Eritrea has a limited housing finance sector. As the mortgage market does not yet meet the breadth of the population who might afford a mortgage, most households still finance their housing independently, with savings or non-mortgage credit.
The lowest recorded interest rate on a mortgage in Eritrea is 12 percent, as of September 2016, and requires at least a 25 percent down payment. The cheapest newly built house by a developer recorded by CAHF is US$ 90 901, which is for a 125 square metre unit. Cement prices are significantly higher than the continental average, at US$ 23.80 for a 50-kilogram bag.
With an urbanisation rate of three percent, demand for affordable housing will remain strong, both for rental and purchase. Housing microfinance will play an important role in increasing the supply of housing, and efforts to increase access should be undertaken. The Housing and Commerce Bank of Eritrea (HCBE) offers loans for construction and the purchase of existing homes, and finances its own large-scale housing construction programme. The laws of Eritrea do not allow for collateral, limiting mortgage market development. With a good macroeconomic environment, sound policy, better data and increased access to affordable credit, an enabled housing market can increasingly provide housing that the average household in Eritrea can afford.
Find out more information on the housing finance sector of Eritrea, including key stakeholders, important policies and housing affordability:
- Access to finance
- Housing Affordability
- Housing supply
- Property markets
- Policy and regulation
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2016 edition, which has up-to-date profiles for 51 African countries.Download yearbook
Eritrea remains a country of immense economic potential. However, despite a few promising years after independence in May 1993, hostilities with Ethiopia over border issues persist notwithstanding attempted interventions for resolution by the international community. This unresolved ‘no-peace-no-war’ border stalemate has continued to undermine development initiatives in both countries, as human and financial resources are allocated away from vital sectors of the economy.
Eritrea remains one of the poorest countries in the world and economic performance has been uneven within this challenging environment. Unpredictable weather, economic sanctions, low commodity prices and a weak business environment have all contributed to holding growth at 3.8 percent in 2016, with growth forecast at approximately 3.7 percent in 2017. The World Bank’s 2017 Doing Business Report ranks Eritrea as the second most difficult county in which to do business (189th out of 190 countries). In addition, the indefinite period of national service requirement, which has been in place for 12 years, has forced the majority of the adult population to serve as recruits for extremely low wages. Therefore the poverty rate is very high and a large number of Eritreans depend on the support of relatives in the diaspora for survival. The UN has estimated that the number of refugees and economic migrants from Eritrea exceeds 10 percent of the current population. Eritreans make up the third largest group of migrants to Europe, which is significant given the country’s small population of just 6.7 million.
No census has yet been carried out in Eritrea to date and official statistics on the prevalence of poverty in the country are limited. Based on the available public sources, poverty is still widespread (up to 69 percent) and 80 percent of the population depend on subsistence agriculture for their livelihoods. Consequently, a large portion of the population is vulnerable and food insecurity is high, and according to the Global Hunger Index, more than 60 percent of the population is undernourished. Eritrea’s Human Development Index rank was 179 out of 186 countries indicating a very low level of socioeconomic development. School enrollment rates are relatively low at 39 percent at the primary level, 30.5 percent at secondary school level and just two percent at tertiary level.
Despite these challenges and setbacks, according to the United Nations Development Programme (UNDP), the government has endeavored to protect the most vulnerable segments of the population and to implement its long-term development policies. The Eritrean government maintains an extensive social safety net, and invests in three priority areas: food security and agricultural production; infrastructure development; and human resource development. These priorities are part of the country’s five year National Indicative Development Plan (NIDP), which aims to create the necessary conditions for the emergence of a modern, technologically advanced and internationally competitive economy. Based on these efforts, Eritrea has continued to make progress in education and health. For instance adult literacy improved from 52.5 percent in 2002 to 73.8 percent in 2015. Child mortality improved from 89.1 in 2000 to 46.5 in 2015. Other indicators that have shown significant improvements are: secondary school enrolment; maternal mortality; antiretroviral therapy provision; and public-health campaigns. Furthermore, the NIDP’s policy on housing aim at improving the livelihood of the entire population by ensuring that all households have access to adequate and affordable housing.
The government’s decision to access supplemental support resources from AfDB’s Transition Support Facility, and its strategic partnership cooperation framework with the United Nations will likely strengthen the country’s resilience, improve its export base, improve the livelihoods of the rural population and strengthen food security.
Access to finance
Eritrea’s financial system is considered to be significantly underdeveloped with a limited supply of financial services, which fall far short of demand. Banking-sector assets are equivalent to just 18.4% of GDP. None of the banks publish financial statements and most of the operations in the banking sector are manually executed. Currently, commercial banks are required to set aside 20 percent of their deposits as reserves.
Eritrea’s banking sector is dominated by state-owned banks and is in poor condition. There are currently six financial institutions: the Central Bank (Bank of Eritrea); the Commercial Bank of Eritrea (CBE), a state-owned bank with nearly 28 branches in the country; the Housing and Commerce Bank of Eritrea (HCBE), a private bank, specialising in commercial and residential mortgage loans; the Eritrean Investment and Development Bank, a state-owned bank specialising in long-term industrial and agricultural loans; one insurance company; and Himbol, a government owned and operated exchange and remittance service. Microfinance has been in operation since 2005 and has served the rural poor, particularly women. Despite the potential of this mode of financial operation, its reach is limited by the rudimentary ITC network currently available, including mobile telephone penetration. Cell phone subscriptions have increased slowly from only one to 17 per 1 000 inhabitants between 2000 and 2015.
According to the World Bank’s 2017 Doing Business Report, in the ‘ease of getting credit’ category, Eritrea was ranked 185th out of 190 countries. Notwithstanding some positive developments, access to traditional financial services remains difficult. The share of the population having an account at, or borrowing from, a financial institution is low. The cost of borrowing still remains prohibitively high, with real interest rates around seven to 12 percent. If not subsidised, the interest rates could be as high as 30 percent depending on the use of the money being borrowed. Moreover, financial markets have not evolved in ways that allow individuals and firms to diversify their savings and enable firms to raise money through stocks, bonds, and foreign exchange markets.
Eritrea’s economy is mainly cash-based, with limited use of demand deposits and almost no term deposits. Reforms in 2016 brought in an automated payment system and the old Nakfa (ERN) banknotes were replaced. The combined effect of these actions has been to reduce the size of the black market and hinder human trafficking. All individual citizens have been encouraged to transact their business through the banking system. However, due to the issuance of new banknotes, many people are struggling to make ends meat as the cost of living increased.
Although the government enacted the comprehensive Bank and Financial Institutions Act, permitting the licensing of private financial institutions, including foreign banks, no other local or foreign private financial institution has been allowed to work in Eritrea (except the foreign exchange bureau). HCBE offers savings and current accounts in the local currency (ERN), US Dollars and Euros, as well as US Dollar denominated Certificates of Deposit. According to the Bank’s website, its main product offerings include: medium and long-term loans for the construction of houses and businesses, as well as various types of medium- and long-term loans for the construction of buildings, stores, community centers, and so on. The bank’s other product offerings include loans for purposes of purchase of existing buildings and homes repairs, maintenance, modifications and extensions; as well as commercial, consumer and personal loans. The bank also has a large scale housing construction programme that it financed, to deliver stock for sale to the public.
Eritrea ranks low in Africa in terms of loan access and information on borrowers (such as credit history and credit risk). Data on mortgage lending is not available and does not appear to be collected by the Central Bank – it is therefore not possible to determine the size of the mortgage market. However, it is likely to be small. The country’s collateral markets are underdeveloped making it difficult for citizens to obtain mortgage loans. For example, undeveloped land, no matter the tenure form, cannot be used as collateral and this denies landholders the opportunity to borrow for house construction.
According to Numbeo, the rental cost of a formal apartment in the Asmara city centre ranges between ERN 4 000 (US$256) to ERN 25 000 (US$ 1 603) a month; while housing outside the city centre ranges between ERN 2,500 (US$160) to ERN 12,000 (US$ 769). In 2017, Eritrea had an estimated GNI per capita of US$591, the average net salary after tax per month is ERN 1 500 (US$ 96); and that an estimated 69 percent of people live below the national poverty line, indicates how unaffordable much of the housing market is for the average Eritrean.
As the level of urbanisation is low by global standards (around 25 percent of the national population live in towns), access to housing and urban infrastructure services is severely constrained. While some households are able to make use of bank loans, a significant percentage of houses are either self-financed, or built with remittances from Eritreans living abroad. In many instances, homes are built over years and cost the entire life savings of those who invested in them. Given the tough economic conditions and in order to alleviate their housing problems, many individuals have resorted to ‘selling’ part of the land allocated to them for development purposes. The main purpose of these sales by the owners is to use the proceeds to build their own houses on a portion of their land. This practice has become widespread over the past 20 years despite the fact that the government considers this practice to be an ‘illegal sale of land’.
For the minority that can afford mortgages, the banks, usually HCBE, require a 25 percent deposit, and then an installment to income ratio of no more than a third of the borrower’s income over a maximum tenor of 25 years. According to local news sources, a 16m² room in Asmara and in villages in the vicinity goes for ERN 1 000 (around US$64) per month and the median average salary of a government employee in the country is ERN 800 (US$51) per month. It becomes quickly apparent that only higher income households can afford the available housing stock in Eritrea.
In 2013, the government launched a major housing project in Asmara. According to the official website, apartments and houses will range from 30-120m² and 125-200m² respectively. Apartment prices range from EUR 18 007 (US$21 128) for a 30 m² unit to EUR66 471 (US$77 996) for a 120 m² unit. House prices vary from EUR71 323 (US$782 696) for a 125 m² home all the way up to EUR113 006 (US$132 624) for a 200 m² unit. As stipulated on HCBE’s website, only nationals who have fulfilled their national obligations and who make a 25 percent deposit payment for the house or business shops they select are qualified for the purchase. The costs of these types of units are prohibitively expensive for the vast majority of Eritreans.
As emphasized in the previous section, the availability of adequate and affordable social housing continues to be problematic in Eritrea. According to a 2005 Housing and Urban Development study, the majority of households own their homes (69 percent), ranging from 82 percent in villages to 63 percent in the primary cities. However, it is not clear if these households have formal title or are able to use their land rights to mobilise finance. The remaining 31 percent is composed of renters, including private renters (20 percent), sharers (6 percent) and government renting (4 percent). The formal and informal rental housing sector appears to offer viable housing solutions for many families in Eritrea.
There has been no new information around the nation dispersal of the population or demographic profiles, based on available information over half of the households in the city of Asmara are tenants. In the rest of the country, this proportion is lower, ranging from around 17 percent in small towns and 22 percent in the medium-sized towns. According to a 2014 law, annual rent must be paid with the sole exception of rural housing. With regard to ‘house sharers’, they tend to mostly be immediate or extended family members who are either unable to pay for their rents or cannot find a house to rent. The large ratio of sharers reflects the serious housing problem in the country. The majority of urban residents in Eritrea live in over-crowded housing with limited access to affordable water and safe sanitation.
According to the Human Rights Council (HRC), over the years, the successive movement of refugees and internally displaced persons has caused severe housing shortages. In recent years, the Eritrean authorities have resorted to evictions and demolitions of houses that were built outside of local planning permissions. The HRC has reports of the demolition of approximately 800 houses in Asmara and several other villages in the vicinity of the capital city, as well as other towns such as Adi Keyh, in the southern part of the country. An estimated 3 000 people were made homeless as a result of these demolitions. Many evictees sought refuge with friends and family which further exacerbated the overcrowded housing problem and further limited access to affordable water and safe sanitation. According to the HRC, by resorting to these types of actions, the Eritrean authorities have demonstrated that they are reluctant to create the necessary conditions to expand access to adequate social housing.
It is not clear what the government’s current housing delivery rate is, but recent reports suggest many of the newer developments are targeted at the medium to high end of the property market. According to news reports from 2014, a number of multimillion dollar infrastructure projects have been developed. From luxury resorts to colleges to modern homes and dams, Eritrea is witnessing an unprecedented development boom. Examples of this high-end boom include the Asmara Housing Project which was launched in 2013 and developed in the Sembel, Halibet and Space 2001 districts of the city. According to news reports, over 45 percent of this Housing Project has been completed. The project has been undertaken by an Italian Company, Piccini, in collaboration with other local construction companies under the umbrella of The Housing and Commercial Bank of Eritrea. The project comprises a total of 1 754 housing complexes including 930 apartments and 824 villas as well as 192 business complexes. This housing project also includes road infrastructure, construction of sewage system and water pipelines, electricity as well as telephone and internet installations. In addition a pre-cast factory in Asha-Golgol has been actively producing the materials required for the project. In an interview with state media in February 2014, President Isaias Afwerki was quoted by online news source, Madote, as saying, “The pilot housing project in Asmara is a precursor of a comprehensive urban and rural national housing scheme for the years to come”. Therefore it is suggested that urban areas such as Mendefera, Teseney, Assab, Dekemhare and Keren should expect to see housing development projects of their own. There is also the US$115 million Dahlak Master Plan and several high-end resorts in Ras Harab and Halibay. It also appears as though the government is constructing residential properties that will be sold to Eritreans in the diaspora who can afford to pay in foreign currency. Another Italian company, Gruppo Italiano Costruzioni, has also been involved in delivering 1 680 housing units in the country. The US$300 million Massawa project appears to be a mix of luxurious resorts, hotels and residential buildings. Currently, construction of the project has been postponed, presumably, due to the Asmara pilot project taking priority.
The property market in Eritrea is challenging. According to the World Bank’s 2017 Doing Business Report, registering property in Eritrea requires 11 procedures, takes 78 days and costs 9.1 percent of the property value. Furthermore, the majority of title or deed records in the country are in paper format and there is no electronic database for checking for encumbrances (liens, mortgages, restrictions and the like). There are no publicly available official statistics tracking the number of transactions at the immovable property registration agency.
Under the 1994 Land Proclamation Act, land ownership is vested in the state, with individuals, both Eritreans and foreign investors alike, granted users’ rights under a lease arrangement, renewable, for 10-60 years. Women have equal rights to men under the Land Proclamation Act. Two legal instruments drafted in the 1990s gave every Eritrean the right to land for housing in urban areas and ancestral villages, subject to meeting certain allocation criteria. There are two distinct forms of land tenure for housing: ‘Tessa’ and lease land. ‘Tessa’ land refers to allotted village land. Lease land is allocated in urban areas and houses built on it may be sold, donated, inherited, transferred or mortgaged.
Policy and regulation
The Land Proclamation and Legal Notice 31/1997 serves as the country’s post-independence land law. According to the Proclamation, land is the exclusive property of the state; the sale, transfer and mortgaging of land is prohibited. Therefore, an individual citizen only has usufruct rights over land, and the government could allocate land through leaseholds. Essentially, every Eritrean citizen, who has met the necessary criteria (including national service duties) is given the right to be allocated a plot of land for housing in urban areas and ancestral villages. The Proclamation specifies that: 1) an annual rent must be paid, which is determined by the law or by regulation of the Ministry of Finance, with the sole exception of rural housing. 2) Land rights cannot be transferred, except where expressly provided for by law. 3) Expropriation can be ordered only for purposes of development and capital investment aimed at national reconstruction or other similar purposes with the decision being final and not justifiable. 4) Compensation for expropriated land, which must be agreed between the owner and the state, is to be paid in cash or in kind. The amount will be commensurate with the damage experienced and will be paid before the holder relinquishes the land. In the case of disagreement, the titleholder can bring a suit before the High Court.
Significant obstacles have been created in the housing industry as a result of this legislation. One of the challenges has been the housing delivery system, which has been unable to speedily respond to the need for housing land, and the demand for housing has far exceeded supply. Other factors such as poor governance, mismanagement and a lack of clarity within institutional structures has further compounded the country’s housing shortage.
At the national and local level, a number of institutions and programmes carry out a range of functions related to land, urban planning and housing. The main national institutions include the Department of Urban Development of the Ministry of Public Works, the Ministry of Lands, Water and the Environment (MLWE), the Housing Commission, and the various municipalities. The main mission of the MLWE is to ensure the implementation of sustainable land management and guarantee optimum use and fair distribution of land. It is mandated to study land capability and land use planning, allocation of land parcels, and monitoring whether allocated land is utilised according to designated purpose.
Analysts agree that Eritrea’s growth prospects are potentially favourable in the medium term due to the mining of mineral resources, the commodity price recovery and plans to scale up energy supply. In addition, the National Indicative Development Plan 2014-2020 foresees the allocation of substantial resources and investment to increase the supply and quality of the country’s human capital in the broadest sense and within competitive standards. Eritrea’s rich entrepreneurial tradition provides opportunities for private sector growth and industrialisation.
Eritrea clearly has a great need for affordable housing delivery and there are significant opportunities for both the public and private sectors to strengthen the development of housing finance, as well as increase its supply. Possible initiatives include expanding tailored housing loan products to low income groups; providing technical assistance to banks to enable them originate and manage loans for low income housing; and introducing innovative and competitive housing solutions and products for the poor. Furthermore, substantial remittances from the diaspora provide a useful source of housing finance (when it is not subjected to tax) that could be harnessed for both mortgage and microfinance lending.
Beyond mortgage finance, there is a significant need for additional cheaper building materials, which provides potential investors with the opportunity to gain substantial market share by manufacturing some building materials locally.