Housing Finance in Guinea Bissau

Introduction

After the instability that followed a 2012 coup, the Republic of Guinea-Bissau restored constitutional order after the 2014 elections and is now undergoing robust economic growth—economic growth is projected at 5.7 percent for 2016 and 6.2 percent for 2017, from just 0.8 percent in 2013.[1] The institutional rebuilding that has taken place post-coup has improved government revenue collection and spending. But, with the spectre of political instability (the country has undergone four successful and seven failed coups d’état since 1978, while the government was dismissed in 2015 and the president removed in 2016, both constitutionally) and a susceptibly to foreign shocks (particularly changes in the prices of cashews), Guinea-Bissau’s economy remains fragile.

Economic activity is centered in the capital city, Bissau, with the African Economic Outlook calling for public policy to ‘energise secondary towns’[2]. The GDP per capita is US$ 573, down from US$ 661 in 2011, partly due to a depreciation of the West African CFA, the currency of Guinea-Bissau. The poverty rate has increased, from 64.7 percent in 2002 to 69.3 percent in 2010[3]. Inflation is stable, population growth remains at 2.4 percent and domestic credit provided by the financial sector in 2015 was to 19.9 percent of GDP, up from 15.8 percent in 2014.[4] Guinea-Bissau is a member of the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (UEMOA).

Political crises have affected the economy, and, therefore, have likely decreased investment into the housing sector. There is some private development, apparently selling for US$ 31 000 a unit upwards. There have been discussions with the Chinese government financing housing, with press reports about the first phase of 250 social housing units—out of 1 000 social housing units in total—agreed[5]. The country has an estimated housing backlog of 4 000 units in 2015[6], according to the Minister of Public Affairs, though, considering the quality of housing reported in the most recent census, this number is likely higher.

Access to Finance

Guinea-Bissau has four banks (Banco Da Africa Ocidental, Banco Da Uniao, Banque Régionale de Solidarité and Ecobank), which, to varying degrees, have recently struggled with a high non-performing loan (NPL) rate. As the banks lend largely to the cashew sector—Guinea-Bissau’s predominant export and source of household income—, the drop in cashew prices from 2012, as well as the political instability faced during the same time, resulted in an NPL rate as high as 74 percent for the bank with the largest exposure to the sector in 2014. The banking sector, at large, has gradually recovered from the 2014 crisis, when NPL rates were 37.7 percent on average, but not to the average NPL rate of 6.5 percent seen in 2011.

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. Rather, 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)[7]. Only six percent of adults had a deposit with a commercial bank in 2013, suggesting potential for banks to grow their deposit funding, especially with the move to pay civil servants through the banking system[8].

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 maximum lending rate of 14 percent[9], though these numbers are not related to mortgages. For mortgages, in particular, the interest rate was nine to 11 percent in 2015, according to the Branch Chief of Ecobank Headquarters in Bissau. What mortgages are 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. Apparently, many Bissau-Guinean 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 do manage to build their homes using this type of loans, with loan values varying from CFA 3 to 5 million (US$ 5 101 to US$ 8 502).This depends on the nature of their employment contract, which allows 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 the 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$ 120 778) in outstanding loans in March 2016—from CFA 84 million (US$ 142 700) in 2014—and CFA 265 million (US$ 450 791) in deposits, also in March 2016—from CFA 207 million (US$ 351 655) in 2014[10][11]. There are six microfinance institutions in the country, with 14 147 customers (from 16 210 in 2014), contributing an estimated 0.9 percent to GDP[12]. 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[13]. In terms of construction finance, banks do not cater to the construction of new units, with only two percent of loans in June 2014 to the construction sector.

Housing Affordability

Aside from constraints in accessing housing finance, Guinea-Bissau has low levels of affordability because of the low GDP per capita: 58 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, 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$ 856 and US$ 1 724).  Similar units for sale are available for between CFA 18 million to 50 million (US$ 30 593 to US$ 84 983).

Housing Supply

From the census[14], 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 states that 83.1 percent of urban households live in slums[15].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[16].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 during its first phase, with a target of 1 000 units in all[17]. 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.

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 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, 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[18]. The last reform has resulted in Guinea-Bissau improving its Doing Business registering property ranking, from 168 in 2015 to 150 in 2016—it now costs 5.6 percent of the total cost of the property to register a warehouse, involves eight procedures and takes 51 days[19]. 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 and 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. 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, which should improve security of tenure, have stalled, with the law is still awaiting adoption. The impact of the law would likely be minimal without significant work to improve institutional capacity, according to the IMF, with implementation difficult, as, outside of the capital, traditional authorities have de facto authority over land[20].

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[21]. This will hopefully increase the openness of the real estate market, making it easier for entrants into the market.

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[22].

Housing Sector Opportunities

Guinea-Bissau has significant promise, despite the political instability and concerns that the country is a ‘narco-state’. 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 IMF[23]. 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 have lowered their NPL rates and seized collateral, is a sign that the financial sector is better equipped to expand access to finance. And. importantly, as part of UEMOA, Guinea-Bissau has a low inflation rate and low forex risk, providing a sound foundation for future investment.