Housing Finance in Senegal

Introduction

Senegal is a low to middle income country located in West Africa on the Atlantic Coast. The country has about 15.13 million inhabitants, of which more than 50 percent are under 20 years of age, and only 2.9 percent are over 65.  Comprising an area of 196 700m², Senegal is highly urbanised: 43.3 percent of the population live in urban areas, and 49 percent of these are concentrated in Greater Dakar, the capital.  Dakar has a concentration of about 547 people per km².

Senegal economic prospects are good. The growth rate of Gross Domestic Product (GDP) is on the rise and estimated to 5.1 in 2015 driven by the vigorous agricultural sector and the recovery of the vegetable oil and sugar industries, the dynamic cement industry, building and public works, energy, transport, telecommunications and financial services. Fishing and tourism are still important economic activities and the GDP is projected to be six percent in 2016 and 6.5 in 2017.  The country’s average annual rate of inflation was low at 0.7 percent in 2013 and -1.1percent in 2014 and estimated at two percent in 2016.

Senegal though a low to middle income economy is implementing the country’s new development strategy; “Plan Sénégal Emergent, (PSE)” to become an emerging country by 2035 implementation of the flagship projects of the PSE entered its second year in 2015 along with the major reforms which should speed up their completion. Out of a total of 27 flagship projects, (the flagship projects serve as an instrument for the government of Senegal to upgrade the economy from underdeveloped economy to emerging economy) 17 are launched and 10 are being implemented. One of the PSE flagship projects is the development of integrated industrial platform started in 2015 on the special economic zone of Diamniadio which will be a multi-functional urban platform.

The Diamniadio project is an innovative multi-functional urban platform and an instrument for the government of Senegal to transform the economy from low economy status to emerging and sustainable economy.  It is expected that Diamniadio will revolutionise Senegal’s urban economy and develop real urban culture. The project is also expected to regulate housing backlog a major crisis in Senegal.

Since independence, housing has been a major concern for every Senegalese government because of scarcity of land and the rate of rural immigration to the cities, especially Dakar. As a result the government has initiated a series of programmes among which are ‘Operation Parcelles Assainies’, implemented in the seventies by OHLM (office des habitats à loyers moderes) and in 2015 by President Macky Sall initiative of expanding the capital to outside Dakar to boost infrastructure development, employment and providing equal opportunity for all Senegalese to be coming home owners.  The President Wade’s initiatives, ‘”One family-One home.”   In the 1970s the government supported communities’ initiatives for development and organised cooperatives with the help of development organizations. The result is that, Senegal was the first to implement a housing cooperative system project financed by the government of Senegal and to this day Senegal remains the pioneer in   housing cooperative system in West Africa. The housing cooperatives are granted land by the government and the cooperatives pay the cost of lot servicing. Cost of home construction is financed by the (Banque de l’Habitat du senegal, BHS). The cooperatives also received technical assistance from BHS. The housing cooperatives of Senegal are contributing a great deal to the national economy and providing affordable homes for low income families.

Access to Finance

Senegal’s financial sector consists of a diversified range of institutions that are not fully integrated. Some 22 banks are listed by the central bank, as well as three non-bank financial institutions.  Access to finance in the country is among the highest in the West African Economic and Monetary Union countries (UEMOA) but very low in global standard, only about 15 percent of the country’s population over the age of 15 have a bank account, seven percent have savings and four percent have loans as stated in global Findex 2014.The country’s finance sector is growing, two new banks have been established in the last two years and the number of branches have increased to facilitate services to the growing urban population. New products are introduced among which are credit cards, automatic teller machines (ATM) and even consumer credits for automobiles for people with regular revenues. The micro finance sector is dynamic and provides financial services for all categories of Senegalese, in the urban and rural areas of Senegal.  In 2015, there were 71 MFIs registered on the Mix Market, an online source of microfinance performance data and analysis, with 295 606 active borrowers, a gross loan portfolio of US$497 million and US$414 million deposit. Credit Mutuel du Senegal,CMS has the largest loan portfolio size of US$203 million and the largest savings of US$243 million.

The financial sector of Senegal is growing and is very dynamic. By the end of 2015 all commercial banks offer diversified housing loans and so is Banque de l’Habitat du Senegal, BHS, the mortgage bank founded in 1979, and among the pioneers in the UEMOA. The main objective of BHS is to finance real estate and homeownership, emphasising the affordable housing market.  According to Banque Centrale Des Etats de l’Afrique de l’Ouest (BCEAO), Senegal is the most active country among the member states of UEMOA with housing loans of BHS representing 30 percent of the total housing loans (203.7 billions of FCFA) of the union in 2013, in the same year, the average interest rate of the union was 7.44 percent and 6.8 for Senegal. The average bond term for Senegal was 8.7 years.  Loans are used to acquire land, to build housing and to purchase housing. Initially created to serve the low income market BHS has diversified its services and enlarged the market targets. The latest product is “Le Park 35” a mortgage that allow a potential client to acquire a house valued at less than 35 million fcfa without down payment at the interest rate of six percent  over 20 to 25 years.

The new product is designed to allow all Senegalese interested in investing in the new development of Diamniadio and Lac Rose to acquire a decent and affordable house. As the leader in the housing finance service with a record of varieties of products, BHS is innovating in proposing a mortgage where down payment is not required. The bank has evolved from a short term credit activities to a real mortgage bank, mobilising funds locally and internationally. BHS dispose of a robust network of collecting savings from Senegalese residing abroad. It also mobilises funds in the financial market and propose mortgage products with long term maturity.  Among the banks popular products is housing-savings and loan with a reduced interest rate on loan when the borrower save 10 percent towards the purchase price.  The minimum first payment is CFA Francs 50 000 (about US$85.36 and 3.5 percent interest is paid on the capital at the end of December each year. BHS remains the leader in housing finance in Senegal and in the UEMOA countries and has contributed to the development of housing developers and housing cooperatives in Senegal it has also contributed to the foundation of some of the mortgage banks in the region.

The Senegalese financial sector is flourishing and so is the housing development market. In spite of the market dynamism access to finance is still a challenge to majority of the population who have no bank accounts. According to the World Bank’s 2016, Doing Business Report for ease of getting credit, Senegal ranks 133^th out of 189 countries.  There is one public registry and no private credit bureaus in Senegal.

Housing Affordability

Housing affordability is limited, given the high price of land and absence of official or fixed prices. There are very few developers and many speculators whose main clients are people in the higher income bracket. Rents and prices of a property depend on the geographical location, the architectural plan and the quality of material used for construction. Dakar being a regional headquarters of corporate and international organizations has a concentration of expatriates in the residential zones where there are varieties of houses, simple well constructed houses, apartments, luxurious villas and condominiums. The majority of Senegalese live in suburbs such as the HLM and other unplanned settlements. According to African Report 2015, Knight Frank an average rent of 4 bedroom apartment cost US$4 000 a month. According to local survey of 2010, rents have more than doubled in the past years and a minimum rent of a room for students is 50 000fcfa (US$85,36).  According to the Senegal National Statistics Dakar property surged by about 256 percent between 1994 and 2010. In 2012, a 150m² plot of land cost about CFA Francs 2.5 million (US$4 268), although it can cost as much as CFA Francs 4 million (US$6 828) in high income areas, and as little as CFA Francs 1.7 million (US$2 902) in more remote areas.  When developed as a four-roomed house, the property can sell for CFA Francs 25 million (US$42 680), and in wealthier areas for CFA Francs 55 million (US$93 897). The rental prices range between 150 000 fcfa to 500 000 fcfa (US$256 to US$854).

About 60 percent of the population earn less than US$3, 10 a day which makes the cheapest house unaffordable. The cheapest newly built house is a three bedroom house built on 150m2 in Diamniadio suburb of Dakar and sold for 13 000 000fcfa (US$22 194) with a mortgage  monthly payment of 88 627fcfa (US$151) for 15 years. The government efforts to make homes affordable are paying but there is still a lot of speculators who end up buying government subsidised homes intended for low income families from the beneficiaries.

Housing Supply

Most houses in Senegal (about 80 percent of urban housing) is self-built with cement, concrete and stone with corrugated iron for the ceiling, without an architect, and at a total cost of less than CFA Francs 30 million (US$51 216) or well above depending on the plan, the geographical situation and the quality of material used. Informal settlements account for 25 percent of urban spaces in Senegal and for 30 percent of inhabited areas in Dakar  In fact, the dominance of informal housing construction may be due to the building code, which only requires architectural plans and building permits for buildings costing more than CFA Francs 30 million (US$51 216).  The building code though supports incremental construction, but in the absence of any regulation or construction expertise hazardous building practices are rampant ex.  In September 2012, flooding in Dakar destroyed more than 10 000 homes and 33 000 families were displaced in 2009 due to floods. A critical issue in Dakar is rapid urbanisation rate and the city’s inability to keep up with the necessary water drainage and sewerage systems. According to the Secretary General of Ministry of Economy, Finances and Planning, demand for housing is estimated at 300 000 units per year while supply is about 50 000 which means a deficit of 250 000. There are several constraints to the housing supply, especially for low income earners.  Insufficient formal market players, limited availability of serviced land, limited availability of relevant financial products, high construction costs and weak policy all constrain the market. In response to these challenges, the government introduced its ‘one family one roof’ initiative, focusing on the affordable housing market to address the demand for housing. The provisions in the programme include free housing and land, tax breaks and a range of subsidies which are offered to homebuyers who purchase housing that costs less than US$15 000.  Implementation is slow, however, and the supply of housing insufficient.  A land regularisation programme adopted by the government in 1991 is equally slow: by 2010, only 6 469 plots had been regularised.  To boost housing supply, the government has granted in 2015 one billion fcfa (US$ 1 685 772) to (Fonds de garantie pour des investissements prioritaires “Fongip”) to create a special guarantee fund for small and medium enterprises in the housing sector (Fonds de garantie pour l’acqusition du lodgement (Fogalog), to facilitate access to financing for small and medium enterprises, To date 17 016 000 000 fcfa (US$ 29 049 935) has been disbursed by FONGIP to 11 903SMEs and FOGALOG has signed an agreement with BHS and the ministry in charge of housing to facilitate access to affordable houses for the Senegalese in the informal sector. The agreement signed since July 6, 2015 has allowed the Senegalese with irregular revenue such as artisans and other informal traders to benefit from housing loan which under normal circumstances they would not have be qualified for lack of regular revenue and guarantee. Fongip is a national guarantee fund created to facilitate access to financing SMEs who are in the sectors considered to be on the government’s agenda priority among which is low income houses. The fund is among the innovative instruments to boost the economy of Senegal as planned in the Le Plan Senegal Emergent, PSE. Housing, especially low income houses are among the top priorities, and the government of Senegal plan to use Fogalog to bridging the gap between housing supply and demand.

Another important project of PSE is the development of the new city, Diamniadio, about 30 kilometres south west of Dakar and 15 kilometres away from the future International Airport of Senegal (Blaise Diagne) under construction. The city of Diamniadio compared to Dakar, the capital city is well planned and equipped with social infrastructure; new conference centre, industrial park, the second university of Senegal, university campus under construction, commercial centres, schools, hospital and other recreational amenities. The government has allocated serviced plots of land and given other incentives to developers to promote small and medium enterprises and enhance housing supply in Senegal. It is expected that Diamniadio will revolutionise Senegal’s urban economy and develop real urban culture. The project is expected to deliver at least 40 000 houses and regulate housing backlog a major crisis in Senegal. The project targets diverse market, that is low, middle and upper class and the houses range from two to four bedrooms houses, duplexes and town apartments.

Senegal ranks 148 in the World Bank’s 2016 Doing Business Report in dealing with construction permits, with 13 procedures required and an estimated 200 days to get a construction permit and slightly improved its ranks in ease of doing business 2016, 153^rd out of 189 countries compared to 156^th in 2015.  The country has also improved on its property registration and procedure costs from 15.2 percent of the property value in 2015 to 10.2 percent in 2016.

Housing supply is expected to be boosted by the various programmes of the government including the new urban centre (Le pole urbain de Diamniadio), Lac Rose, Diass, Bambilor, and “Cite de l’emergence”. At least 15 000 houses are to be constructed per year. These are planned projects and are in execution. There are different projects on Lac Rose one of which is Cite Sicap Lac Rose, situated on 70 hectares, consist of 2 427 units, 1 820 units to be constructed individually on  200m² of plot of land and 607 units on 150m² each.   Bambilor is a new city about 10 minutes from Lac Rose and 30 minutes from down town Dakar, one of the projects is Cite CDC consist of two to four bedroom villas, built on 150 to 200m² and cost 10 to 47 million fcfa (17 072 and 80 239) and Cite de l’emergence is a project of 11 storey buildings of modern apartments, sixteen of which will be constructed in Dakar by Group Adoha, a Moroccan real estate developer.  The project consists of 700 apartments and the estimated cost is 45 billion fcfa (US$76.8 million) to be delivered in 2017. All the projects target diverse markets.

Property Markets

Senegal is witnessing a dynamic growth in the real estate industry particularly Dakar the capital. The main driver is the growth in population and the reputation of Senegal as a stable democratic country creating an enabling environment for investors. Investors from neighbouring countries are invading Dakar where the elites have their second homes or investment interest.    The Land Tenure Act (la loi No 2011-07 du 30 mars 2010, ensure security of tenure.  The Act authorises the holders of temporary occupancy permits in urban centres to transform them, at no cost, into permanent title deeds (Titre Foncier, TF). The goal of the Act is to promote the development of mortgage activities and induce capitalisation of properties.  With reinforced security of tenure, it is expected that landlords will invest in upgrading their properties. The result is up to expectation. Most houses in the capital have been upgraded and land and homes prices have escalated. Dakar residents and even Senegalese in diaspora are taking advantage of the new law, for many are registering their properties and the values of property are appreciating. This result is being duplicated in other regions of the country particularly those close to Dakar.

More than half a million of residents of Dakar are tenants and the rental market is said to favour the landlord. In theory, rents on residential leases are fixed by law according to the market value of the premises.  In practice, however, rents are decided solely by the landlord.  Presently, access to financing available for producing rental housing on a large scale is improving and the market is promising, considering the efforts of the government in securing long-term financing for affordable homes to sustain the growth in the sector.

According to real estate consultancy Knight Frank’s 2015 property report for Senegal, the residential construction market is quite dynamic, with a few developments along the coast particularly the waterfront scheme. Middle to low income households can expect housing development along the AutoRoute and Diamniadio about 30 km from Dakar.  The property market is strongly influenced by the importance of the informal sector but the government is providing incentives among which are Fongip to lure informal enterprises to becoming formal. The incentives to promote formal enterprises and the new Land Tenure Act hopefully will stimulate the formalisation of the real estate market.

Housing Policy and Regulations

Senegal’s housing sector suffers under a complex legal and regulatory framework which the present government is addressing. The policy and regulation environment remain the same but case studies and other surveys on decentralisation and housing policies are initiated on the regional level. UN-Habitat reports in 2012 that 12 central departments of the various ministries are involved in processes related to housing.  Coordination between these bodies is complicated, and this creates delays in the process and cost overruns.  The opacity of the system undermines the enforcement of laws and regulations, or worse, supports corrupt responses.  Law 96-06 of March 1996 (Local Communities Code) sought to transfer land management responsibilities and powers to municipalities and local administrations.  While this was intended to improve management, the law did not deal with the customary and informal practices that existed.  This has resulted in a management stalemate, and as UN-Habitat suggests, reinforces the proliferation of squatter settlements.

The government’s regulatory efforts to improve access to housing for the average Senegalese and low income families is not yielding expected results as a result a lot of reforms are in process among which are land management, transferring property and registration of property.

Housing Sector Opportunities

The Senegal housing market is booming with construction being undertaken practically all over the urban centres and the new city of Diamniadio is delivering modern apartments, condominiums and houses of different architectural style and different economic standard.  Senegal is revolutionizing urban development planning in the UEMOA region and business opportunities are real given the geographical situation, the political stability, the ambitious infrastructure programme of the current government, the presence of many international organisations and development agencies, dynamic cultural events, and a robust tourist industry.

Dakar, the capital, is the home to the regional headquarters of many international organisations and some regional organisations. The current growth rate, the rate of urbanisation, the government infrastructure programme and the commitment of the African Development Bank to support the government programmes, are indicators that the housing boom is here to stay. Senegal is an investment friendly milieu and attracts regional investors.

Although Senegal has improved its business climate and its performance in dealing with construction and registration of property, still the government needs to address the complexity of the housing policies so that the average and low income families can benefit from the housing boom and the country improve its ranking.