are 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.[2]High lending rates by commercial banks make it difficult for the majority of the local population to access financial services. That the unemployment rate high, roughly 46.10 percent in 2013,[3]and that 74 percent of the population lives on less than USD 1.25 a day mean that more than half of the population is excluded from access to housing finance.

[1]United Nations Development Programme (2018). Human Development Indicators DRC. http://hdr.undp.org/en/countries/profiles/COD(Accessed 16 August 2018).

[2]Interviews with customer service representatives from Bank of Africa, Banque Commerciale du Congo, FINCA RDC, I-Finance, ProCredit Bank, Rawbank, Trust Merchant Bank.

[3]KPMG DRC (2018). https://home.kpmg.com/content/dam/kpmg/za/pdf/2017/12/DRC-2017H2.pdf

[4]Frank, G. K. (2018). Africa property focus: Democratic Republic of Congo. https://www.kfsa.co.za/blog/2015/05/africa-property-focus-democratic-republic-of-congo(Accessed 16 August 2018).

[5]Expartisan (2018). Cost of living in Kinshasa, Democratic Republic of the Congo.https://www.expatistan.com/cost-of-living/kinshasa?currency=USD(Accessed 16 August 2018).

[6]The Africa Report (2018). Housing: Kinshasa is for the rich. www.theafricareport.com/East-Horn-Africa/housing-kinshasa-is-for-the-rich.html(Accessed 16 Aug 2018).

Housing Supply

Housing demand in the DRC outweighs housing supply, and the backlog is estimated at 3 945 555 houses countrywide.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]

Worth noting is that the DRC government does not have any housing support programme specifically targeted to support or subsidise low income households to access housing; therefore, the property market is solely left to the private sector. Urbanisation has increased from 9.9 percent in 1956 to over 42 percent in 2015, which reflects a relative surge in construction and housing supply. The country lacks a national housing development agency that can ensure that human settlement developments are sustainable, viable and appropriately located.

In rural areas, which make the most part (57.4 percent) of the country[2], the notion of property development is totally absent. Therefore, the limited number of developers are concentrated in urban areas, with very restricted access to finance. Because of this situation, housing supply is limited, and only accessible to the elite minority.

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.[3]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.

In Lubumbashi, a US$1.4 billion housing development called Luano City launched in 2010, is still under construction. Luano City is a mixed-used development project comprising two and three-bedroom houses, office park, and a retail space in the form of a shopping mall and industrial park.

Most housing development projects in the country are 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. Further, UN-Habitat[4]has been working mainly in North Kivu, Ituri, Bunia/Djugu, Mahagi and Masisi Territory, and the Equateur Province on several housing projects

[1]National Agency for the Promotion of Investments (2018). https://www.investindrc.cd/en/investment-guide/major-projects-awaiting-fundings

[2]Encyclopaedia Britannica (2018). Democratic Republic of the Congo Settlement Patterns. www.britannica.com/place/Democratic-Republic-of-the-Congo/Settlement-patterns(Accessed 16 Aug 2018).

[3]National Agency for the Promotion of Investments (2018). https://www.investindrc.cd/en/investment-guide/major-projects-awaiting-fundings

[4]UN Habitat (2018). Sustainable Housing Reconstruction in the Eastern Democratic Republic of Congo. https://unhabitat.org/books/sustainable-housing-reconstruction-in-the-eastern-democratic-republic-of-congo/(Accessed 16 August 2018).

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.

Property prices are high and generally aimed at the high-end market. According to real estate agent Knight Frank, prime yields of 15 percent can be realised in DRC’s retail market, with rents of US$35 per m2 per month.[2]Industrial property yields 13 percent at US$8 per m2 per month, followed by offices that yield 12 percent at US$45 per m2 per month. The residential market yields 10 percent with rents of US$8 000 a month for a four-bedroom executive house.[3]

The office development activity appears to have accelerated since the last elections in 2011, but businesses are likely to become more cautious in the run-up to the 2018 elections. Prime rents are approximately US$30 per square metre per month but can reach US$40 per square metre per month for good quality small spaces.[4]The retail market has shown limited progress in recent years and Shoprite is the only major international retailer in Kinshasa, having a supermarket in a prime position in the Gombe district[5]

Industrial property is clustered around the Route des Poids Lourds, particularly in the areas of Kingabwa and Limete. Rents can be as high as US$12 per square metre per month, but this is for industrial properties that are used by embassies and NGOs, rather than industrial users. Prime rents for new-build industrial properties are more usually in the order of US$8 per square metre per month.[6]

Residential values in the centre of Kinshasa, and in particular Gombe, were driven upwards during the 2000s by the arrival of large numbers of UN personnel.

Dealing with construction permits requires 12 procedures, takes 122 days and costs approximately six percent of the property value. Globally, DRC is ranked 121 in 2018 from 114 in 2017 out of 190 economies on the ease of dealing with construction permits, which constitutes a negative  change for the construction and housing sectors.[7]With regard to property registration, DRC is ranked 158 in 2018 and it can be completed in 38 days, down from 44 days last year through eight steps.[8]Across the country, households have an average of three rooms for residential use. The number of bedrooms is two, but 41 percent of households do not have independent bedrooms.[9].

[1]This is Africa. (2016). Risks ahead for DRC’s booming real estate market. http://www.source8.com/wp-content/uploads/2016/01/Risks-ahead-for-DRC%E2%80%99s-booming-real-estate-market-Business-This-is-Africa.pdf(Accessed 16 Aug 2018).

[2]Africa Property News (2018). Housing supply limited in Democratic Republic of Congo, http://www.africapropertynews.com/central-africa/3076-housing-supply-in-democratic-republic-of-congo.html(Accessed 16 August 2018).

[3]Ibid.

[4]Expartisan (2018). https://www.expatistan.com/cost-of-living/kinshasa?currency=USD

[5]Ibid.

[6]Ibid.

 [7]World Bank Group (2018). http://arabic.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Profiles/Country/ZAR.pdf

[8]Ibid.

[9]Habitat World Map (2018). Democratic Republic of Congo. http://habitat-worldmap.org/en/pais/africa/democratic-republic-of-the-congo/(Accessed 16 August 2018).

Policy and Regulation

In 2002, the government passed new laws to improve the central bank’s role as regulatory and supervisory authority and increase its independence. Act 11/020 of 15 September 2011 defines rules relating to the activity of microfinance.

The insurance legislation, Act No. 15/005 of 17 March 2015, was adopted 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. Other property laws include Circular Note n°005/CAB/MIN/AFF FUNC/2013 of 12 June 2013 on the procedure and the transfer period of land and property rights; Ministerial Order No. cab/MINA/TUHITPR/007/2013 of 26 June 2013 concerning the regulations of granting building permits in DRC; and Law No. 15/025 of 31 December 2015 on leasing and non-professional rents. [1]

[1]Congo Invest Consulting (2018). Housing. http://www.congo-invest.com/v2/index.php/housing/(Accessed 16 August 2018).

Opportunities

DRC, a country with the size of a subcontinent, has enormous potential in various sectors that deserve to be converted into real wealth. The country has been divided into 26 provinces with a view to economically developing each of them. It is believed that housing development and delivery will be among the major projects needed to improve the newly established provinces.

Further, the National Agency for the Promotion of Investments has presented a list of major projects waiting for funding to boost the economy. In total, 27 projects have been identified and are grouped around four priority areas namely: agriculture sector: 5 projects; infrastructure sector (railways, lake, river and sea): 14 projects; tourism sector: 5 projects; energy sector: 1 project; and ICT sector: 2 projects.[1]

The implementation of the preceding projects will create employment that will generate incomes and provide buying power to local people to address their needs, including access to housing. It should be noted that there have been tight linkages between poverty alleviation and income. Income generation in many cases contributes to development of society by increasing housing affordability, decreasing child malnutrition and decreasing social instability.  In addition, the transfer of the take-home pay increases the domestic demand and makes the local market attractive for both domestic and international investments, and thus stimulates local housing markets.

DRC has many areas to be exploited throughout the country; in each province, land dedicated to the construction of social housing exists; housing demand is strong compared to supply; and a significant market share exists for new construction companies and investors in the sector.

Furthermore, the government has put in place urban land reform strategies, which consists of construction in specialised economic zones and agricultural-industrial parks across the country. Through land reform, the government wants to achieve equitable and reasonable urban space planning that promotes equitable resource distribution between regions and production sectors as well as to 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]

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, promote financial inclusion and provide more housing finance opportunities and options.

[1]National Agency for the Promotion of Investments (2018). https://www.investindrc.cd/en/investment-guide/major-projects-awaiting-fundings

[2]Ibid.