Housing Finance in Gambia

Introduction

The Gambia, is one of the smallest countries on the continent the new president, Mr. Adama Barrow was sworn into office on February 18^th 2017, following tensions around the handover of power which required intervention from Economic Community of West African States (ECOWAS). The new administration has yet to table an official policy programme relevant to the housing sector but the expectation is that they will provide more clarity on their programme within the National Development Plan (2018-2021) which will be launched in 2017[1].

The country is classified as a least developed country (LDC), with a Gross National Income (GNI) per capita of US$ 440 in 2016[2]. The Gambia is also ranked 173rd out of 188 in the United Nations Development Programme’s (UNDP) Human Development Report (HDR), 2015, with a score of 0.452, which puts it in the low human development category. Accordingly, the incidence of poverty is very high, with the Gambia Bureau of Statistics (GBoS) 2015 Integrated Household Survey[3] indicating that an estimated 48.6% of the population live below the poverty line. Rural areas are especially disenfranchised, with rural poverty estimated at 79.5%. The high incidence of rural poverty and the high population growth rate of 3.4%[4] can be seen as leading to the country’s high urbanisation rate of 4.3%. The growing urban drift is set against the backdrop of inadequate policy frameworks and strategies to manage it. The lack of planning in the face of rapid urbanisation continues to have a number of consequences for the country, which include an increasing number of slums, large scale flooding, pollution as well as pressure on social services. Furthermore, the country is expected to face huge pressure around land suitability for human settlements due to rising sea levels with a number of studies indicating that a one meter rise in sea levels would impact almost nine percent of the country’s total land area (especially in the capital city of Banjul)[5].

The development metrics outlined above indicate that the country has failed to deliver enough growth to reduce poverty and meet other developmental objectives. At the macroeconomic level, according to the IMF’s most recent country report[6], while The Gambia has been able to record periods of growth between 6-7%, real GDP has been choppy over the last 20 years, resulting in an average growth rate of just 3.6%, below the Sub-Saharan Africa (SSA) average of 4.9% over the corresponding period. The country’s long-term development plan launched in 1996, Vision 2020 has the ultimate goal of transformation to a middle income country by 2020. With just 3 years left before the end of the cycle of Vision 2020, the country’s Real GDP Per Capita of US$ 469[7] as at 2016, is well below the US$ 1 250 per capita target. The country’s poor economic performance over the last 4 years in particular has been attributed to weak institutional framework for effective economic management and limited policy coherence, based on the UNDP in its mid-term review of the country’s medium term development policy framework from 2012 to 2017, the Programme for Accelerated Growth and Development (PAGE). While a major change in policy direction is not expected with the installation of the new administration, the change is expected to come from better implementation of government policy programmes and greater engagement with international partners, that had hitherto fallen out with the previous administration, to help fund planned government programmes.

Accordingly, the Government of The Gambia’s (GoTG) policy orientation will continue to be anchored on a liberal agenda and is expected to be in broad consonance with international development framework as enshrined in the Sustainable Development Goals (SDGs). While the GoTG is yet to come out with any specified policy direction around urban development and housing, we anticipate that it will revolve around attracting as much private participation as possible and increased donor buy in to support key policy programmes around affordable housing and dealing with potential issues around climate change, especially rising sea levels.

Access to Finance

The Gambian financial sector is comprised of 12 banks (one of which is an Islamic bank) with the remaining 11 conventional banks being mostly foreign owned. The banking industry continues to be highly monopolised, as indicated in the Gambia Bankers Association yearend report for 2016, revealing that the top four banks account for 69.6% and 70.6% of industry assets and deposits respectively. The banking industry continues to be catered towards meeting the needs of the small formal sector, and with Central Bank of The Gambia (CBG) estimates for banking penetration ranging from 20-25% nationwide; financial inclusion continues to be a perennial challenge. This is despite the fact that as of the end of 2016, there were 80 registered credit unions, 3 microfinance companies and 65 Village Savings and Credits Associations (ViSACAs) that were operational[1].

According to the CBG[2], the banking industry is tentatively stable and well capitalised with an average capital adequacy ratio of 38.5% in 2016, which is well above the statutory minimum of 10%.  A key trend that has characterised the performance of the banking sector since 2013 has been the decline in private sector credit. The underleveraged nature of balance sheets of banks is reflected in the high capital ratios as well as the in the precipitous decline in the composition of gross loans and advances in total asset portfolio of banks, declining from 22.1% in 2014 to 12.1%  as of March 2017. The macroeconomic environment between 2013 and 2016 which helped to support a situation of high interest rates has undoubtedly played a part in dampening credit growth; however there are a number of other structural issues such as inadequate credit reference services and challenges in foreclosing on collateral, amongst others which also hinder credit growth. The CBG is actively working with the industry to counter some of these challenges and the recent establishment of the collateral registry and the licensing of the first private credit reference bureau, are positive steps in this regard. The expectation is that an improved macroeconomic environment and other structural reforms in the sector will help reverse the trend of decline in private sector lending. The significant decline in the CBG’s monetary policy rate from 23% in the beginning of 2017 to 15% as of July and the over 8% point decline in the yield of the benchmark 91-Day Treasury Bill between the end of 2016 to August 2017 will help to support greater credit expansion in the economy going forward, assuming that the interest rate continues to decrease and the improved macroeconomic fundamentals can be sustained and deepened..

The difficulties in getting access to credit in The Gambia is also evidenced in the World Bank’s Doing Business 2017 report, which ranks The Gambia 118^th out of 190 economies for getting credit. However it has experienced marked improvement of 45 points since last year due to reinforced access resulting from reforms. The new law on secured transactions implements a functional secured transactions system and establishes a centralised notice based collateral registry. This is especially pertinent for house financing sector where only one financial operator, the Home Finance Company Ltd (HFC), offers mortgages to customers. This is evident given the company’s portfolio which is very narrow with just 45 mortgages on its books as of the end of 2016, with a total portfolio of just US$369 thousand, which is very insignificant compared to total banking industry loan portfolio of circa US$88 million as of 2016. HFC offers a mortgage product that can finance up to 70% of the value of a property payable over a maximum of 10 years.  HFC offers four different types of mortgage products, namely Home Purchase, Home Completion, Home Improvement and Home Equity. The company’s mortgage interest rate averaged 20% in 2016[3]. The company has had a significant problem with non-performing loans, with non-performing loans ratios of 65% as of 2016. This situation has slowed the growth of the number of mortgages underwritten by the company as it focuses on loan recoveries.

The Gambia has a pension industry that actively supports housing expansion.  The Social Security and Housing Finance Corporation (SSHFC) aims to provide adequate social protection for workers and to facilitate social shelter delivery on a sustainable basis. The corporation operates four constituent funds: the Federate Pension Fund, the National Provident Fund, the Injuries Compensation Fund and the Housing Finance Fund. SSHFC requires a minimum down payment of 25 percent of the selling price, with the balance payable monthly over a 15 year period.

Housing Affordability

GBoS Income and Household Survey 2015/2016 notes that 56.1% of households in the Gambia live in owner occupied dwellings, with 31.2% living in rented housing. A higher percentage of people in rural areas live in owner occupied dwellings (88.4%) as compared to the capital city Banjul and other urban centres where 66.4% and 46.5% of inhabitants respectively, live in rented housing. Accordingly, the demand for housing is higher in the urban areas, where 34% of the urban population live in slums and are faced with significant challenges in terms of housing, health and environmental degradation.

According to Numbeo, property prices have risen steadily over the past few years, in some areas by as much as 30%, spurred on in part by the property interests of Gambians in the diaspora. There is a shortage of affordable housing for most Gambians.  The main developer of affordable housing in The Gambia is the SSHFC, which is mandated to provide serviced plots of land with or without small construction loans for low and middle income groups.  They also develop complete housing units for purchase by middle income households. The price of a three bedroom house (220m²) is about US$100 000 (GMD4.3 million), while a two-bedroom house is US$ 50 000 (GMD 2.2 million).  According to Taf Africa Homes a leading real estate developer in The Gambia and the sub-region, it would cost approximately GMD 4 800 (US$ 100) per square meter to buy a two or three bedroom house located in its planned affordable housing development situated within the metropolitan centre[1] working out to around GMD 1 200 000 (US$25 977) and GMD 1 800 000 (US$ 38 965) per property. While the price point for the planned affordable housing estate by Taf Africa Homes is much lower than that offered by SSHFC, it is still well above the affordability threshold for the vast majority of Gambians. This shortage of affordable housing is also reflected in the lack of adequate, affordable rental housing stock, and consistent reports of steep rises in urban area rentals[2]. On average, it costs GMD 6 000 (US$ 140) and GMD 11 500 (US$ 269) per month to rent a one and three bedroom apartment respectively in the metropolitan centres.

Given the lack of affordable housing in the country, most Gambians self-build their houses as they cannot afford to purchase a house outright. This has led to the rapid growth of Amiscus Horizons Ltd, a company that runs a cement block savings scheme using a pay as you go model that started operations in 2014. The company allows its clients to build up enough blocks for a period of 2 to 5 years to be able to complete their house. Most to the company’s clients are middle income earners like teachers, nurses, police officers, mid-level civil servants and young professionals. As per Amiscus Horizon’s estimates, the cost of affordable housing should be within the range of GMD500-700 thousand (US$ 10 000-US$ 15 000) excluding the cost of the land[3]. This estimate is well below the current going rate of affordable housing developments by SSHFC and leading property developers.

Housing Supply

The demand for housing among the urban population continues to exceed supply, with the housing deficit estimate of 50 000 housing units  proffered by the Ministry of Lands and Regional Government in 2015, still being the deficit being referred to by industry players.

There have not been any new affordable housing developments in the country since last year’s publication, with the last major housing program completed in the country being in 2011, when UN-Habitat implemented its Participatory Slum Upgrading Programme.  A 36-month programme with an estimated cost of US$5 million, it sought to meet the housing needs of low and middle income earners in the city of Banjul, and the Kanifing and Brikama municipalities.  The programme aimed to construct 2 000 housing units across the three cities.  In addition, 200 commercial shops, mosques, three chapels, community centres, recreation facilities and parks were planned to be constructed in the three sites.  The project was part of a wider collection of urban upgrading projects that sought to address urban infrastructure, governance, health, environmental issues, local economic development, urban safety and urban disaster management, all being driven with the support of UN-Habitat. The Gambia is now in the second phase of the programme which entails action planning and programme formulation.

The biggest housing schemes in the country were implemented by SSHFC, with the notable ones being the Bakoteh, Kanifing and Brusubi. The two former projects were completed in the 1980s.The Bakoteh project provided 200 housing units of two and three bedroom houses, and failed as the end product was unaffordable by the target group of beneficiaries. The government thus had to subsidise the houses for 15 percent and waived any interest incurred on the loans which were given to the beneficiaries for a 25 year repayment period. For the Kanifing Project, the developed land was demarcated on 743 serviced plots ranging in size from 250m² to 350 m². Small construction loans were given to project beneficiaries who were then guided in the construction of their own houses. The loan was part of the World Bank Urban Management and Development Project and offered beneficiaries 9% interest over a 25 year repayment period.  The third housing project, Brusubi, involves three phases and promises to deliver close to 3 000 housing units. This project site’s total area is 6.9 hectares and covered by the lease for Brusubi Housing Project phase 1. The project comprises 138 service plots, of which 100 plots consist of complete housing units for outright purchase. The remaining 38 service plots are to be sold by tender to mobilise resources to meet additional infrastructural and other costs.  The complete housing units consist of three bedroom bungalows and two storey houses. The project was co-financed by Shelter Afrique and offered at a fifteen year mortgage term. However, a review of the project indicates that the mortgage default rate is relatively high indicating the fact that high loan defaults are a cross cutting issue for all mortgage finance players in the country.

SSHFC is embarking on extending housing facilities in the urban centres of the country, especially within the Kanifing and Brikama municipalities in a bid to reduce the strain on the immediate urban infrastructure and other services. According to the Corporation’s website, the Brikama Jamisa Project is the company’s first Growth Centre Project; while more land has been allocated for residential use in Tujereng and Jabang for Housing and Real Estate Development. The Tujereng project comprises of 1 515 residential serviced plots, 11 business plots and 94 plots earmarked for the development of complete housing units. The Jabang project has a total of 817 residential serviced plots, 29 business plots and 39 plots reserved for the construction of complete housing units. To date, almost all the serviced plots have been allocated. The total expenditure of approximately GMD 135 million (US$ 3.2 million) has already been allocated to these sites for the development of supporting infrastructure.

The change of government and improving financing avenues that are expected to emerge with greater donor engagement with the country, is expected to give a boost to SSHFC to launch new projects like the affordable housing project envisaged with the BP Investment Group in 2014 that failed to get off the ground and that was meant to deliver 400 houses and 110 apartments by 2016. We do not expect this project to be delivered given doubts as to the credibility of Dubai based BP Investment Group, but SSHFC is actively working to engage more credible partners to launch similar themed projects.

Furthermore, there are several private sector players operating in The Gambia, such as Sky High Group, TaF Africa Homes, Swami India, Global Properties and Amiscus Horizons that have designs on making a foray in the affordable housing sector. While the majority of the aforementioned companies are predominantly focused on the higher end of the housing market, Amiscus’ main objective is to make housing affordable for all Gambians by pioneering the concept of cement block banking and plan to extend to other products like tiles and corrugated sheets.

Property Markets

Property rights and secured interests in property are protected by the Constitution. The Department of Lands issues title deeds which are duly registered. Both moveable and real properties are recognised and enforced. The concept of mortgage exists (even though the mortgage market is extremely small) and there is a recognised and reliable system of recording such security interests. The legal system fully protects and facilitates acquisition and disposition of all property rights including land, building and mortgages. That being said, the bulk of the land is customary tenure or controlled by farmers and traditional rulers. Such land can however be easily taken over by government or declared reserved land to be used in future for social amenities such as schools, hospitals or office buildings.

As a result, land tenure remains an ongoing issue.  This is partly because registering property involves, on average, five procedures, which take 66 days and cost 7.6% of the property value. Tenure security is limited, with only 45% of the population being secure and in some cities the number is even lower.  Tenure security is highest in rural areas, at between 70% and 89%.  It takes an average of three years to secure a title deed and the cost is exorbitant: GMD4 000 (US$ 93) in transfer tax to the municipality and GMD40 000 (US$ 935) in capital gains tax per transaction.  This limits accessibility to mortgage financing, and dampens the incentive to self-build through housing microfinance.

Housing Policy and Regulations

The most notable policy development revolves around the establishment of the Collateral Registry and Registration System, instituted by the CBE under the Securities Interests in Movable Properties Act 2014, which makes provision for the creation, perfection, priority and enforcement of security interests in movable property[1]. The intent of which is to facilitate credit delivery through the provision of efficient and cost effective services and creating an enabling environment to ensure easy access to credit[2].

However there has not been any significant development in housing specific legislation and regulation, neither has there been a formulation of a highly needed urban development strategy or policy guiding the urbanisation process by the new government through the Ministry of Lands and Regional Government, which continues to be broadly responsible for implementing housing and land related policy.[3] Accordingly, the main policy and regulatory frameworks that govern the housing sector are as outlined in last year’s annual report, notably:

• SSHFC Act (1981);
• State Lands Act (1991);
• The Physical Planning and Development Control Act (1991);
• Land Acquisition and Compensation Act (1991);
• The Survey Act (1991);
• Local Government Act (2002);
• Rent Act (2014); and
• Mortgages Act (1992).

Housing Sector Opportunities

The affordable housing market in the Gambia continues to be underserved.  A number of recent interventions may encourage greater private sector participation in the affordable housing segment. A key development in this regard is the new government’s commitment to ensuring macro-stability to support a lower interest rate environment, the expectation of which is for a marked decline in lending rates of banks and increasingly encourage them to partner with developers to offer mortgage financing products. There is also a push for the use of alternate approaches, technologies and materials which speed up the delivery and improvement of housing; however these are yet to take off in earnest[1].

The high levels of informality and self-builds, coupled with an established regulatory framework for the microfinance industry, opens up a huge window for the development of housing microfinance products that the existing financial industry players are yet to take advantage of. However, the successes of Amiscus Horizons and the crash in the yields of government Treasury bills should encourage more financial industry players to seek out greater opportunities within this sector.