Housing Finance in Liberia

Introduction

The Republic of Liberia is on the West coast of Africa and bordered by Sierra Leone to the west, Guinea to the north, Ivory Coast to the east and the Atlantic Ocean to the south. The country has a population of 4.5 million, 49.7 percent of which lives in cities, making the country highly urbanised. Liberia is a member of the Economic Community of West Africa, (ECOWAS) and rich in natural resources among which are iron ore, rubber, timber, gold, diamond, coffee and cocoa. Liberia is one of the poorest countries in the world with an HDI score of 0.412, placing it at a ranking of 177^th out of 188 countries in 2015. The Ebola epidemic coupled with the drop in commodity prices had weakened Liberia’s economy, the real GDP growth fell from 8.7 percent in 2013 to around 0.7 percent in 2014 and around 0.4 percent in 2015. Economic growth has been affected due to decline in exports revenue particularly iron ore, and the delay in direct foreign investments and public investment especially in the construction sector. The inflation rate was seven in 2015. Inflation is expected to reduce in 2016 due to lower international fuel and food prices.  Liberia is gradually recovering from the aftermath of the Ebola crisis and according to the Central Bank of Liberia Report in 2015, growth in 2016 is projected at 3.9 percent and is expected to be driven by all the major sectors except forestry which is projected to remain stable.

Liberia has a very challenging business environment as illustrated in Doing Business 2016, it ranks 179^th out of 189 countries. Challenging areas include, access to affordable and long term credit, registering property and enforcing contract.

Access to Finance

Liberia’s financial sector in December 2015 includes the Central Bank of Liberia (CBL), licenced operating commercial banks remained at nine with 87 branches compared to 85 in 2014, 20 registered insurance companies, 20 registered microfinance institutions, 400 credit unions, 1 450 village savings and loans associations and nine rural community finance institutions (RCFIs). According to the CBL report of 2015, banking industry balance sheets showed positive growth at the end of November 2015, with total commercial bank assets increasing at a rate of 9.0 percent over the figures recorded for the same period in 2014. In spite of the negative impact of Ebola epidemic on all sectors of the economy, the financial sector remained resilient and the growth rate reflects continuous confidence in the banking system.

Although the financial sector of Liberia is growing and reforms to improve access to finance is being implemented nevertheless access to finance is still limited to the urban areas.  Access to affordable long term credit is still a challenge for the majority of the population and average interest rate for a loan is 13.6 percent and average mortgage rate is 14.5 percent.

Prior to the civil war, the National Housing and Savings Bank was the only mortgage bank in Liberia. However, even then, the approach was limited to lending to individuals to build their own homes. There was no linkage between the bank and the National housing Authority (NHA), the government owned housing development institution, to promote housing development in Liberia. The National Housing and Savings Bank collapsed in the 1990s during the civil war.

Access to housing finance is limited and when available is confined to Liberia’s capital city, Monrovia.  The government, however, is encouraging homeownership, as well as the development of a mortgage sector to make houses affordable to low and middle income earners. Currently, practically all the commercial banks have mortgage products and even some micro finance institutions such as Liberia Enterprises Development Finance Company, LEDFC. The first formal mortgage programme for post-conflict Liberia was launched in 2013 by The Liberian Bank for Development and Investment (LBDI), financed with US$ 10 million from CBL Mortgage Credit stimulus initiative. The programme involved LBDI taking ownership of a 30-year old estate that had been built for low income earners and managed by National Housing Authority, LBDI then sold the units to the tenants. There were 89 beneficiaries. The Mortgage Credit stimulus initiative also allowed LBDI to offer about 100 mortgages finance over 10 years.

Other initiatives include the financing of NHA by The National Social Security and Welfare Corporation (NASSCORP) and National Oil Company of Liberia (NOCAL) to boost housing development in Liberia. NASSCORP and NOCAL are partners of NHA and their funding has contributed so far to the construction of 88 houses by NHA. The NHA houses are two and three bedrooms units and cost US$15 000 and US$20 000 respectively with a fixed interest rate of eight percent per annum and repayment between 5 and 10 years. A down payment of 30 percent is required.

Micro finance and informal finance play an important role in the economy. Providers of microfinance include commercial banks, private micro finance institutions, NGOs, credit unions, and other informal providers such as “susu”. According to CBL there are 20 MFIs operating in Liberia in 2015 and Liberia Enterprises Development Finance Company, LEDFC is the leader of the sector, under new management; the institution has rebranded its activities to include real estate and construction. At the end of December 2015, four microfinance institutions were listed on the MIX Market with US$ 20 million disbursed to 31 000 borrowers and US$ 20 million being deposited by 144 000 depositors.  Access Bank remains the leader of the market with US$ 16.86 million disbursed to 13 190 borrowers and US$ 20.44 million deposit by 122 310 depositors.

Liberia ranks 109 out of 189 economies in getting credit, the World Bank Doing Business 2016, compared to 160 in 2015 as a result of reforms in legal framework, and adopting a new commercial code that broadens the range of assets that can be used as collateral, including future assets and extends the security interest to the proceed of the original asset. There are no private credit bureaus and no public registry.

Housing Affordability

Liberia is a low income economy, recovering from the lingering effects of its civil wars and the consequent economic and social upheaval of the population.  Given this historical context, Liberia’s recovery has been spectacular, driven primarily by the country’s national Poverty Reduction Strategy.  Foreign direct investment in mining, agriculture and construction has also played an important role still, the majority of the population lives below international poverty line (63.8%) and the Ebola crisis, coupled with the decline in international commodity prices have aggravated the economic situation since 2014. According to 2014 Household Income and Expenditure survey, 54 percent of Liberians were living in poverty in between January and August 2014 and the unemployment rate was three percent nationally with 4.5 percent in urban areas compared to 0.6 percent in the rural areas.

The monthly average wage was about US$50 in the urban areas and 40 percent higher than the rural areas. A high level of inequality of income persists in spite of the economic growth, 10 percent of paid employees are receiving 72 percent of total cash earnings. There is also income inequality between the rural populations and the urban populations and inequalities between the counties as illustrated in the 2010 Labour Force Survey (LFS).  According to the LFS, there are about 1.1 million employed persons aged 15 and over working in Liberia about 6 000 in rural areas and 5 000 in the urban areas i.e. employment to the population ratio is 60.5 percent. Majority of people employed are working for themselves (68 percent informal sector) and 77 percent of the employment is considered vulnerable, that is employment without social protection and job security.  In 2015 the national legislature finally passed the Bill for the minimum wage introduced since 2010. The new minimum wage is US$ 6.00 for unskilled labour per day.  The enforcement of the Decent Work Act took effect on March 1^st 2016.

Access to mortgage finance is extremely limited and rental homes are provided primarily by informal housing promoters and NHA.  Rents vary according to the location and the quality of homes. They range from US$400 to US$1 700 for houses in Monrovia for the higher income households and expatriates. These houses are out of reach to the majority of Liberians earning less than the minimum wage of US$ 6 per day. Less than one percent of the population has access to government subsidized homes managed by NHA.  Majority of the population in the urban areas live in slums, in multi occupied houses where rents are subject to fluctuations according to demand.

Housing Supply

Housing stock in Liberia can be classified in three categories, based on the material used for construction:  construction with mud and straw with thatched roofs mainly found in the rural areas, small tin roofed wooden houses found in the urban and houses built with cement, concrete and stone, and corrugated iron for the ceiling in urban areas particularly in Monrovia. Majority of the houses are self-built and auto financed. According to 2008 census, there were 326960 household living in dwellings in urban Liberia and 343335 in rural areas. Houses in low income Monrovia tend to have many rooms (5.5 median) and the large houses tend to be crowded, multi-occupied rooms with a mean of 20 people whereas other cities have 1 to 2 household in a house with a mean of 10 people.  There is little or no data on the current housing stock, the data available is the UN-Habitat Liberian housing profile stock estimated to be 327 000 dwellings in 2010.

Even before the last civil war, Liberia’s housing stock was insufficient.  The war devastated much of the country’s urban housing stock, and as a result, the majority of the population was displaced and now live in dilapidated conditions, and in slums.  The poor state of housing has contributed substantially to the rapid spread of the Ebola virus.

The National Housing Authority, a state-owned institution, was the only institution that provided housing at a relatively large scale although still far below what was and is needed. Between 1962 and 1984, NHA developed and implemented a number of housing programmes in the major cities, producing 1 789 housing units and 600 serviced plots land for low cost housing, including in New Kru Town in 1962, Stephen A. Tolbert in 1975/1979 and Matadi in 1978/1980. The total cost of investment was estimated at US$39.6 million between 1962 and 1984.

Today, after more than 10 years of democratic government, the housing stock continues to be inadequate and the supply cannot meet the demands of galloping urbanisation. Liberia is already 49.7 percent urbanised, and is among the most urbanised in the region.

The government of Liberia is sensitive to the situation. The government’s ambitious programme of reconstructing Liberia and transforming Liberia from a poor country into a middle-income country with equal opportunities and access to all by year 2030, known as the Agenda for Transformation (AFT), lays emphasis on housing. The government has reinforced the capacity of the National Housing Authority to address housing needs in Liberia. In response, the NHA has developed a national plan (2013-2017) that includes interventions regarding housing development finance, housing development policies and strategies, and town and city planning.  The NHA also has an ambitious housing delivery programme to boost the supply of adequate and affordable houses all over the country. In October 2014, the NHA finalized a plan for the construction of 5 000 houses units worth over US$50 million. The project started in the following cities: Kakata, Tubmanburg and Sanniquellie. Financed by Shelter Afrique, the project also provides US$29.2 million to three commercial banks to give long term loans to eligible Liberians. The project is ongoing but there is little or no data on the deliveries. NHA three bedroom modern house price is US$20 000 with 20 percent down payment, mortgage interest of eight percent over ten years. Other projects include the Ellen Johnson Housing Estate, an estate of 125 housing units, in Marshall and Margibi County programmed to be delivered in 2015 and financed by the government of Liberia. Out of the 125 units of Ellen Johnson Housing estate, 52 units were delivered to their owners in September 2015.

The government is also encouraging the private sectors to participate in financing affordable homes for their employees. Some of the following companies that have initiated partnership with the government to provide affordable homes for their employees are Arcelor Mital, Putu Iron Ore Mining and Golden Veroleum.  The current state of commodity prices is a potential risk for the realisation of the project.

Other private companies are emerging in the housing market as a result of the current reconstruction drive and economic growth of the country, as well as the efforts of the government in promoting investment opportunities. Among the private companies are Global Building Solutions, Real Estate Developers Inc. and Broad Cove Partners. Broad Cove Partners development is called Ecohomes, the first project is an estate on 300 acres parcel of land located on the RIA highway between Monrovia and Robert International Airport featuring renewable energy efficient and construction material produced locally to stimulate employment.

The project is a variety of single family homes and a small number of duplex attached houses with a total of 500 planned houses with modern social and commercial amenities. Broad Cove is the lead investor. Prices are from US$39 900 cash for a one bedroom house and US$64 000 for three bedrooms with the possibility of a mortgage and a monthly payment of US$363 for 10 years for the one bedroom house.  Ecohomes houses are sold to interested clients and Liberians in diaspora are among its clients.   The SINLIB real estate program is a partnership between SINLIB Real Estate Developers Inc. and NHA. The project is called Monrovia House and located near Redlight Market and the new Fendell Campus of the University of Liberia. The target is middle class Liberian. There are 50 houses delivered, one to three bedrooms with modern amenities. The project offers mortgage and the minimum down payment is 30 percent of the house value. These developers are involved in a number of housing developments, including SINLIB Real Estate program and 500 houses, recreational and commercial amenities programmed by Ecohomes.  The homes are delivered with home owner’s certificate.

Property Markets

Liberia is a post conflict country and going through reconstruction and as such adequate houses are in great demand therefore rental prices are increasing and houses for sale are not satisfying the demand. The need to reconstruct the post-conflict Liberia offers opportunities for real estate investments and property markets.  The exorbitant rents demanded by landlords in most cases for inadequate houses are the result of insufficiency supply of housing and the need to fill the gap. The UN Habitat estimated the stock to be about 327 000 urban dwellings in Liberia. Also there is a need to develop modern and adequate houses and other urban infrastructures to meet the demand of business, nongovernmental organization and the Diasporas who are returning home or interested in investing in Liberia.

As in most post conflict countries, data regarding the property market is scarce and when available, does not reflect market reality.  Still, the opportunities are real. The Director of Liberia National Housing Authority asserted that Liberia will construct 512 000 housing units by 2030, the target year for the country to achieve middle income status. This means Liberia needs at least 30 000 new houses every year for the next sixteen years.

According to the World Bank’s 2016 Doing Business Report, Liberia ranks 178 out of 189 economies in terms of ease of registering property.  Ten procedures are required to register property almost doubled the six procedures required, on average, across Sub-Saharan Africa, and the process takes 44 days. Cost of registering property is 13 percent of the cost of value of property.

Housing Policy and Regulations

The legal and regulatory framework governing urban development and specifically housing in general is very meagre and followed by hardly any developers.  The zoning law though enacted since 1947 has not been implemented and the building code has not been used. The president has given instructions to the Ministry of Public works, the ministry in charge to enforce the law.

Also to attain the vision defined in “Liberia Rising 2030” and the Transformation Agenda (AFT), the government of Liberia has recognized the need to ameliorate the country’s housing policy. To meet this end the government instructed the National Housing Authority to develop a national Housing Development Policy and Strategy.  In response, the NHA has produced a draft for new national policy to guide in production of 512 000 housing units between now and 2030. A two day national stakeholder’s colloquium was organized in April 2014 to have a large representation from across Liberia to deliberate on the new policy.  It has not been possible to find information on the outcome.

Housing Sector Opportunities

After recovering from two civil wars and economic instability Liberia is facing two new challenges, the effect of the Ebola crisis and the deficit in revenue due to the fall of international commodity prices.  As a result the country’s economic progress has been affected, but the government’s infrastructure programme and the growth in the service industry are indicators of quick recovery of the economy. The real GDP growth is estimated at 2.8 percent in 2016 from 0.4 percent in 2015. It is also estimated that the trend for global demand of commodities will remain unchanged overtime in spite of the decline in their prices in 2014-2015. There is no doubt that the global demand for natural resources, the different government economic development programmes, the NHA programme for affordable homes, improvement in doing business environment and fiscal incentives to encourage investments and develop the private sector, are all indicators of opportunities in housing development in Liberia. The country is rich in natural resources and has also been intensifying its exploration for offshore oil.  Its geographic and historical context, given its slave history, also makes it a very attractive hub for the tourist industry. Infrastructure development projects, including road construction, port rehabilitation, the repair and expansion of the Mount Coffee Hydropower plant (with a maximum capacity of 80MW), and the construction of new heavy fuel power plants to improve  production of electricity  and boost growth in the manufacturing, and services, are all underway.

The challenges arising from the impact of Ebola crisis and the decline of commodity prices notwithstanding, Liberia’s ambitious programme to attain a middle income status by year 2030 creates the context for very real housing investment opportunities.  The different government development programmes and the efforts of the government in improving business environments, the results of which can be measured by the position of the country as well as the rate of urbanisation (49.7 percent), are indicators of opportunities for the housing finance and housing development sectors.