Mozambique 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.
The lowest recorded interest rate on a mortgage in Mozambique is 25 percent, as of September 2016, and requires at least a 20 percent down payment. The cheapest newly built house by a developer recorded by CAHF is US$ 63 000, which is for an 81 square metre unit. Cement prices are lower than the continental average, at US$ 4.93 for a 50-kilogram bag.
With an urbanisation rate of 3.63 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. Mozambique is currently going through an economic slowdown but several firms, such as Reall and Socremo, have undertaken innovative projects that increase access to housing, while Financial Sector Deepening Moçambique does important work to increase financial inclusion. 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 Mozambique can afford.
Find out more information on the housing finance sector of Mozambique, 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
Mozambique is facing major near-term liquidity risks, with currency depreciation exacerbating the country’s sizeable external debt burden and opaque public borrowing prompting donors to withhold aid. Owing to drought and a sharp drop in investment, real GDP growth is forecast to slow to a 15-year low in 2016.
Mozambique’s economy has been growing at an average of between 7.5 to eight percent over the past decade, with its future economic potential is underpinned by natural resources. This year, economic growth is forecasted to be around 4.5 percent, while GDP per a capita averaged US$619 between 2010 and 2014, according to the World Bank. Inflation hit 16 percent in May, far above the 4.5 percent foreseeable for this year, while the metical continues to depreciate. Mozambique has relatively low level of urbanisation with only 31.2 percent of people living in cities. However, this is changing, as the rate of urbanisation is now 3.28 percent an annum.
The country still suffers from high levels of poverty and vulnerability. United Nations Development Programme’s (UNDP) Human Development Report (HDR) 2014 ranked Mozambique 178th out of 187 countries. The poverty rate remains high at 55 percent, with most of the poor living below the consumption poverty line of US$ 0.6 a day in rural areas. Mozambique is characterised by high unemployment (22 percent, while the vast majority of the labour force relies on subsistence farming and informal activities). The government approved a long-term National Strategy for Development (ENDE) for the 2015 to 2035 period. The ENDE places particular emphasis on industrialisation and the key priority areas of agriculture, fisheries, industrial diversification, infrastructure, the extractive industries and tourism.
Access to Finance
The Mozambique financial sector has seen a fast expansion during the last years, although it is still considered underdeveloped. Approximately 90 percent of Mozambicans are without an account with a formal financial institution, and formal credit is available to only an estimated three percent of the population.
The banking sector has 19 registered banks accounting for 95 percent of total financial system assets. However, 87 percent of these assets are concentrated in the five main banks. The sector is fast expanding, both in assets and geographical coverage, and is deemed to be healthy and stable. The latest available data for 2014 reveals an average bank capital adequacy ratio of 15.9 percent and reserves ratio of 10.1 percent (the regulatory reserve rate remained at eight percent), while non-performing loan (NPLs) rate remains below four percent, in accordance with international standards. Lending rates remain very high, Banco de Mozambique had decreased its benchmark rate by 7.5 percentage points since January 2012; the prime lending rate fall to 14.8 percent in 2015, from 19 percent in 2011. Because of the current economic situation, Banco de Mozambique has raised the Standing Lending Facility to 14.25 percent in June 2016 and prime lending rates have increased to 20 percent. This means mortgage interest rates are around 25 percent with a term of 15-20-25 years and a minimum down payment of 20 percent.
Most of Mozambique’s commercial banks offer a mortgage product. Yet, housing accounted for only 2.99 percent of outstanding loans in April 2016, according to Banco de Moçambique. The conditions for mortgage loans are generally restrictive, reflecting the banking industry’s cautiousness. Loan-to-cost maximums are generally set at 80 percent. Commercial banks request another property or fixed assets as collateral for a transition loan, at least until the construction is 80 percent complete, and thus can then be mortgaged. Mortgages in Mozambique have a maturity of 10, 15 or 25 years. Approximately only 15 percent of residential properties with mortgages have legal titles. For housing loans, the average annual effective interest rate is calculated based on the banks’ prime rate of 20 percent plus a mark-up of up to five percent, depending on the client’s credentials (typically 25 percent). The minimum loan amount is around MZN 300 000 (US$ 5 000).
To make housing loans more accessible, some banks offer property leasing or rent-to-buy schemes, in which the property is made available on a rental basis to a tenant who has an option to buy the property at the end of the lease. The Fund for Housing Promotion (Fundo de Fomento da Habitação, or FFH) has agreements with several banks to make mortgage loans accessible for potential beneficiaries of its projects. Banks also offer construction and renovation loans. These have shorter terms, sometimes five to ten years, made available as unsecured loans and therefore at a higher interest rate of about 30 percent. In some cases, the lender requires a guarantee or other form of collateral. Developer finance is also limited and expensive, with rates up to 35 percent.
Although the microfinance sector is vibrant, only five microfinanciers offer housing microfinance as a product. There have been significant changes in this industry over the past few years and the depth of financial intermediation remains low. Socremo, at a very small scale, offers housing loans for home improvements and rehabilitation.
The expectation of a commodities boom was one of the drivers of house price growth. In contrast, the recent public debt crisis and metical devaluation, with increased supply of new build units targeting the upper end of the market, has reduced pressure on house prices. House prices remain high, and there are several additional reasons this: high construction costs (30 percent higher than South Africa) due to higher material cost, low labour productivity and high financing costs. A small percentage of construction materials are locally manufactured, most materials are imported from South Africa, Portugal and China. Just the most basic materials (such as cement and wood) are sourced locally. Furthermore, the lack of basic infrastructure adds to the total costs of the development. Plots are often far from main roads and not linked to the public water and electricity network. Plots that are already developed are transferred at high prices.
Furthermore, although the minimum wage was revised to MZN 3 298 (US$ 55) a month in April 2016 as the metical has depreciated, the majority of population earns less than US$ 50 a month. Banks offering mortgages have a minimum loan amount of MZN 300 000 (about US$ 5 000), which is above the reach of the majority of households yet far below the cost of a house. At the current interest rate of 25 percent, the minimum loan would be affordable only to a household with a monthly income of about MZN 20 000 (about US$ 330). The family would also need to save a further third of the purchase price to cover the deposit requirements, registration costs and taxes, and valuation and origination fees.
With regards to the lack of affordable housing and the lack of access to finance, most families rely on their own savings, local materials and self-build for housing construction. UN-Habitat suggests Mozambican families have invested at least US$ 3 billion in informal housing in Maputo alone. Housing affordability is also a challenge in the rental market, where high demand and the lack of adequate supply have resulted in highly inflated prices across all sectors, with owners setting monthly rents in the upper market from US$ 1 000 to US$ 10 000 in Central Maputo.
FFH estimates a housing deficit of two million units; the equivalent of 2.5 million families, or 60 percent of the Mozambican population live in substandard housing. In Maputo, where approximately 70 percent of households live in informal housing, only 4 500 of the estimated required 23 000 units will enter the market between now and 2020. The housing deficit extends into other emerging economic centres, such as Tete, Nampula and Pemba. For example, between now and 2020, housing demand in Nacala and Pemba is expected to grow to 4 475 units and 6 500 units respectively.
There is very limited investment in the low-cost housing sector, as investors prefer high-end projects. The main problem is the limited ability of low-income households to access to affordable finance. Developers are also put off by the need to build the supporting bulk infrastructure for the new sites, and by the lack of government support for low-cost housing schemes. There are some private projects that aim to deliver affordable housing. Casa Jovem, a 36 hectare in Costa de Sol, Maputo, is often mentioned as one such example. The project comprises 1 680 flats in four to eight storey walk-ups, and 300 houses. To date, about 100 flats have been constructed. However, with prices between US$ 47 000 and US$ 130 000, the flats remain out of the reach of most Mozambicans.
In its five-year plan (2010-2014), the government committed to build 100 000 houses and service 300 000 plots of land by 2014. According to local sources, the government only delivered 1922 houses by the end of 2014. The housing target in the new five-year plan (2015-2020) is less ambitious, with the state committing to build 35 000 houses by 2019 (7 000 per year).. Through the ‘Housing Action Plan for the Young, Civil Servants, and Old Combatants’, these broad delivery plans get more detail: 20 percent of the planned housing delivery is to be completed by government, 30 percent by the private sector and 50 percent by residents themselves through auto-construction. Only five percent of these houses are to be fully subsidised. The FFH will take the lead in the implementation of the action plan and will collaborate with all municipalities. The FFH foresees the development of public private partnerships to diversify its financial resources. Projects in Marracuene, Tete and Nampula are on-going.
Over the years, there have been some noteworthy public-private partnership arrangements. This includes the construction of the project Intaka (started in 2012), with the intention of building 5 000 houses in the southern city of Matola, in partnership with Henan Gouji Imobiliária. Unit prices are between US$ 63 000 to US$ 158 100. An agreement with the Chinese government promised a further 5 000 houses in other cities. A partnership with a Spanish construction group will see the development of 4 500 houses in three provinces, with prices starting at US$ 30 000 in Maputo City. Construction was supposed to launch in 2014 but works did not start yet due to reported problems with the quality of construction.
In 2013, FFH commenced a 100 unit development in Mutaunha, Nampula, financed through the sale of houses. The first phase has been completed, with a further 240 apartments expected to be constructed during the second phase. This phase is expected to be worth a total value of US$ 30 million, increasing the housing stock of the development to about 1 100 homes. Other developments include a US$ 217 million facility provided through three credit lines by the Indian government in 2013 to fund public works and housing projects. The projects involved the construction of 1 200 houses, with 400 units in each of Tete, Zambézia and Cabo Delgado, respectively. In addition, FFH signed a memorandum of understanding with Macau Charlstrong Engenharia, Technologia e Consultoria Ltd for a new social housing project expected to total 50 000 housing units at a total cost of US$ 5.5 billion in the provinces of Cabo Delegado, Nampula, Tete and Maputo. South African company Sasol, according to its website, aims to deliver 97 houses in Vilanculo on 22ha of land in collaboration with Companhia Mocambicana de Hidrocarbonetos (CMH) and the International Finance Corporation (IFC). These new houses are intended for their staff working there, the majority of which are Mozambicans. The construction of the new ring road of Maputo will dramatically increase the amount of available land in the north and the north-west of the city for housing. These new spaces are an opportunity for Maputo, but the lack of planning and infrastructures is threatening the extension of the city with isolated, low density developments.
Despite all the new housing developments in the market, the cost of the housing units is out of reach for the majority of Mozambicans and is only affordable to middle higher income earners and civil servants. Auto-construction remains the only option for low income groups. There are pilot projects underway run by Reall in Beira and Casa Minha in Maputo based on an incremental housing concept, with the intention for the units to sell for around US$ 10 000. Casas Melhoradas is another new approach project to improve housing in unplanned settlements with low cost materials but it is still in the pilot phase with only three units built.
The state owns all land in Mozambique. Land rights may not be sold, mortgaged or otherwise alienated. The Land Law recognises a “use right to land”, known by the Portuguese acronym DUAT (directo de uso e aproveitamento dos terras). Any investment made on the land itself is considered to be private property and can be bought, sold or mortgaged.
Land use rights are obtained by inheritance, occupation, state grant, purchase or lease. In urban Mozambique, 62 percent of households access land through the land market, either obtaining land on the formal market by buying or leasing use-rights held by DUAT holders or, more commonly, obtaining use-rights on the informal markets. Other means of accessing land include customary rights systems such as inheritance or borrowing (19 percent), state allocation (13 percent) and occupation (six percent). Most rural land is held by communities, which have perpetual DUATs based on historical occupancy. Foreign persons and entities with local residences may obtain DUATs in connection with approved investment projects. Some developers are cautioned by the fact that land can be leased for 50 years with an option of renewal. According to the Global Housing Indicators, only 20 percent of properties are registered. It ta2
The registration and cadastre systems still only cover limited urban areas. This limits the amount of formally financeable land through mortgages and contributes to a general lack of clarity on property titles. Secondary sales are also limited. Apart from the fact that they are difficult due to the protracted procedures and consents necessary because of leasehold tenure, owners also avoid the risk of forfeiting current rights in the process of sale (fearing, for example, that the title may be questioned). The problem of collateral enforcement is exacerbated by the long times it takes to go through the courts (on average three years), and that there are many instances of fraudulent titles.
Some rental housing stock converted to private ownership is emerging from government’s policy divestiture to existing tenants at concessionary prices and interest rates. As the policy has been in place since 1991, the majority of this stock has already been sold.
The property market also has seen “downward raiding” by higher income earners of plots occupied by low income groups due to the unmet demand for suitable land for housing. As a result, local buyers are pushed out of the cities into cheaper areas. The ensuing land scramble has caused further problems as some local Mozambicans have faced losing their homes (especially those without a formal title to their houses) and those who live on “illegal” land.
Housing Policy and Regulations
Many of the laws governing property date as far back as the 1960s and have not been updated since. Housing is coordinated through two government organizations. The National Directorate for Housing and Urbanization (DNHU) and the Fund for Housing Promotion (FFH), both under “Ministério das ObrasPúblicas e Habitação” (MOPH), are the two government agencies with specific mandate for housing. With the reorganization of the MOPH in 2010, the different departmental roles were clarified so that DNHU oversees the political side and FFH has the mandate to act as an implementation agency. At the same time, within the MOPH, a Directorate that is responsible for the building materials was also created.
The policy and regulation frameworks governing the housing sector is based on Article 109 of Mozambique’s Constitution of 2004 and states that all ownership of land vests in the state and all Mozambicans shall have the right to use and enjoy land as a means for the creation of wealth and social well-being. The Constitution further provides that the state shall recognise and protect land rights acquired through inheritance or by occupation, unless there is a legal reservation or the land has been lawfully granted to another person or entity.
The Land Law of 1997 reasserts the state’s ownership of land and provides that individuals, communities and entities can obtain long-term or perpetual rights to use and benefit from land. The Land Law protects the customary rights of communities to their traditional territories and recognises rights obtained through traditional and good-faith land occupancy, as equivalent to rights obtained by government grant. Community land use rights are legally equivalent to rights granted by the government to individuals and entities. Women and men have equal rights to hold land. Nationals have unrestricted rights of access to land; foreign individuals and entities must have a local residence and an approved investment plan.
Rural Land Law Regulations of 1998 provides rules for the acquisition and transfer of use-rights. The process for identifying and recording the rights of local communities and good-faith occupants is governed by the 2000 Technical Annex to the Land Law Regulations.
National Land Registry and Real Estate Cadastre Decree No. 1 of 2003 established new provisions for the registration of inherited land use rights and secure rights to customary rights-of-way.
Urban Land Regulations 2006 apply to existing areas of towns and villages and to areas subject to an urbanisation plan. The regulations govern the preparation of land use plans, access to urban land and the rights and obligations of owners of buildings and DUAT holders.
Financial Sector Development Strategy 2013 – 2022 (MFSDS) provides an overall vision and a comprehensive and detailed roadmap for reforms in the financial sector. The strategy foresees the elaboration of a policy on housing finance, which will address necessary reforms for the development of the financial market for construction and purchase of housing. A first step in improving housing finance has already been implemented by revising the status of the FFH, giving it access to a variety of refinancing resources.
Economic and Social Plan, and the Slum Upgrading Strategy, both of 2012, add emphasis to housing and urban infrastructure upgrading. The Housing Policy of 2011 foresees the creation of adequate housing at an affordable price for all social groups. The policy recognises the need to improve land management, facilitate access to infrastructure, promote housing construction and increase the availability of financing. It highlights the need for the creation of institutional structures which will allow coordination of the joint effort of line ministries in implementing necessary reforms.
Housing Sector Opportunities
Mozambique recent healthy rates of economic growth and foreign investment have slowed in the last year. Analysts suggest that the development of the natural gas and coal reserves in Mozambique should have a big impact on GDP growth and create opportunities in the industrial and commercial sectors.
There are big opportunities for both public and private sectors to strengthen the development of housing finance, as well as increase its supply. Possible initiatives include expanding tailored housing loan products to low income groups and introducing innovative and competitive housing solutions and products for these people. There is a big need and potential for housing microfinance with many supporting reasons such as pre-existing microfinance industry, accepting auto-construction as a viable building method, provision of starter plots by FFH and improving security of tenure among urban dwellers.
Furthermore, given the price escalations of building materials, opportunities exist regarding the use of alternate approaches, technologies and local materials that could help to reduce the need for imported building materials and speed up the delivery of affordable housing. There is a significant need for greater supply of affordable housing. With housing finance remaining largely cash-based, there are many opportunities for housing financiers in the market.