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 15.41 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: 43.5 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 6.7 percent in 2016 driven by agriculture, industry and the revival of the service sector. Growth is expected to continue in 2017 and 2018 at a rate of 6.8 percent and 7 percent.  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’s development plan, to become an emerging country by 2035, “Plan Sénégal Emergent (PSE),” completed its second year in 2016, with major reforms to boost the economy through entrepreneurship, industrialization and infrastructure investment. Among the major reforms are the revision of the 2005-2015 industrial redeployment policy (PRI) to boost industrialization in provinces with high economic potential, infrastructure construction, creation of special economic zones and industrial parks.

One of the special economic zones is Diamniadio, a multi-functional urban platform and a major project of the PSE.  It is also 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 increasing rates of urban migration, especially Dakar.  In 2015, President Macky Sall initiated capital expansion beyond Dakar to boost infrastructure development, employment and provide equal access to homeownership for all Senegalese. Senegal was the first among the West African Economic and Monetary Union (UEMOA) countries to implement a housing cooperative project. The project was financed by the government of Senegal and to this day Senegal remains a pioneer in housing cooperative systems in West Africa. Homeowners receive construction finance from the Banque de l’Habitat du Senegal (BHS), technical assistance and land grants;  cooperatives pay the cost of lot servicing. 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 is growing and very dynamic. 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 by global standards: only about 15 percent of the country’s population over the age of 15 own a bank account, 7% have savings, and just 4% have loans (as stated in Global Findex 2014). The country’s finance sector is growing however, as 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 (ATMs) 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 2016, there were 106 MFIs registered on the Mix Market (an online source of microfinance performance data and analysis) with 299 000 active borrowers, a gross loan portfolio of US$522 million and US$436 million in deposits. 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. 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 CFA FRANCS) of the Union in 2013. By the end of 2015, all commercial banks offer diversified housing loans.  Banque de l’Habitat du Senegal (BHS), the mortgage bank founded in 1979, is among the pioneers in the UEMOA. Its main objective is to finance real estate and homeownership, emphasising the affordable housing market.  In the same year, the average interest rate of the Union was 7.44% and 6.8% for Senegal. The average bond term in Senegal was 8.7 years.  The bank is evolving from a short-term credit facility to a mortgage bank, mobilising funds locally and internationally, mobilising funds in the financial market for mortgage products with longer term maturity. Initially created to serve the low-income market, BHS has diversified its services and enlarged the market targets. Loans are used to acquire land, to build housing and to purchase housing. One of the new products is “Le Park 35,” a mortgage that allow a potential client to acquire a house valued at less than 35 million CFA francs without a downpayment at the interest rate of 6%, over 20 to 25 years.  Among the bank’s more popular products offers a reduced interest rate when the borrower saves 10 percent towards the purchase price.  BHS 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 139^th out of 190 countries.  There is one public registry and no private credit bureaus in Senegal.

Housing Affordability

Housing affordability remains limited, given the high price of land, price speculation and inadequate supply in spite of government efforts to boost production. There are very few developers and many speculators whose primarily target higher income bracket. Rents and property prices depend on the geographical location, the architectural plan and the quality of material used for construction. As a regional headquarters of corporate and international organizations, Dakar has a concentration of expatriates in the residential zones where there are varieties of houses, simple well-constructed houses, apartments, luxurious villas and condominiums. According to “African Report 2017, Knight Frank,” a prime property rent in a residential area cost US$2 800 a month and less for houses in the residential zones where there is concentration of prime properties and large-scale development under construction. According to the press, speculation is leading to price increases in the suburbs. According to a 2010 local survey, rents have more than doubled in the past years and a minimum rent of a room for students is 50 000CFA francs (US$84,316).  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 2.5 million CFA Francs (US$4 195), although it can cost as much as 4 million CFA Francs (US$6 745) in high income areas, and as little as 1.7 million (US$2 867) CFA Francs in more remote areas.  When developed as a four-roomed house, the property can sell for 25 million CFA Francs (US$42 158), and in wealthier areas for 55 million CFA Francs (US$92 747). The rental prices range between 150 000 CFA francs to 500 000 CFA francs (US$253to US$843).

According to the current housing minister, housing production rose from 4 000 in 2012 to 10 000 in 2016, yet affordability remains a national problem. To this end the government is introducing reforms among which include a new law to reduce the cost of production and accelerate the production of affordable houses for low income groups. A new observatory body (Observatoire de l’habitat social) is proposed by some parliamentarians to control effective application of rules and regulations concerning access to social houses to constrain speculation which is undermining the government’s efforts to boost affordability.

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 000CFA francs (US$21 922), requiring monthly payments of 88 627CFA francs (US$149) for 15 years. It is expected that the law will contribute to economic growth, eliminate speculation, and boost production and affordability.

Housing Supply

Most Senegalese homes are self-built with cement, concrete and stone with corrugated iron for the ceiling, without an architect, and at a total cost of less than 30 million CFA Francs (US$50 589) 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 30 million CFA Francs (US$50 589).  While the building code supports incremental construction, hazardous building practices are rampant in the absence of any regulation or construction expertise.  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. In September 2012, flooding in Dakar destroyed more than 10 000 homes; 33 000 families were displaced in 2009 floods. The 2016 housing deficit was estimated to be 322.000 units for the whole of Senegal and 158.000 for Dakar.

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 a series of initiatives focusing on the affordable housing market to address housing demand. Among the initiatives are tax breaks for promoters, subsidies offered to first homebuyers and a land regularisation programme. To boost housing supply, the government also granted in 2015 one billion CFA francs (US$ 1 686 312) to Fonds de garantie pour des investissements prioritaires (“FONGIP”) to create a special guarantee fund for small and medium enterprises in the housing sector, and Fonds de garantie pour l’acqusition du lodgement (“FOGALOG”) to facilitate access to financing for small and medium enterprises.  To date 17 016 million CFA francs (US$ 28.7 million) has been disbursed by FONGIP to almost 12 000 SMEs; FOGALOG has signed an agreement with BHS and the housing ministry to facilitate access to affordable houses for the Senegalese in the informal sector. The 2015 agreement allows Senegalese households with irregular revenue to access special guaranteed housing loans. FONGIP is a national guarantee fund created to facilitate access to financing SMEs in the government’s priority sectors, such as housing, especially low-income houses, which are among the top priorities.

Another important project of PSE is the development of a new city currently under construction.  Diamniadio is about 30 kilometres south west of Dakar and 15 kilometres away from the future International Airport of Senegal (Blaise Diagne). 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.  Compared to Dakar, Diamniadio 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.

Recently the government has initiated other measures to increase housing production, including Social Housing Guidelines Act, the decree defining social housing, and the Prime Minister’s order establishing approval processes for production by private developers.

Senegal ranks 139 in the World Bank’s 2017 Doing Business Report in dealing with construction permits, and improved its ranks in Ease of Doing Business 2016, 147^th out of 190 countries, up from 153^rd in 2016.  The country has also improved on its property registration and procedure costs, dropping from 15.2% of the property value in 2015 to 10.2% in 2016 and 2017.

New laws and government programmes project a minimum of 15 000 houses to be constructed per year.  Ongoing projects include Cite Sicap Lac Rose, situated on 70 hectares, consist of 2 427 units, 1 820 of which will be constructed on 200m² of plot of land and 607 on 150m² each.   Bambilor is a new city about 10 minutes from Lac Rose and 30 minutes from downtown Dakar, and includes Cite CDC, consisting of two- to four-bedroom villas, built on 150 to 200m² and costing about 10 to 47 million CFA francs (US$ 16 863 and 79 257).  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 CFA francs (US$75.8 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 in Dakar and other urban areas. Factors driving the real estate boom include government programmes establishing new urban zones and mass production of houses, population growth, and the reputation of Senegal as a stable democratic country which creates an enabling environment for investors. Additionally, African investors from neighbouring countries are building second homes or investment interest.

Over half a million Dakar residents 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 2017 property report for Senegal, the residential construction market is quite dynamic especially for small-scale schemes. Progress at the larger scale waterfront development has continued to be relatively slow and prices are dropping. According to the press, rents are escalating for the very low-income groups while the supply of houses for middle income group is improving. Away from the waterfront the market is buoyant. The Diamniadio and other ongoing projects are under construction hence middle to low income households market is booming and there is room for growth. Another important factor to stimulate the market is institutional publicity, forums, conferences and international forums concerning housing in Senegal are supported by the government.  The International Habitat Fair (“Salon International de l’Habitat”) was held in Dakar for the second time in October 2017. The conference was a venue for stakeholders to share knowledge and business opportunities for potential investors.

Housing Policy and Regulations

Senegal’s complex legal and regulatory framework has been identified as one of the factors responsible for housing deficit.  As a result the present government is addressing the issue through participative process by all the stakeholders of the sector; hence some reforms are being implemented. New legal frameworks to regulate social housing is intended to accelerate production of affordable houses, reduce cost of production, regulate control, promote innovation, promote the exploitation of local resources, creating employment and wealth.  The new law and accompanied measures hopefully will enhance the effective implementation of other rules and regulation of the sector.

Changes in law and other incentives to promote the development of real estate especially housing are accelerating housing production and stimulating the formalisation of the real estate market.

The Land Tenure Act ensures security of tenure, and authorises temporary occupancy permit holders in urban centres to transform them, at no cost, into permanent title deeds.  With reinforced security of tenure, it is expected that landlords will invest in upgrading their properties, and they are. Most houses in the capital have been upgraded and land and homes prices have escalated. Dakar residents and even diasporic Senegalese are taking advantage of the new law to register properties, which is causing property values to appreciate. This result is being duplicated in other regions of the country particularly those close to Dakar.

Housing Sector Opportunities

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.  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.

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 has improved its business climate and its performance in dealing with construction and registration of property, and lately enacted a new law to boost production of affordable houses.

The new legal framework and other measures are all incentives for promoting business opportunities and providing the majority of the population with decent and affordable houses.