Housing Finance in Liberia
Overview
Liberia has a growing 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.
In May 2017, the National Housing Authority started a construction project to relocate households from a seaside slum, suffering from severe erosion. The NHA, along with partners, has started clearing 12.5 acres of land for the construction of 108 housing units for residents of West Points that were recently affected by the erosion.
The lowest recorded interest rate on a mortgage in Liberia is eight percent, and requires at least a 20 percent down payment. The cheapest newly built house by a developer recorded by CAHF is US$ 20 000. Cement prices are higher than the continental average, at US$ 10 for a 50-kilogram bag.
Iron ore prices are expected to decrease in 2018. This increases the risk of a possible Arcelor Mittal withdrawal from the country. Arcelor Mittal is one of the largest employers and largest private sector investors in Liberia. Pull-out could
substantially hinder Liberia’s growth for the next couple of years.
With an urbanisation rate of 3.20 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. Organisations such as Liberia Enterprise Development Finance Company (LEDFC) offer mortgage products. The National Housing Authority (NHA), a state-owned institution, was the only institution providing housing at a large scale. In 2014, the NHA finalised a plan for the construction of 5 000 units worth over US$ 50 million. This project is financed by Shelter Afrique, a member of the African Union for Housing Finance, and included US$ 29.2 million to commercial banks to give long-term loans to eligible Liberians. 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 Liberia can afford.
Find out more information on the housing finance sector of Liberia, 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 yearbookLiberia
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 an estimated population of 4.61 million[1] based on the 2008 national population census and an average annual population growth rate of 2.65 percent.[2] Liberia’s urban population peaked in 1991 at 58 percent; by 1996 it had reduced significantly to 43 percent due to the civil war (ibid). After the war, Monrovia experienced a population growth of 8.7 percent in 1997 (ibid), which created a great burden on already damaged infrastructure. Limited post-war resources, coupled with weak regulations, created a fertile ground for the proliferation of slums. Liberia is currently urbanizing at a rate of 3.3 percent and has a total urban population of 2.3 million (ibid).
Liberia is a member state of the Economic Community of West Africa, (ECOWAS). It joined the West African Monetary Zone in 2010 with the intention of joining a common currency, a move which could stabilize the country’s economy and strengthen its monetary policy. Liberia is considered a low income country with a GNI per capita of LD$30,025.5 (us$370) according to The World Bank Atlas Method[3] Its emerging industrial sector makes the country’s economy largely dependent on the main exported natural resources: iron ore, rubber, timber, gold, diamond, coffee, and cocoa. Liberia is one of the poorest countries in the world with a Human Development Index (HDI) score of 0.427, placing it at a ranking of 177 out of 188 countries a ranking that that hasn’t improved over the last two years[4] The Ebola epidemic coupled with the drop in commodity prices has further weakened Liberia’s economy. GDP growth has seen a steady decline from 8.7 percent in 2013 to 1.6 percent in 2016. With the Ebola epidemic largely under control, an increase in consumption levels and signs of recovery from the global commodity crisis, the country’s GDP is expected to improve[5]
Despite its slow economic recovery, there remain challenges that will continue to stress the Liberian government’s revenue. Iron ore prices are expected to continue to decrease for the rest of 2017 and 2018. This increases the risk a possible ArcelorMittal withdrawal from the country. Arcelor Mittal is one of the largest employers and largest private sector investors in Liberia. Pull-out could substantially hinder Liberia’s growth for the next couple of years. Expectations of oil exploitation by mid-2018 have rapidly faded.Liberia is facing lower revenue growth and tighter borrowing limits. This calls for increased efforts to contain the wage bill and align expenditure and borrowing with development priorities in the lead up to the 2017 presidential elections[6]. Decreased revenue growth could further stretch housing affordability, while making access to housing finance more difficult.
The government has been fiscally responsible in the face of a rough external environment. Inflation is within single digits and has decreased from 7 percent in 2015 to 5 percent in 2016. The Liberian government’s attempt to put austerity measures in place was met with mass protests in December 2016 against the rise in goods and services taxes. The IMF has extended its economic programme under the extended credit facility (ECF) and will now overlap with the October 2017 presidential election, a period known for increased expenditure. The extension of the programme will keep certain checks on fiscal policy but checks on structural reforms and expenditure will be lax enough to allow a widening of the deficit to 3.2 percent of the GDP.[7] Though the country is doing better macro economically, it faces a very challenging business environment as illustrated in the World Bank’s Doing Business 2017 report. Liberia ranks 174th out of 189 countries. Challenging areas include – access to affordable and long term credit, registering property and enforcing contracts.
Access to Finance
Liberia’s financial sector in December 2016 included the Central Bank of Liberia (CBL) overseeing nine licenced operating commercial banks. Bank branches increased to 93 from 87 in 2015. There are also 20 registered insurance companies with 31 branches and two brokers, 20 registered microfinance institutions and 16 of them are deposit takers, 400 credit unions, 2 300 village savings and loans associations and nine rural community finance institutions (RCFIs). According to the CBL report of 2016, the banking industry’s balance sheets showed positive growth at the end of November 2016, with total commercial bank assets increasing at a rate of 5.4 percent, 21.2 percent in capital, and 3.8 percent in deposits over the figures recorded for the same period in 2015. The current distribution of overall loans offered by commercial banks in the market is: 39.7 percent for trade, 12.8 percent for construction, 4.4 percent for transportation and storage, 1.1 percent for manufacturing, 4.3 percent for agriculture, 0.4 percent for mining and 38 percent for other activities.[1]
Although the financial sector of Liberia is growing, access to finance is still limited to the urban areas. Access to affordable long term credit continues to be a challenge for the majority of the population. The average interest rate for a personal loan is 13.94 percent, and the average mortgage rate is 14.16 percent.
Access to housing finance is limited and when available is confined to Liberia’s capital city, Monrovia. The mortgage sector in Liberia has historically been weak. 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. Currently, EcoBank and UBA are among the commercial banks that offer mortgage products as well as some microfinance institutions such as Liberia Enterprises Development Finance Company, LEDFC.
Today, the government is encouraging homeownership, as well as the development of a mortgage sector to make houses affordable to low and middle income earners. The first subsidized formal mortgage programme for post-conflict Liberia was launched in 2013 by The Liberian Bank for Development and Investment (LBDI), financed with LD$811 million (US$10 million) from the 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 the National Housing Authority, LBDI then sold the units to 89 beneficiaries. The Mortgage Credit stimulus initiative also allowed LBDI to offer about 100 mortgages over 10 years. The LBDI loans are offered to households purchasing NHA housing offered at LD$1.6 million (US$20 000).
Beyond LBDI’s subsidized rates, longer-term financing will be required in order to bridge the affordability gap. An Employer-Assisted Housing Feasibility study determined that mortgage penetration could be deepened to reach 7,000 formally employed workers should mortgage financing be available with 25 year terms[3].
Microfinance and informal finance play an important role in the economy y. Providers of microfinance include commercial banks, private microfinance institutions, NGOs, credit unions, and other informal providers such as “susu”. Susus are informal savings clubs, where a group of people get together and contribute an equal amount of money into a fund on a regular basis. The total pool is transferred over to members on a rotating basis. Susus generally do not charge interest. There are also 20 microfinance institutions operating in Liberia. The Liberia Enterprises Development Finance Company (LEDFC) continues to lead in the sector.
Liberia ranked 97th out of 189 economies in access to credit according to the World Bank Doing Business report 2016, compared to 101 in 2017. There were no improvements in legal rights nor was there any information on the depth of credit. There are still no credit bureaus or deeds registries in the country. The change in rank seems to be a result of Liberia’s position in relation to other developing economies in the world.
Housing Affordability
Liberia is considered a low income country and has a strategic goal to become a middle income country by 2030 through its Poverty Reduction Strategy. Nevertheless, it has a long way to go with 68.6 percent of its population living under the international poverty line and a GNI of per capita of LD$ 30025.5 (US$370). Althoughthe Ebola crisis is mostly under control, it had a tremendous negative impact on productivity which was worsened by a slump in international commodity prices. According to the 2014 Household Income and Expenditure Survey (HIES), 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 rural areas. Unemployment increased to 4.2 percent nationally in 2015[1]
Like many African economies, most of the formal workforce is in the public sector, while the highest salaries are among the few private sector workers. Most public sector employees make under LD$16,230 (US$200) a month. A high level of income inequality persists in spite of the economic growth with 10 percent of paid employees receiving 72 percent of total cash earnings. There is also income inequality between the rural and the urban populations, and inequalities between the counties as illustrated in the 2010 Labour Force Survey (LFS), all statistics related to the LFS remain the same as of 2010 since detailed survey has been completed since. The monthly average wage of approximately LD$4,057 (US$50) in urban areas was 40 percent higher than that in rural areas. According to the LFS, the roughly 1.1 million employed persons aged 15 and over are approximately equally split between rural and urban areas. The majority of the population is self-employed, and employment vulnerability[2] has increased to 78.7 percent (United Nations Development Programme, 2016). In 2015, the national legislature passed the bill for minimum wage introduced in 2010. The new minimum wage is LD$486.9 (US$6) a day for unskilled labour. The enforcement of the Decent Work Act took effect on March 1, 2016.
Access to mortgage finance is extremely limited. High levels of poverty and income informality, combined with high interest rates (14.5 percent) and short tenors (10 years maximum), make housing finance inaccessible to the majority of the population. Fragile land tenure and the falsification of deeds further make issuing mortgages difficult.
A survey led by the Affordable Housing Institute in 2016 among major employers in the formal economy (both public and private sector) showed that only the top 7.5 percent of employees could access a homes at current rates. Affordability could be further expanded with the deployment of employer-assisted housing schemes to another 13 percent of the population. The remaining 78 percent could access housing microfinance products.
Because home ownership is inaccessible to most, rental is a popular option. Rental homes are provided primarily by informal housing promoters. Rents vary according to the location and the quality of homes. They range from LD$2,028.75 (US$25) (for a basic room with a shared bathroom) to LD$137,955 (US$1 700) per month for houses in Monrovia for higher income households and expatriates. Less than one percent of the population has access to government subsidized homes managed by NHA. The majority of the population in urban areas live in slums or in multi occupied houses where rents are subject to fluctuations according to demand.
Housing Supply
Housing stock in Liberia can be classified into 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 areas, and houses built with cement, concrete and stone, and corrugated iron for the ceiling in urban areas, particularly in Monrovia. The majority of houses are self-built and auto financed. According to the 2014 Household Income and Expenditure Survey, there were 938 383 estimated households in Liberia, 60 percent in urban areas, and 40 percent 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 households 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 contributed substantially to the rapid spread of the Ebola virus.
The National Housing Authority, a state-owned institution, is the only institution to provide housing at a relatively large scale although production is still far below what 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; the investment was estimated at LD$ 3,213 million (US$39.6 million). Though delivery is slow and developments are small, a few recent successes should be noted. In February 2017, 70 affordable housing units, constituting Phase III of the NASSCORP Village Housing Estate, were inaugurated in Brewerville City in Montserrado County. NASSCORP spent LD$446.3 million (US$5 500 000) on the construction of the housing units and said that the proceeds would be used to construct more units across the country. Each unit is sold for LD$1.6 million (US$20 000) and is combined with a government subsidized mortgage of 7 percent over 10 years. Phase I of the same project constituted 58 units, Phase II constituted 35 units and now Phase III constitutes 70 units totaling 163 units constructed by NHA over the last few years. Phase IV, which will constitute 53 housing units is expected to be constructed within the next year[1]
The houses are two and three bedrooms units and cost LD$1.2 million (US$15 000) and LD$1.6 million (US$20 000) respectively. Affordability is further increased by linking the homes to the LBDI mortgage scheme which offers a fixed interest rate of eight percent per annum and repayment between 5 and 10 years. A down payment of 30 percent is required.
A brief affordability analysis of the scheme is presented below. The minimum monthly income required to buy a home is LD$314,324 (US$386) a month, which remains out of reach for the majority of the population.
In May 2017, the National Housing Authority started a construction project to relocate households from a seaside slum, suffering from severe erosion. The NHA, along with partners, has started clearing 12.5 acres of land for the construction of 108 housing units for residents of West Points that were recently affected by the erosion[2]
Property Markets
As in most post conflict countries, data regarding the property market is scarce and when available, does not reflect market reality. According to the World Bank’s 2017 Doing Business Report, Liberia ranks 179 out of 189 economies in terms of ease of registering property. 10 procedures are required to register property, almost double the six procedures required, on average, across Sub-Saharan Africa, and the process takes 44 days. The cost of registering property is 13 percent of the value of the property.[1]
Housing Policy and Regulations
The legal and regulatory framework governing urban development and specifically housing is very meagre and is generally not followed by developers. The zoning law though enacted in 1947 has not been implemented and the building code has not been used.
Also to attain the vision defined in “Liberia Rising 2030” and the Transformation Agenda (AFT), the government of Liberia has recognized the need to improve 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 of a new national policy to guide the 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. In July 2016, the Ministry of Internal Affairs (MIA) together with UN-Habitat and the Cities Alliance started the National Urban Policy. The policy is set to provide a coordinating framework to deal with urban development, reduce slum formations, access to land, basic services and infrastructure. The government’s agenda is being implemented under challenging conditions that poses significant risks for achieving such an ambitious agenda, most of the projects have been directed towards infrastructure and health.[1]
Housing Sector Opportunities
After recovering from two civil wars, economic instability, and the Ebola crisis, economic progress has been slow, but the government’s infrastructure programme and the growth in the service industry are indicators of economic recovery. The real GDP growth was 2.8 percent in 2016, up from 0.4 percent in 2015. It is also estimated that the trend of global demand for commodities will remain unchanged over time 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.
Liberia’s housing sector offers interested investors major opportunities mainly due to the enabling conditions and relatively unpenetrated market. There exists significant effective demand that is not being met by the current marketplace because it is not financeable as a classical for-sale turnkey-offtake development. Furthermore, large stable employers seem to be interested in facilitating quality housing for their workers because a better-housed workforce is more productive, more loyal, and more profitable, all of which strengthens employer corporate profitability[1]. Housing demand is geographically concentrated around cities and major employers, most of whom are located in metropolitan urban areas. Finally the government seems to be pro-housing and interested in facilitating delivery and financing.
