Housing Finance in Guinea Bissau
Overview
Guinea-Bissau 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 Guinea-Bissau is 11.2 percent, as of September 2016, over a term of 20 years. There are some private developments, with units selling for US$ 31 000 upwards, which is not affordable to most households.
With an urbanisation rate of 4 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. Continual political instability has constrained financial market and housing sector growth, but discussions with Chinese housing developers holds promise for the market. 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 Guinea-Bissau can afford.
Find out more information on the housing finance sector of Guinea-Bissau, including key stakeholders, important policies and housing affordability:
- Introduction
- Access to Finance
- Housing Affordability
- Housing Supply
- Property Markets
- Housing Policy and Regulations
- Housing Sector Opportunities
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2017 edition, which has up-to-date profiles for 54 African countries.
Download yearbookGuinea Bissau
Introduction
The Republic of Guinea-Bissau, located in West Africa, covers an area of 36 948 km2 and has a population of around 1.9 million.[1] The country restored constitutional order after the 2014 elections and as a result, the year that followed saw the country undergoing robust economic growth. However, Between June 2015 and December 2016, four prime ministers were dismissed. This resulted in an institutional deadlock that prevented parliament from meeting in 2016.[2] Due to the spectre of political instability and a susceptibility to foreign shocks (particularly changes in the prices of cashews), Guinea-Bissau’s economy remains fragile. However, recovery was not halted completely, 2016 saw an exceptional year for cashew sales and a notable expansion in the harvest of food crops (8.9 percent).[3] Growth forecasts for 2017 and 2018 are 4.8 percent and 5.0 percent respectively. [4]
Economic activity is centered in the capital city, Bissau, and almost 30 percent of the total population lives in this metropolitan city.[5] The GDP per capita was US$ 620.2 in 2016, up from US$ 596.9 in 2015. Inflation was an estimated 2.6 percent, population growth was at 2.5 percent and domestic credit provided by the financial sector in 2016 was 24.5 percent of GDP, up from 23.7 percent in 2015.[6] Guinea-Bissau is a member of the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (UEMOA). The political instability has affected the economy and thus decreased investment into the housing sector. Because of fiscal difficulties, chronic underinvestment is expected to continue according to the African Economic Outlook.
Access to Finance
Guinea-Bissau has four banks (Banco Da Africa Ocidental, Banco Da Uniao, Banque Régionale de Solidarité and Ecobank). The number of commercial bank branches per 100 000 adults was 2.5 in 2015, a figure that had remained constant from 2013. Automated teller machines (ATMs) per 100 000 adults was at 3.67 in 2013, an increase from 1.36 in 2010.[1] Bank credit remains sluggish amidst high non-performing loans (NPLs) and low profitability. Although lower than the 26 percent rate from immediately before the 2015 bank bailout, the overall NPL ratio remained high at 19.4 percent as of end-March 2017.[2] Credit to the private sector expanded by 10.6 percent in 2016, driven by the strengthening of economic activity.[3] Credit extension has continued to be concentrated in commerce, construction, and manufacturing, which together accounted for about two-thirds of total credit.[4] The moderate credit growth reflects risk aversion by banks in the context of high NPLs, particularly in agriculture.
Despite the high NPL rates, the banking sector is stable; it lends only to a small section of the economy and is relatively risk averse, with credit risk perceived as being high. As a result, Guinea-Bissau’s getting credit ranking as of 2017 is 139 out of 190 countries.[5] Banks tend to invest in UEMOA bonds. Because of this, the banks—regulated by the Central Bank of West African States (BCEAO)—are also relatively liquid. The four banks have increased their loans outstanding, from CFA 25.76 billion (US$ 43.7 million) in 2010 to CFA 62.6 billion (US$ 106 million) in 2015. Most of these loans are short- or medium-term, with just CFA 646 million (US$ 1.1 million) categorised as being long-term. At the same time, deposits held by the banks have increased, from CFA 54 billion (US$ 92 million) in 2010 to CFA 114 billion (US$ 195 million).[6]
Data available on mortgage finance is limited. In December 2014, according the IMF, banks were lending at an average prime rate of 9.5 percent and as of 31 December 2016, the commercial bank prime lending rate was 15 percent,[7] though these numbers are not related to mortgages. For mortgages, in particular, the interest rate was 9 to 11 percent in 2015, according to the Branch Chief of Ecobank Headquarters in Bissau. Mortgages available are restricted to medium and high income households, and those who have a warranty or an employment contract of 10 years, the typical term of a mortgage. Whoever does not meet these requirements will have to save the amount needed or to apply for a loan abroad, for example in Portugal, if they have a business or a warranty seen as capable of covering the costs of the loan. It appears that many citizens have used this strategy successfully.
For all four commercial banks, repayments for loans granted will be a maximum of 33 percent of an employee’s salary. Some people manage to build their homes using this type of loan, with loan values varying from CFA 3 to 5 million (US$5 464 to US$9 107).This depends on the nature of their employment contract, which allows for the yearly renewal of the loan at the beginning of each year (some organisations will provide a four or five year contract, depending on the length of time needed to develop their projects). According to information gathered at Orabank, there are plans, still subject to research, to expand the provision of mortgage finance to large segments of the population. Due to the country’s political instability, it is still very difficult for the banks to provide loans for a long payment period, which makes access to housing finance extremely limited. If a mortgage market were to develop, banks in Guinea-Bissau would have access to Caisse Regional de Refinancement Hypothecaire-UEMOA (CRRH- UEMOA), the regional mortgage refinance facility.
It appears that housing microfinance is limited, with the formal microfinance sector accounting for CFA 71 million (US$129 318) in outstanding loans in March 2016—from CFA 84 million (US$152 996) in 2014—and CFA 265 million (US$482 668) in deposits, also in March 2016—from CFA 207 million (US377 027) in 2014.[8] There is a small microfinance sector with 18 licensed institutions. However, only five are operational, and they provide limited financial services.[9] The microfinance sector, in terms of outstanding loans, customers and number of points of service, is substantially smaller than microfinance sectors in the other UEMOA member countries.[10] In terms of construction finance, banks do not cater to the construction of new units, with only 2.8 percent of loans in 2016 going to the building and construction sector.[11]
Housing Affordability
Aside from constraints in accessing housing finance, Guinea-Bissau has low levels of affordability because of the low GDP per capita. Fifty-eight percent of households earn below US$2 400 a year, according to C-GIDD data. Household income is heavily dependent on cashew and rice production, which are subject to volatility because of international prices and local weather. With little productivity growth in the country, it is unlikely that the majority of households will be able to afford units constructed by formal developers, and would be better served by the provision of housing microfinance.
Government initiatives to improve housing conditions were underway, but have been interrupted with no clear date for their resumption. In the past, and according to information obtained at the Ministry of Public Works, whatever units constructed by the government were allocated by assessing applicants or by using a lottery system. There was a commission with the responsibility of evaluating the allocation of houses and assessing specific household needs. Though these households were predominantly awarded to war veterans or civil servants.
There are some private developers working in the field but the houses that they construct tend to be for rental purposes, serving employees from international organisations. The rents in these developments can range between CFA 500 000 and 1 000 000 (US$910 and US$1 821). Similar units for sale are available for between CFA 18 million to 50 million (US$32 785 to US$91 069).
Housing Supply
From the census[1], which was conducted in 2009, 73 percent of households were recorded as owning their houses, while 19 percent of households live in private rental. The numbers for Bissau, the capital, are quite different, with 3.8 percent of households living in public rental stock, 46.4 percent in private rental and 42.7 percent occupying houses that the household owns. The census recorded 176 500 households (compared to 267 293 households estimated by C-GIDD in 2016), of which 89.1 percent resided in housing that is considered precarious. The situation is better in cities, where 78,6 percent of households live in precarious housing, and markedly better in Bissau, where only 24.5 percent of households live in precarious housing. The UN-Habitat State of African Cities Report 2014, the latest report of the series, states that 83.1 percent of urban households live in slums.[2] In urban areas, 28.2 percent of households live in one-bedroom units, compared to 9.8 percent in rural areas (overall, 17.7 percent nationally). The trend is the same for two-bedroom units (27.7 percent of urban households, against 16.5 percent of households in rural areas), but changes from three-bedroom units onwards—43.8 percent of urban households live in units with three bedrooms or more, compared to 74.3 percent of rural households.
There is no specific system for housing delivery in Guinea-Bissau. Middle income households purchase plots to construct housing. This requires approval by the city council, and, in theory, construction can only begin once approval is given. This land is generally owned by the council or is inherited by individuals. Prices of plots in Bissau are increasing, and have been subject to speculatory investments. The backlog, in 2015, according to the Public Affairs Minister, José António Almeida, stood at only 4 000 units.[3] However, considering the quality of housing reported in the most recent census, this number is likely higher. The government is aware of this issue and, in an effort to increase the supply of housing, has signed agreements with China and Morocco for the construction of 1 500 social houses. The agreement with the Chinese government should deliver 250 houses during its first phase, with a target of 1 000 units in all.[4] The projects are to be constructed in two different neighborhoods, as part of a regeneration strategy in Bissau, with the households displaced by these developments being housed in new social units near the airport. In September 2016 the Ambassador of Guinea-Bissau in China, Malam Sambu, said the Chinese government had provided 82 million yuan (US$12.3 million) in funding and without specifying dates, Sambu said China would finance the social housing project under construction in Guinea-Bissau with some of this capital.
Most households (76.3 percent) live in units that are categorised as having adobe (earth) as the predominant building material, with a further 14.5 percent of households living in units categorised as reinforced adobe. A further 5.4 percent (10 percent of urban households) live in units constructed using cement-blocks. In urban areas, 84,3 percent of households live in units that have zinc roofs (57.6 percent nationally), while 60,3 percent of households have straw roofs in rural areas (36,9 percent nationally). In terms of floors, while no households in urban areas have clay floors, according to the census, 66.9 percent of rural houses do. In contrast, 83 percent of urban households have cement floors.
Property Markets
According to Doing Business 2016, Guinea-Bissau is making steady progress when it comes to improving the business environment regarding real estate. Importantly, this has included some significant steps in terms of registering property: In 2008, the cost of registering property was lowered; in 2014, the country increased the number of notaries dealing with property transactions; and, in 2016, the cost of registering a property was decreased again.[1] The last reform has resulted in Guinea-Bissau improving its Doing Business registering property ranking, from 168 in 2015 to 150 in 2016 and 149 in 2017. It now costs 5.5 percent of the total cost of the property to register a property, involves eight procedures and takes 51 days.[2] These reforms will likely, if at all, only affect a small segment of the formal property market, which is geared to serve upper income households, foreigners and workers of the international community. There is little effective state regulation of the real estate market, and no policy in place to be implemented.
Though there are a number of laws in place to govern its ownership, land is predominantly accessed, outside of Bissau, in accordance with traditional practices. Both traditional practices (though there is variation throughout the country) and a 1975 statute (the statute legislates access to land) do not provide for freehold ownership, only usufruct rights. Law 4 of 1975 stipulates that “all the land of the national territory…is part of the public domain of the State and cannot be reduced to private property.” National laws do allow for concessions of up to 90 years, though there is no standard process to securing a concession. Efforts to finalise a new land law, the 1998 Land Law of Guinea Bissau, which should improve security of tenure, have stalled, with the law still awaiting adoption. The impact of the law would likely be minimal without significant work to improve institutional capacity. Considering that most of the real property rights in the country have not formalised under the form of concessions, acquiring a concession of Right of Private Use is complex and expensive.[3]
Housing Policy and Regulations
According to information obtained from the Ministry of Public Works, there is a document that regulates the buying and building of houses in the country. The document is entitled, ‘General Regulations of Urban Construction of Houses in Guinea-Bissau’. It explains the different classifications, areas for construction, environmental quality and security, among other regulations to follow when building or demolishing a house. Implementation of these rules would likely be limited. Beyond the reforms concerning the property market, but concerning the conduction of business in the country, Guinea-Bissau introduced a special commercial court and launched a one-stop shop to register a business, as well as creating an online database of all registered businesses.[1] This will hopefully increase the openness of the real estate market, making it easier for entrants into the market.
Decree No. 47.486 regulating the Ownership of Lands Occupied by Non-Owners regulates the ownership of lands occupied by non-owners. It consists of 6 articles defining the conditions under which land users may request, (free of charge) the ownership of lands within one year from the date of this Decree. Act No. 6/73 approving the Overseas Land Act regulates the right of use of public and private lands of the overseas territories. It consists of 33 parts specifying the conditions to be satisfied, in order to exploit occupied and non-occupied land for different uses. It establishes the requirements to be met in order to benefit from a land concession, or to obtain a permit for land leasing. Norms No. 9/11/1992 Approving Legal and Fiscal Regime for Land Occupation – these Norms approve the Legal and Fiscal Regime for Land Occupation and regulate the requests of concessions for unoccupied and uncultivated lands to be used for: agro-forestry/silvo-pastoralism, agricultural, livestock, or other purposes.
The banking sector is regulated by BCEAO, which publishes regular data for each member country. BCEAO has also issued regulations that cover credit bureaus and microfinance institutions, and has been particularly proactive when it comes to efficiently regulating the latter.[2]
Housing Sector Opportunities
Guinea-Bissau has significant promise, despite the political instability. There are a number of easy reforms that the country could undertake that would catalyse economic growth, which would likely increase housing affordability. For example, abolishing a special tax on cashew exports will decrease the poverty rate by two to three percent, according to the International Monetary Fund.[1] What is required is political stability, targeted investment (particularly concerning the port of Bissau) and international support. The recent establishment of a commercial court and a one-stop shop for business registration suggests that there is the will to make the necessary reforms. The stabilisation of the banks, which has lowered their NPL rates and seized collateral, is a sign that the financial sector is better equipped to expand access to finance. As part of UEMOA, Guinea-Bissau has a low inflation rate and low forex risk, providing a sound foundation for future investment.
