Housing Finance in Gambia

Introduction

Gambia is one of the smallest countries on the continent and is completely surrounded by Senegal. With an area of only 11 000 km² and a total population of approximately 1.9 million people, it is also one of the most densely populated countries in Africa. Due to a relatively high urbanisation rate of 4.3 percent, approximately 5o percent of Gambians live in cities. Spatial inequality remains a critical issue in the Gambia as there is a large rural-urban gap in income and wealth. As a result, urbanisation is largely driven by large rural to urban migration as well as high population growth. The lack of adequate policy frameworks and strategies has meant that the rapid and unplanned urbanisation which has occurred has resulted in large scale flooding, pollution as well as pressure on the social services.[1]

Gambia faces significant challenges to regain macroeconomic stability following: policy slippages; persistent financial difficulties in public enterprises; the impact of delayed summer rains on the agricultural sector; as well as the regional Ebola outbreak which affected its tourism industry. Agriculture and tourism together account for 40 percent of GDP. [2] While growth accelerated to 4.7 percent in 2015; many analysts predict economic growth might slacken to 2.4 percent reflecting a slowdown in the agricultural sector.[3] The Gambia remains among one of the poorest countries in the world[4], and also one of the most difficult to do business in. According to the World Bank’s 2016 Doing Business report, Gambia was ranked 151 out of 189 countries.

It is estimated that on average, 48 percent of the population live below the national poverty line. While remittances from the large diaspora have helped alleviate poverty, high unemployment and underemployment, particularly among women and the youth, it is one of the major causes of poverty in the Gambia. Youth unemployment is estimated at over 40 percent—three times higher than among adults. A lack of employment opportunities is spurring a number of people (many of them highly skilled) to leave the country. In 2011, authorities launched the Programme to Accelerate Growth and Employment (PAGE 2012-2015, extended to 2016), a poverty reduction strategy that intends to accelerate growth, generate employment and establish social protection programmes. As a result, the government has placed a high priority on sustainably exploiting agriculture, tourism, infrastructure and other natural resources.

Due to the increasing impact of climate change, Gambia is expected to face huge pressure on land for human settlements due to rising sea levels. According to recent UN projections, a one meter rise in sea levels would impact almost nine percent of the country’s total land area (including the capital city of Banjul). In order to mitigate the impact of climate change and build a climate resilient society, the government formulated a climate change policy last year that is awaiting approval.

Access to Finance

The Gambian financial sector comprises of 12 banks (one of which is an Islamic bank) with the remaining 11 conventional banks being mostly foreign owned. There has been an influx of foreign banks over the years, which has increased the penetration of financial services in the country.  That being said, only four large banks control 68.1 percent of the industry’s total assets, indicating high concentration in the banking sector. Furthermore, the banks are mainly located in the greater Banjul area. The banking penetration rate is approximately 25 percent for the urban population and five percent for the rural areas. The microfinance sector comprises of 72 active credit unions, 68 village savings and credit associations, two finance companies, insurance companies and foreign echange bureau (CBG, 2013).

According to the IMF (2015), the banking sector is well capitalised and liquid, with the average risk-weighted capital adequacy ratio reaching 36.2 percent in 2015, well above the eight percent minimum. Total assets have increased by 12.8 percent in the year to end September 2015. All banks met the minimum reserve requirements of 10 percent in 2015. The Central Bank of the Gambia (CBG) continues its efforts to improve financial stability by enhancing the country’s bank supervision and crisis management capacity. While the Gambia’s financial indicators are generally satisfactory, they mask the underlying risks associated with commercial bank’s high exposure to government debt.[5]

Surprisingly, the increased number of banks in recent years have not led to a fall in interest rates as all the banks are chasing a small pool of deposits for which they have to pay a premium, which keeps interest rates high. According to the World Bank, between 1978 and 2014, the average interest rate value was 24.97 percent with a minimum of 14.48 percent in 1985 and a maximum of 36.5 percent in 2004. The Central Bank of Gambia (CBG) uses its reserves as its main policy instrument, but also uses interest rates to signal changes in policy. The CBG increased its rediscount rate (its main policy rate) by 200 basis points in August 2014 and followed this with an additional 100 basis points hike, to 23 percent nine months later. While this tightening monetary policy reflects the Central Bank’s concern over inflation, analysts believe that the CBG will be reluctant to raise interest rates further.[6]  The interest rates for fully secured personal loans range from 22 to 26 percent and unsecured loans averaging 26 percent. According to the IMF, prolonged elevated interest rates will pose a risk to rising non-performing loans and the further crowding out of credit to the private sector. Gross loans and advances representing 19.2 percent of total assets declined by 10.6 percent year-on-year in September 2015.

Doing Business 2016 ranks the Gambia 162^nd out of 189 economies for getting credit. The Credit Reference Bureau is now fully functional, but commercial banks have delayed updating their borrower’s information. This delay continues to make it difficult for banks to assess the credit worthiness of potential borrowers. Regarding the Gambia’s mortgage market, the Home Finance Company of the Gambia Limited (HFC) offers a mortgage product that finances 70 percent of the value of a property payable over a maximum of 15 years.  HFC offers four different types of mortgage products, namely Home Purchase, Home Completion, Home Improvement and Home Equity. So far this year mortgage rates in the country have averaged 20 percent.[7] 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

As mentioned, the Gambia has a high incidence of poverty (estimated to be 48 percent). And according to the Labour Force Survey (2012), approximately 34 percent of the labour force is categorised as working poor, earning an income of less than US$ 38 per month. About 52 percent of houses are built with semi-permanent materials and only 40 percent with permanent materials. More than 34 percent of the urban population live in slums and are faced with significant challenges in terms of housing, health and environmental degradation. For urban dwellers, 66 percent have access to electricity; 95 percent have access to improved water sources; and 46 percent have access to improved, unshared sanitation facilities. Urban residents have greater access to services than their rural counterparts, where 79 percent of rural households are considered to be poor.

Property prices have risen steadily over the past few years, in some areas by as much as 30 percent, spurred on in part by the booming tourism industry and property interests of Gambians in the diaspora.    There is a shortage of affordable housing for most Gambians. According to Numbeo, it costs approximately GMD 17 500 (US$409) per square meter to buy an apartment in the city centre and GMD 20 000 (US$ 467) to purchase an apartment outside the city. This shortage of affordable housing is also reflected in the lack of adequate, affordable rental housing stock, and the consistent reports of steep rises in rentals in urban areas. 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 city centre.

The main developer for this affordable housing market 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. However, the organisation has been criticised for providing products that are unaffordable for most. 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 (GMD2.2 million).  As a result, most Gambians self-build their housing as they cannot afford to purchase a house outright.

Housing Supply

The demand for housing among the urban population has long surpassed the capacity of government to provide it.[8] The Minister for Lands has stated that the country needs an estimated 50 000 housing units by 2015.

In 2011, 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 cities of Banjul, KMC and Brikama.  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 is part of a wider collection of urban upgrading projects that 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 government has expressed its desire that the private sector, particularly real estate developers, be given the opportunity to participate in this programme by providing standardised houses for low income earners.

According to the SSHFC’s website, the Corporation has successfully implemented three housing schemes: 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. The Bakoteh Scheme failed in that the end product was unaffordable by the target group of beneficiaries. The government thus had to subsidise the houses for 15 percent and also deleted any interest element on the loans. The loans were then given to the beneficiaries for a 25 year repayment period. For the Kanifing Project, the developed land was demarcated in to 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 nine percent interest over 25 years repayment period.  The third housing project, Brusubi, involves three phases and promises to deliver close to 3 000 housing units. This project site has a total area of 6.9 hectares and is covered by the lease for Brusubi Housing Project phase 1. The project comprises 138 service plots, of which 100 plots are to 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 are to consist of three bedroom bungalows and two storey houses. This project is co-financed by Shelter Afrique and offers a fifteen year mortgage term. However, a review of the project indicates that the mortgage default rate is relatively high due to the tough economic conditions the country is facing. That being said the recently launched mortgage recovery campaign is helping to improve the situation.
SSHFC has partnered with an investment group (BP Investment Group) to provide about 400 houses and 110 apartments by 2016. The social housing project, the Modern City, will be built in Brusubi and include 12 different types of houses and apartments (including 5 different types of flats) with two rooms or more, and social amenities. The partnership with BP Investment Group (a Dubai-based company with an international reputation in social housing) is expected to bring capital and ‘modern’ ideas to the project. While this programme was launched in 2014, it is difficult to ascertain its current status.

In line with Vision 2020 which advocates for the decentralization of basic services, SSHFC is embarking on extending housing facilities in the Growth Centres of the country 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.

Furthermore, there are several private sector players operating in the Gambia, such as Sky High Group, TAF, Diamond Properties Gambia and Amiscus Housing. While the three 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. Their business model is based on the concept of building a home in incremental stages. The company enables low and middle income clients to accumulate construction materials (cement blocks) to the point they have enough blocks to commence their construction project, the blocks banked are a form of savings and also presents a simple hedging process in terms of protection from inflation of block materials.

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 free hold or controlled by farmers and traditional rulers. Such lands however can be easily taken over by government or declared reserved lands 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 percent of the property value. Tenure security is limited, with only 45 percent of the population being secure and in some cities the number is even lower.  Tenure security is highest in rural areas, at between 70 percent and 89 percent.  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.

Furthermore, while there are several acts that facilitate the use of land resources, many of them require updating. For example, the master plan that guided the development of Banjul has not been updated since 1989. As there is no land use policy or plan, and weak land registration and management, means that municipalities’ efforts to raise revenues from properties has been seriously hindered. In addition, because municipalities do not own nor have ready access to land, implies their ability to respond to the housing needs of the population is constrained. These issues with land policies and management have also created an unfavourable business environment for the private sector.[9]

Housing Policy and Regulations

While there are some legal frameworks in place, there is no urban development strategy or policy guiding the urbanisation process in the Gambia.[10] Analysts seem to agree that national land use policy and planning, as well as an urbanisation policy formulation is urgently required; and that strengthening institutions that deal with urban planning is key to ensuring sustainability

The Ministry of Local Government and Lands is responsible for housing and land. According to local news sources, the Ministry intends to revive the Housing Unit of the Department of Physical Planning and Housing. Furthermore, the use of appropriate and affordable building materials and technology will be enhanced and capitalised through collaboration with stakeholders. There are also plans to revive the building technology unit of the Department of Community Development.

Laws effectively disbanding the SSHFC and creating distinct entities to deal with social security (the Social Security Corporation Bill) and housing funding (the Housing Finance Corporation Bill) were introduced in April 2010; however these have not yet been promulgated and the SSHFC continues with its mandate.  Fortunately, the latter Bill has provisions to retain a fund for affordable housing.

The list below provides a brief overview of the main policy and regulation frameworks governing the housing sector. This information is by no means exhaustive.

• SSHFC Act (1981): Mandates the SSHFC to finance, develop and administer housing projects alone or in partnership with other agencies. The Act was one of a series of actions by the Gambian government to address the problems caused by rapid urban growth. The Housing Finance Fund, like the social security scheme funds, was established as a consequence of this act.
• State Lands Act (1991): Provides a legal basis to improve and rationalise the land tenure system by the replacement of the customary tenure with a long- term (99 year) leasehold system in designated (specified) areas of the country.
• The Physical Planning and Development Control Act (1991): Provides a unified legal basis for preparation and approval of physical development plans, control of developments (including buildings) and for creating a better environment and proper use of land in The Gambia.
• Land Acquisition and Compensation Act (1991): A legal instrument by which the government can acquire land and compensate persons (including freehold land) anywhere in the country for public and planning purposes.
• The Survey Act (1991): Provides a legal basis for the establishment of standards and specifications for survey work, to ensure protection of survey marks, to enable private surveyors to undertake official survey, and for cadastral surveys for registration of title to land.
• Local Government Act (2002): This Act governs the decentralisation of local government and municipal systems. Municipalities are unable to fulfil executive functions like tax collection, and there is a lack of clarity around revenue sharing mechanisms with central government. As a result, their urbanisation and development efforts are constrained by a shortage of resources.
• Rent Tribunal (August 2014): Designed to introduce a new legal regime for the regulation of rent matters. It aims to produce two main benefits, namely: it will enable the house owners to let out their properties to tenants based on an officially-approved rental fee; and potential tenants are also able to access and to occupy affordable housing. Under the new law, each rent tribunal would have a registrar keeping an up-to-date register of all rented property within its jurisdiction, as well as the personal details of landlords/landladies. A landlord/landlady is required to register rented properties using a prescribed form. Failure to do so is an offence.

Housing Sector Opportunities

Like many African countries, the affordable housing market in the Gambia is inadequately served.  More recent interventions may shift the investment focus of the private sector and open up opportunities for interventions that better target lower income earners.  There is a push for the use of alternate approaches, technologies and materials which speed up the delivery and improvement of housing. Therefore, there are considerable opportunities for investors who provide innovative housing solutions for this underserved market.

Furthermore, the high levels of informality and self-build, coupled with an established microfinance industry, point at potential for the establishment and development of a housing microfinance product offering.