Libya 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 Libya is six percent, as of September 2016. The cheapest newly built house by a developer recorded by CAHF is US$ 50 000, which is for a 100 square metre unit. Cement prices are higher than the continental average, at US$ 12 for a 50-kilogram bag.
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. The housing market will continue to be constrained until political and economic stability has returned to post-revolution Libya. Only then can an enabled housing market increasingly provide housing that the average household in Libya can afford.
Find out more information on the housing finance sector of Libya, including key stakeholders, important policies and housing affordability:
- 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 2016 edition, which has up-to-date profiles for 51 African countries.Download yearbook
In 2016, the political and security situation has remained unstable in post-revolution Libya. After the fall of Gaddafi’s authoritarian regime in October 2011, the country has struggled to put in place a stable government resulting in ongoing unrest and civil war. In 2016, Libya has been a key springboard for migrants heading for Europe and there has been continued instability caused by Islamist militancy, competing parliaments and continued low oil revenues.
Libya has a population of 6.4 million people, 90% of whom live in the coastal 10% of the land area. The GDP contracted by six percent in 2015, following on from a fall of 23.5 percent the year prior, to stand at US$29.15 billion. Prior to the national unrest, Libya was considered as an upper-middle income country with the highest GDP in Africa, yet there is limited economic and political freedom. The 2016 World Bank Doing Business report ranked Libya as 188th out of 189 countries for ease of doing business.
The General National Congress (GNC) replaced the National Transition Council in August 2012. In 2014, a new parliament was voted into power, known as the Council of Representatives (CoR), which relocated to the eastern city of Tobruk, leaving Tripoli controlled by powerful militia groups. These militia have taken advantage of the power vacuum caused by the outgoing GNC and the new parliament. Late in 2015, the UN brokered an agreement to form a new “unity” government, the Presidency Council, headed by the unity Prime Minister Fayez Sarraj, yet both Tripoli and Tobruk administrations have been reluctant to acknowledge its authority. Mr. Sarraj set up a headquarters in Tripoli in March 2016 in a heavily-guarded naval base. This new government faces opposition from two rival governments and a number of militias. As a result, public policy functions, such as government interventions to support affordable housing delivery, have effectively stalled and budgets have not been approved for ministries or government programmes.
Since the revolution, oil revenues have decreased by 90 percent, there are frequent electric outages and little formal business activity. Some sources claim that nearly a third of the country’s population has fled to Tunisia as refugees. Key challenges that Libya faces include restoring the rule of law, putting in place a functional government, reducing dependency on the petroleum industry, and reaching consensus on strategies for reconstruction and long-term development.
Access to Finance
Development of Libya’s financial sector has stagnated due to Libya’s instability, high inflation and a sustained liquidity crisis. The Council of Representatives established a second central bank operating in eastern Libya, which printed its own Libyan dinars due to liquidity crisis, injecting an estimated four billion illegitimate Libyan dinars into the economy.
In the past, Libyan banks were highly liquid and experienced high levels of NPLs due to limited credit information systems and poor banking supervision which restricted the availability of housing finance. Official figures of NPLs are largely unreliable, last reported at ranging from 17.2 to 35.4 percent over the past decade, yet it is estimated that they have reached a level where most of Libya’s public institutions would be considered technically insolvent without central government funds. As a result, Libya remains essentially a cash economy, where transactions largely operate outside of the formal banking sector.
For years, the banking sector in Libya has been very isolated. Early in 1970, when Gaddafi came to power, all the banks were nationalized, and international sanctions through the 1990s limited foreign investment in Libya. Libya’s banking sector was dominated by five state-owned banks (which control around 85 percent of banking assets), 16 commercial banks, four specialized credit institutions, five insurance companies and a recently established stock market.
A process of privatization and banking reform commenced in 2007, with some foreign banks authorized to acquire shares in public banks, the legalization of joint ventures between foreigners and local investors in 2010 and a rise of interest in seeking new banking licenses.
Bank lending for housing finance is restricted due to high collateral requirements, the lack of a Libyan land registry or credit bureau and inadequate central bank regulation. Libya has a very low loan-to-deposit ratio, with the most recent data reporting 23.4 percent, as of March 2013, compared to an average of 80 percent for the region. The Savings and Real Estate Investment Bank would grant subsidized housing loans to Libyan citizens at zero interest rate and tenures of up to 30 years. Yet, there was a lack of independent oversight, which allowed mismanagement and many Libyans view these loans as grants, so there are very high default rates. The bank’s poor targeting of home loans and lack of enforcement of repayments distort the housing finance market and restrict the development of a functioning mortgage system.
Domestic credit to the private sector has risen to 35.7 percent of GDP in 2015, largely due to falling GDP, rather than more lending. The ratio of housing finance to GDP ratio is estimated to have remained small, at below one percent. Unless allocated a loan through the government program, for which households who do not yet own a home are qualified, it is particularly difficult for low-income or small borrowers to access finance for housing.
In 2013, the government passed a law to enforce a strict Islamic Banking regime and ban interest in financial transactions starting in January 2015, being the third Middle Eastern country, behind Iran and Sudan, to ban non-Sharia compliant banking. Nevertheless, lack of government control of the country has left enforcement of this policy in limbo and many commercial banks have ceased lending, effectively paralyzing the banking sector.
In terms of access to affordable housing, the African Economic Report of 2016 reported that 65 percent of Libyans were dissatisfied with housing delivery, the lowest rate in the continent. At least 70 percent of the Libyan working population is estimated to be employed by the public sector, while a mere four percent of Libyans are working in the private sector. GDP per capita has fallen substantially, to an estimated US$ 4 600 in 2015, compared to US$12 200 in 2013, which has had a large impact on affordability. Rent in a one bedroom apartment in central Tripoli costs US$ 400- US$ 600 per month or US$ 474, on average. A one bedroom is estimated at US$ 376 outside the city centre, meanwhile, the price for a 3 bedroom unit averages US$ 2 205 in the city centre and US$ 1 123 outside the city centre. Although, the rental costs have reduced in recent years, the cost of housing is still well beyond the affordability of an average household. The house price to income ratio is above five in Tripoli, which makes affordability difficult for low-income groups.
Housing is very difficult to access on the private market, due to the small amount of private land available for purchase and development, and the small secondary market in formal housing resale. As a result, most households in the past would sit on waiting lists for years until they are able to access a subsidized house from the Libyan government, often living in poorly serviced informal neighborhood or overcrowded units housing multiple families.
In 2007, a minimum wage was established at US$200 per month for an individual worker, yet the enforcement of this minimum is not clear. Overall unemployment was estimated at 33 percent by the World Bank in 2012 and even higher for youth, up to 50 percent, with the majority of unemployed holding university degrees. During the civil unrest following the revolution, unemployment is expected to have continued to rise and the earning capacity of residents has fallen due to disruptions in business. At the same time, prices have increased, which has negatively affected the purchasing power of the lowest-income and least resilient households.
In the past, public sector workers were reported to receive a monthly housing allowance that ranges from 12 to 25 percent of their salary, yet state subsidy systems have ceased operating effectively, leaving a large section of the population unserved. UN-Habitat estimated in 2001 that 35 percent of the urban population in Libya were living in slums, figures that have been confirmed by various relief agencies working in the country. Meanwhile, in 2016, the UN and humanitarian partners estimated that 4.35 million people had been affected or displaced by the conflict.
Housing supply in Libya has historically been the main responsibility of the government with the government providing free education, transport, healthcare and public housing – offered to households with zero percent interest loans – under Gaddafi’s regime. From 1989 to 1996, around 75 percent of housing was constructed by the public sector. From 1997 onwards, the government has continued to play an instrumental role in housing supply. Activity in the housing construction and real estate sector has been halted by the unrest. In 2014, the housing shortage was estimated at 350 000, yet there has been a lot of destruction in cities and displacement of people, which will exacerbate housing shortage estimates once peace is restored.
The Housing and Infrastructure Board (HIB) of the Ministry of Housing and Utilities (MHU) was traditionally responsible for the implementation of public works contracts. HIB works on infrastructure and public building projects, along with managing the state’s residential projects on a turn-key basis, contracting with both national and multinational firms.
At its creation in 2007, HIB was tasked with building 200 000 units. Official figures from the MHU in 2012 indicated that 134 341 housing units were under construction, 94 500 were in their bidding phase and 11 121 had been completed. The entire program has been on hold since , with an estimated US$11 billion worth of uncompleted housing projects under construction. EU-imposed sanctions on HIB, that had put restrictive measures in place since 2011, were lifted in January 2014, yet due to the poor security situation, the majority of HIB’s projects have remained unfinished.
Since 2011, many foreign and local investors involved in housing construction in Libya have been forced to abandon or face interruptions in their work. Efforts to recommence have been disrupted by continued insecurity, arguments over payment for delays, and increased costs in the intervening period. This had resulted in very limited new supply and an increasing housing backlog. In December 2013, AECOM announced a partnership with HIB worth over US$205 million for 25 months, yet the programme has not been implemented due to the unstable security situation. Another international firm, Egypt’s Al Abd halted work on housing projects worth US$102 million in 2015 over ongoing security tensions.
The property market in Libya has been heavily influenced by decades of Gaddafi’s system, which developed a system of patronage that has had a serious impact on land availability and exacerbated conflicts related to property ownership following the revolution. There are no procedures in place for obtaining a construction permit, registering property or resolving insolvency, giving Libya a ranking of 189th, or last, in those sections of the 2016 IFC Doing Business report, and a ranking of 188th overall.
Large plots of land previously owned by Italian farmers, about 38 000 hectares, were confiscated and redistributed among Libyans after the Coup d’Etat in 1969. These plots have been further fragmented over time due to the traditional inheritance system guaranteeing each son a part of their father’s land. In 1971, the state confirmed all confiscated land as state land and was involved in further confiscations of uncultivated land and reallocation to citizens in accordance with what was considered acceptable to fulfill their needs. As a result, it is very difficult to determine ownership.
In the years before the revolution, Libya attempted to open up its real estate sector and enabled foreign investment in real estate, known as Decree 21 in 2006. This decree allowed the HIB to contract private and foreign developers for property development. Although foreigners can now buy real estate, a lack of clarity on property rights prevented much uptake, and efforts to open the property and real estate markets have been significantly set back due to the sustained insecurity following the 2011 revolution, which have scared away potential investors.
Following the revolution, property markets have been in disarray as many former owners of confiscated land returned to lobby for reform of the property laws and compensation. Draft bills on property ownership were brought before parliament, however nothing has been passed due to the political fragmentation and controversy of such reforms. The situation is further complicated by the fact that many properties have been resold since confiscation and property registration papers were destroyed in the early 1980s. It is estimated that up to three-quarters of homes in Tripoli could have been formerly confiscated properties.
Until the ambiguity of property rights is resolved, the banks will remain reluctant to register property as collateral. The property market is further constrained due to difficulties in the ease of doing business and because corruption remains so high in Libya. Transparency International’s 2015 Corruption Perceptions Index rated Libya at 161st in the world, out of 167 countries.
Housing Policy and Regulations
Throughout the dictatorship of Gaddafi, policies on land and housing were used to establish control over the population and to build a large-scale system of patronage. In 1978, Gaddafi declared that property ownership was in the public interest in his manifesto, known as the Green Book. Private property was considered acceptable as long as it was not “exploitative”, and Law 4 restricted the right of ownership to one house, beyond which property was confiscated. In 1986, land ownership was abolished altogether. This was promoted by the government as a means of redistribution, but resulted in forcible confiscation of private property and reallocation using means that lacked transparency. There have been efforts to revoke these laws, yet few reforms have taken place in the legal vacuum following the end of the regime.
As part of Libya’s “opening up” policy, aimed at reintegrating the country into the international economy, Gaddafi’s son, Saif al-Islam, established a property compensation committee in 2007 to consider claims on previously expropriated property. Yet, many former property owners fled Libya, in the early 1970s, and the subsequent exchange of property, along with Gaddafi’s orders to destroy the land registry in 1982, makes it very difficult to verify ownership claims. In the aftermath of the revolution, some of these former land-owners returned to reclaim their land, with some even hiring militias for the purpose.
Due to the previous regime’s ideology, Libya’s policies have been characterized by large-scale subsidies. The subsidy system has not been transparent, which makes it difficult to determine either the effectiveness or cost of the state-provision of housing. Public expenditure on housing increased in the decade prior to the revolution. In 2007, it was reported to have reached as much as 30 percent of overall public investment, though no figures are available for more recent years. Overwhelmingly, subsidies seem to have been misallocated and used for political reasons. Following the revolution, the government started to raise salaries and distribute a monthly allowance of US$400 per household (a total of US$480 million), in an attempt to calm the protests in the country. The salaries of public workers and allowances to the low-income are still being paid on a monthly basis, yet the targeting and expenditures are unclear.
Gaddafi’s government did carry out mass construction of housing to ensure an adequate house for all Libyans. These units were sold to eligible households (those that had not owned a home before), who were able to purchase the units with a zero interest long-term loans from government banks. The high rate of default and concessionary nature of these loans has restricted the growth of housing finance sector.
The post-revolutionary policy direction on housing is still in a state of uncertainty. Once rule of law is restored, there will need to be a significant effort toward reconstruction in the urban centres, in addition to putting in place a clear system for the registration of property rights and construction permits to allow and incentivise private sector participation. It is likely that any new housing policy would continue to rely upon heavy subsidies once oil revenues increases, where the government engages private companies to build public housing on a turnkey basis, which are then sold on to households with concessionary housing finance provided through the public banks. This may be used to stimulate the reconstruction efforts and to attract foreign investors back into Libya.
Housing Sector Opportunities
It was estimated by the World Bank that restoring Libya’s infrastructure will cost US$ 200 billion over the next 10 years. A peace settlement in Libya could lead to a rebound in oil output and exports, which would improve the fiscal deficit and current account imbalances, and allow Libya to address housing shortages and economic development.
Nevertheless, continued instability means that the short-term outlook for Libya is continued volatility. In 2015, Libya experienced the largest decline in peacefulness scores worldwide. Foreign reserves are expected to decrease further through the rest of the year, as oil production remains low, at an average production of 400 000 barrels per day, compared to 1.8 million barrels per day in 2010. The establishment of the Presidency Council, as the UN-backed unity government was a positive step, though more will need to be done to uphold their legitimacy and overcome militias that control parts of the country. The UN Support Mission in Libya (UNSMIL) continues to have a major role in facilitating this peace process.
Addressing the chronic housing shortage and providing shelter to IDPs can be expected to become a primary priority of the government and population as the terms of the peace agreement are settled and once security returns. Once the treasury resumes normal functions, the Libyan government can also be expected to mobilize substantial resources toward reconstruction of infrastructure, which may provide opportunity for future investors.