Malawi 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 Malawi is 34 percent, as of September 2016, and requires at least a 20 percent down payment. And, the average mortgage size in Malawi is US$ 17 632. The cheapest newly built house by a developer recorded by CAHF is US$ 21 097, which is for a 180 square metre unit. Cement prices are slightly lower than the continental average, at US$ 9.14 for a 50-kilogram bag.
With an urbanisation rate of 4.12 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 as the current average microloan size is only US$ 703s. The Decent and Affordable Housing Subsidy Program (DAHSP) was launched by government in 2014. By March 2016, the project had disbursed US$ 7.9 million across the country for the first phase, which saw 12 508 houses improved. 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 Malawi can afford.
Find out more information on the housing finance sector of Malawi, 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
Malawi is a small, landlocked country with an estimated population of 17.66 million The country’s population is expansively young with 66.6 percent failing within the UN-defined youth bracket of of 0-24 years. Lilongwe, Blantyre, Mzuzu and Zomba are the main urban areas, with a collective annual growth rate of 3.99 percent, and 14.9 percent of Malawi’s population residing in these areas.
Malawi ranks amongst world’s poorest countries, and perfoms low on various macro-economic indicators. It trails on position 170 out of 187 countries on the 2016 UNDP’s Human Development Index (HDI). The HDI report indicates that 56.1% of Malawians are multidimensionally poor while 27.2% live near multi-dimensional poverty.
In 2016, the country’s real GDP grew by 2.5 percent as the economy recovered from two consecutive years of weather shocks related to the El-Nino climate cycle. In 2016, its gross domestic product (GDP) per capita was US$300.79, and its gross national income (GNI) per capita was US$320. Inflation stayed flat at an average of 21.7 percent by December 2016.
In 2015, the contruction sector grew by 3.4 percent and was estimated to grow by 2.1 percent in 2016. The sector accounted for 2.8 percent of the country’s annual GDP in 2015; it was projected to account for 2.7 percent in 2016. The construction sector is primarily and largely dependent on government and donor-funded projects which are on the decline. The obvious constraints include high lending rates and built-up of non-repayments by Government.
Access to Finance
The quantity of banking instititions has been declining in Malawi for the last three years. This follows the acquisition of state-owned Malawi Savings Bank (MSB) by FDH Holdings Limited in 2015; at almost the same period, National Bank of Malawi acquired 97.05 shareholdings in IndeBank Limited with remaining shares held by IndeBank staff; and lately, First Merchant Bank (FMB) has acquired majority shares in Opportunity Bank of Malawi. The Reserve Bank of Malawi registry book indicates that there are 12 banks and one Leasing and Finance Company in the country.
The banking sector constitutes nearly 80 percent of financial sector assets but penetration of formal banking and financial services remains low. A 2016 Brookings Financial and Digital Inclusion Project (FDIP) ranks Malawi 21 out of 29 countries on access to and usage of affordable financial services. A 2014 FinScope Study pegged financial inclusion at 54 percent, with only 22 percent of Malawians having bank accounts. Additionally, a 2015 Findex study showed that 16.1 percent of adults held a bank account; six percent borrowed from a bank; and six percent had an outstanding mortgage. Access to credit through formal channels is beset by lack of collateral, high lending rates, and low levels of financial literacy.
A 2o17 Reserve Bank of Malawi Financial Stability report shows that the banking sector’s total assets, which grew from US$ 158 827 586.21 (K1 151.5 billion) to US$167 917 241.38 (K1 217.4 billion) between September 2016 and March 2017, is dominated by the loan book. The report further indicates that the non-performing loans to gross loans and leases ratio improved to 15.1 percent in the same period. However, this is still way above the regulatory benchmark of 5.0 percent. In 2016, real estate accounted for 3.42 of the asset composition; and in 0.9 percent of the loan book.
Few banks offer mortgages in Malawi, namely National Bank of Malawi, Standard Bank, FDH Bank and New Building Society (NBS). However, overall, access to mortgage is limited by strict eligibility criteria including a minimum 10 percent cash deposit, a minimum of six months history with the bank and three months of payslips.
In the past twelve months, Reserve Bank of Malawi (RSB) has continuously reduced the base lending rate, currrently pegged at 18 percent, reflecting a bounce in macro-economic performance. Main mortgage financiers have responded to the policy rate by equally slashing their lending interest rates: FDH, CDH Investment, and NBM charge 27.5 percent; and 27 percent by Standard Bank. NBS, the largest mortgage provider, indicates that it adds a maximum of 7 percent on the base lending rate. NBS’s maximum term is 15 years with a maximum loan-to-value ratio of 80 percent to 90 percent.
The microfinance sector also offers a broad range of loans that provides some leeway to housing finance. Between March 2016 and September 2017, the microfinance sector total assets increased from US$3 972 413.79 (K28.8 billion) to US$4 827 586.21 (K35.0 billion), representing 21.5 percent increase. Within the same period, the loan portfolio for the sector increased from US$27 862 068.97 (K20.2 billion) to US$29 655 172.41 (K21.5 billion), accounting for 61.3 percent of total assets. However, a 2017 Reserve Bank of Malawi Financial Stability report indicates that deposit taking microfinance subsector posted a loss of US$36 000 (K26.1 million) in March 2017 from a profit of US$9 655.17 (K7.1 million) in March 2016. This descrease cascaded into drop in Return on Assets (ROA) and ROE (Return on Equity) from 2.0 percent and 9.0 percent in September 2016 to -0.2 and -1.2 percent, respectively, in March 2017. The report attributes the decrease in profitability to an increase in operating expenses.
Main MFIs that offer short-term housing loans are: Select Financial Services, Epik Finance, and Greenroot Microfinance. Epik Finance, for example, offers incremental building loans to low and middle income earners; the maximum loan value is US$900 (MK500, 000), repayable over 18 months. An innovative programme within the sector involves the partnership between Habitat for Humanity (HfH) and two housing microfinance lenders: Opportunity Bank of Malawi (OBM) and Select Financial Services. Through this partnership, low income households access small habitat loans from the microlenders and HfH provide them Construction Technical Assistance.(CTA).
Malawi’s modest pensions sector is mainly invested in equities, Treasury bills and property development; with only a few in housing finance lending. Access to housing finance is further restricted by limited tenure security and lack of a national identification system. However, the National Registration Bureau was constituted in 2010 following the enactment of the National Registration Bureau Act. Currently, NRB is undertaking mass registration exercise of all citizens above 16 years.
Most banks have excess liquidity, their funds consisting primarily of a combination of equity plus retail funds from savers. Some have external lines of credit, but only for special schemes such as SME lending or access to foreign exchange. The main source of funds for mortgages remains retail funds, with most surplus funds being invested in Treasury bills.
The legal framework for credit information sharing was established following the enactment of the Credit Reference Bureau (CRB) Act in 2010, together with overarching financial sector legislation and the Financial Services Act of the same year. As a result, two credit reference bureaus were licensed, namely Credit Data CRB and CRB Africa.
In 2013, government passed the Personal Properties Security Bill that allows borrowers to use, and lending institutions to accept moveable assets as collateral or security as one way of easing access to finance. The 2016 World Bank’s Doing Business Report ranks Malawi 150th of 189 countries (compared to 160th place in 2016 and 164 in 2015)., The 2017 Internation Property Rights Index ranks Malawi 90th on ease of registering property, a sharp increase from 113 in 2016. Registering land is a basically four-stage process: consent from governement or freehold owner; production of a tax clearance certificate from Malawi Revenue Authority (MRA); insurance of the rates clearance certifcate from city/town council (upon payment of city/town rates); production of the execution agreement (together with a valuation report) which is used for calculating tax by MRA.
Land in Malawi is managed by either: Ministry of Lands, Housing, and Urban Development; Malawi Housing Corporation; and City Councils, traditional leaders, and private entities. Most households live in unplanned settlements using customary practices due to the scarcity of serviced land for low income housing. LafargeHolcim has created its first joint venture dedicated to affordable housing called 14Trees, together with CDC, the UK’s development finance institution, with the aim to scale up affordable housing solutions across Africa starting in Malawi with DURABRIC – the innovative low-carbon construction alternative to burnt clay bricks.
According to a 2015 Oxfarm report Dangerous Divide: State of Inequality in Malawi, the richest 10 percent of Malawians spend 34 times more that the poorest 10 percent. In July 2017, the Malawi Government raised minimum wage from MK787.70 (US$1.07) to MK962.00 (US$1.3). This means low income earners working for 30 days earn at least MK28,860 (US$39.5). The last Malawi Labour Force Survey by the Nataional Statistical Office (NSO) indciated that 61% of paid employees have earnigns which are equal to or less than two-thirds of median earnings, which signposts high levels of underemployment. Low income levels constrain access to, and affordability of mortgages; less than one percent of Malawians qualify for a mortgage.
Prices of a newly built entry-level house, built by a developer, average MK8.5 million (US$11643). Since only 30 percent of a household’s income is allowed towards servicing of loans or mortgage payments, a borrower needs to earn at least MK700,000 (US$978.9) to afford the house. Thus even the cheapest house is only accessible to highest income earners.. All mortgage lenders target salaried individuals and those operating registered businesses with Business Accounts. NBS provides a facility of 80 percent of the collateral value; National Bank provides a mortgage as small as MK500 000 (US$684.9); and the least mortgage value at Standard Bank is approximately MK4 million (US$5479.80). Repayment periods range between 15 and 20 years. The lending bank possesses the property until the loan is settled.
Ninety percent of houses in Malawi are built, incrementally, by owners through savings. A 2014 Integrated Household Panel Survey (IHPS) highlighted a drop in the percentage of traditional houses from 47.6 percent in 2010 to 41.4 percent in 2013, semi-permanent housing increased from 24.2 to 26.4, and permanent housing increased by 4.3 percent over the same period. The average household size increased slightly from 4.7 persons in 2010 to 4.9 persons in 2013. The IHPS report notes that 78 percent of households live in their own houses, while 12 percent rent; 46 percent of urban dwellers rent homes compared to five percent in rural areas.
Malawi’s high urbanisation rate has led to increased demand for decent housing in urban areas with an annual demand of 21 000 new units. This demand far outpaces the supply capacity of developers.
Housing developers in Malawi include public and private providers. Parastatal Malawi Housing Corporation (MCH) is the main public provider that builds and rents out relatively cheaper houses targeting tripartite of low, middle and high income urban households. MCH delivers on its mandate through construction of conventional houses and development of ‘traditional housing areas’ for low income groups. The MHC is currnetly facing resistance with its plans to increase rentals by 100 percent. As it stands, the cheapest MCH house, a bedsitter, attracts a monthly rentals of MK9 000 (US$12.30 while the most expensive is rented for MK300 000 (US$410.95. Occasionally, the Corporation puts some houses for sell and the purchase prices is determined through a due valuation process where factors like house size, recentness, location, and house condition are considered. Existing tenants are given first option to purchase the houses.
MCH owns approximately 7 000 housing units countrywide. A plan to build 4 200 additional houses and develop 5 800 plots between 2007 and 2011 did not reach fruition, with only 481 houses completed. The institution has been harbouring plans to construct 15 000 houses with 2 500 expected to start in the next financial year. However, similar previous plans have not gained ground. In the spring of 2015, MHC’s CEO announced that the institution was planning to construct 25 000 houses in the country’s three major cities to cater for the national housing demand. However, as of June 2016, the Corporation had only started constructing 17 houses. Yet, over 60 000 people are on MHC’s waiting list.
Historically, rentals for most of MHC’s residential properties have not kept pace with increases in cost. This has limited the Corporation’s capacity to scale and sustain services. Since 2011, MCH rentals have increased by an average 12.3 percent but each adjustment has been met with resistance from tenants who argue that MHC does not fully meet its maintenance obligations. In 2014, the Ministry of Lands, Housing, and Urban Development indicated that they would be reviewing the Malawi Housing Corporation Act in order to allow it to build houses for profit, a path the existing Act prohibits.
The list of private providers include, inter alia, Press Properties Limited, Kanengo Northgate, NICO Assets, Knight Frank, Enterprise Development Holdings, and FISD Limited.
Since 2013, Enterprise Development Holdings (EDH), a social enterprise formed from Centre for Community Organisation and Development (CCODE), has been working with UK-based Real Equity for All (Reall) supporting poor urban communities to plan and implement local solutions to challenges of inadequate land, housing and infrastructure. As of 2015, EDH had successfully negotiated for more than 2 000 plots of land and constructed over 780 low cost rental houses in Lilongwe and Blantyre. The cheapest house, which is a bedsitter, is rented for MK32 500 (US$44.52) a month, MK45 500 (US$62.33) for a one-bedroom, MK57 500 (US$78.77) for a two-bedroom, and MK70 000 (US$95.89 for a three-bedroom house. However, a big share of these houses have been sold out to individuals.
Furthermore, the Cities Alliance, a global partnership for urban poverty reduction, initiated a slum upgrading programme in partnership with UN-Habitat in January 2011. The project aimed to formulate city development strategies and a slum upgrading programme covering cities of Blantyre, Lilongwe, Mzuzu and Zomba.
Low-income earners, especially those living in peri-urban and rural communities, receive financial and technical assistance from NGOs such as CCODE and HfH, as well as government through the Decent and Affordable Housing Subsidy Program (DAHSP). Previously, both CCODE and HfH provided housing loans to low-income households, but they both changed their approaches to only provide construction training assistance.
Habitat for Humanity, which has been operational since 1986, has built over 3 000 low-cost houses and latrines in Malawi. In 2005, HfH launched the ‘building in stages’ programme, an incremental building scheme which allows low income families to improve their living conditions over time, based on the availability of their resources. By December 2012, 250 homes were completed in Lilongwe, helping to secure simple, decent housing for over 700 people previously living in the city’s Mgona, Mtsiriza and Mtandire slums.
In 2014, government commenced the Decent and Affordable Housing Program (DASHP) to provide shelter needs to the poor rural households. The project targets 80 beneficiaries in each electoral constituency. Five percent of the targeted beneficiaries, constituting the poorest, are provided with full houses while the rests of the beneficiaries are offered 50% subsidy on iron sheets and cement. By March 2017, 9 000 houses had been constructed the project had disbursed MK5.8 billion across the country for the first phase, which saw 12 508 houses improved. Also in 2014, Lafarge launched a social enterprise housing scheme aimed at providing low income families with ‘economical but decent houses’. The scheme, called Maziko Houses, provides pre-designed houses (1-3 bedrooms) which can be built for 20-40 percent cheaper and significantly quicker than conventional houses. Lafarge is offering two financing approaches, one for self-financed construction and one through a loan facilitated by the company in partnership with a MFI.
As property consultants Knight Frank notes, the residential market in Malawi is still suffering following devaluation and floatation of the national currency which has led to decline in both the rental and sales markets. For example, the now defunct integrated housing estate in Lilongwe Area 49 (meant to be implemented by MHC and Chinese Henan Guogi Development Company) suffered from dollarisation of the cost which resulted in doubling of Bills of Quantities (due to Kwacha depreciation) and therefore, pricing out potential buyers. As a result, most of the houses are now being rented out.
In Lilongwe and Blantyre the market continues to benefit from the large expatriate community (nearly 25 000 in Blantyre), which has traditionally influenced the linking of rents to the US Dollar. As of September 2017, rental for single bedroom units ranged from MK 68 481.30 (US$ 93.81) to MK146, 000 (US$200) while a three bedroom cost between MK148 284.90 (US$203.13) and MK876 000.00 (US$1 200) depending on location and proximity to the city centre.
Recently, there has been considerable activity in upgrading older, well-located buildings in an effort to meet expatriate demand for high quality residential properties. Nevertheless, there is a real constrain in the supply of housing, which has caused rapid property price increases.
Housing Policy and Regulations
Housing related policies feature amongst national priorities in Malawi’s strategic papers. Malawi’s Vision 2020 places greater focus on developing and upgrading human settlements for ‘equitable access to housing for all’. Further, the draft Malawi Growth and Development Strategy (MGDS III) recognises that majority (76 percent in Lilongwe) urban residents live in sub-standard housing and/or informal settlements, characterized by lack of access to public services, tenure insecurity, and inadequate housing. The draft MDGS III document intends to bridge the housing gap by “increasing access and availability of affordable and decent houses.” The country has also ratified the Global Agenda for Housing, Habitat III, which binds governments to ensure everyone has an affordable home by 2036.
However, the existing laws and polices fall short of fostering land access, housing provision or access to housing finance. In July 2016, Parliament passed four land-related Bills: Land Bill, Physical Planning Bill, Land Survey Bill and Customary Land Bill. Already, the Customary Land Bill has ignited debate over the need for the role of chiefs in land administration with opposers of the bill arguing it strips chiefs of their traditional powers over land and overburdens poor people to pay for land leases. Proponents argue the new law gives rural communities an opportunity to own land individually (as opposed to communal ownership), which they can register and therefore use it as collateral.
The Land Act 1995 sets out the classifications of land and recognises various types of land tenure. Presently, an estimated 90 percent of land is customary. However, there are no defined laws that deal with property rights of customary land, making transferring customary property rights difficult. The Customary Land (Development) Act largely recognises customary land as agricultural land. Both the Deeds Registration Act, which supports and regulates deeds registration, and the Registered Land Act 1967, which provides the legislative foundation for the transfer from a deed registration system of land administration to a title registration system, apply to customary land but it remains highly unregistered.
Thus, the formal mortgageable tenure system only covers eight percent of the land, held under leasehold, and almost all of this land is in urban areas. This has resulted in tighter eligibility criteria, which limits access, as the property cannot be used as collateral for the mortgage. Further, the formal land registration system is generally inefficient; it takes up to 118 days to register land and 69 days to register a property.
The rural housing market is currently informal and, by evidence from policy and practice, it will remain such for a while. The Local Government Act of 1998 devolves powers to local assemblies to administrate Traditional Housing Areas (THAs), a function formerly performed by MHC. But the Act has not been fully utilised as most land in rural areas remains customary. This hinders rural communities, who own vast acres of land, from benefiting from the Personal Properties Security Bill. Worse still, rural land stands ‘unzonable’ and unplanned despite the Town and Country Planning Act of 1988 regulating zoning across the country. Town and Country Planning Standards and Guidelines are applied only to urban areas because rural areas are not included amongst planned areas. Ultimately increasing the barriers in investing in rural housing, and approving rural housing loans.
Legally, the sole shelter parastatal, MHC, cannot extend its work to rural areas; and private developers shun the rural market because of unattractive collateral assets. While institutions like UN Habitat have quantified urban housing demand, currently at 21,000 units annually, no such effort has been devoted to rural housing despite that 80% of Malawians live in rural areas. On the contrary, government is developing the National Urban Policy framework (funded by Cities Alliance with technical support from UN-Habitat) aimed at shifting national development from its rural focus to urban growth in light of rapid urbanisation.
The existing National Housing Policy has been in draft form since 2007. The polices accentuates increasing access to housing for all income groups through improving urban land markets, enhanced access to housing finance, upgrading of informal settlements, better quality of rural settlements and housing, and adoption of a decentralised approach to housing delivery.
Apart from laws, policies and strategies, housing is also a matter of political correctness and remains a major highlight in political party manifestos. It features in the ruling Democratic Progressive Party (DPP)’s 2014-2019 manifesto as a ‘cement and malata’ project, now being implemented as DAHSP. It hinges on provision of subsidised cement and iron sheets to enable low-income earners to improve their houses. An estimated 16,000 grass-thatched houses with earth rammed floors are expected to be improved, annually through this programme. However, similar past initiatives have not been sustained once political governments change course.
Housing Sector Opportunities
While Malawi’s population remains predominantly rural, the United Nations Centre for Human Settlements (UNCHS) forecasts a reversal in population dynamic by 2050. The urban population grows at a rapid pace of 4.3 percent. The accelerating rural-urban traffic and high population growth rates provide both challenges and opportunities in terms of housing supply and demand. UNCHS has since urged authorities and sector players to take proactive action to ensure that social services move with population dynamics.
Malawi is experiencing sharp improvement in macro-economic indicators. The inflation rate, for example, , has decreased to 9.3 percent, from over 20 percent in the previous year. This has been largely attributed to good performances in the agriculuture sector, which is the mainstay of Malawi’s economy. Sustainance of good macro-economic indicators will result into reduced prices of goods and services including construction materials.
An equally interesting aspect is the decrease in base lending rate which currently stands at 18%. The cascading effect of this is that banks are also cutting their interests rates which not only broadens affordability of loans but also mortages. Given the predominant self-build housing provision method used and the existence of a budding microfinance industry, lending for housing microfinance has good potential for growth.
Further, the land reform process which is currnetly ongoing will improve the value of land and spur investment on it and for it. This is not possible in the current situation where most land is under customary titlehold and therefore unusable as collateral. By present evidence, government is committed to implementing legal, policy and structural reforms in preparation for the imminent urban boom. The passing in parliament of four land-related Bills gives credence to the commitment.