Housing Finance in Seychelles

Introduction

The Seychelles is a small country, comprising 115 islands covering a wide geographical area in the Indian Ocean, northeast of Madagascar.  With a small population of only about 93 419 people 1n 2015 (an increase of 2.2 percent over 2014), the Seychelles is ranked third in terms of human development in Africa, with its Human Development Index ranking 64^th globally for the year 2015 (from 71^st in 2014).  It has met most of the Millennium Development Goals.  The Seychellois economy is heavily dependent on the global economic environment.  Tourism dominates the economy and is the main employer.  Fisheries are the country’s most important export sector, accounting for over 90 percent of export revenues, but represent only about 11 percent of employment.

In July 2015 Seychelles reached high-income status, reflecting the government’s sound macroeconomic policies and comprehensive structural reforms in recent years that have supported robust economic growth, averaging 5.3% during 2011-15.

Overall, in 2015 the Seychelles economy is estimated to have grown by 4.3 percent, a slower pace compared to 6.2 percent growth in real GDP achieved in 2014.Services remained the key drivers of growth and the overall outcome reflected the modest increase in the direct value-added contribution from the tourism sector; an outcome that was consistent with the concerns expressed over yield although positive growth in activity was recorded.

Similar to recent years, the primary industries remained the sector that faced the most challenges during 2015.

The World Bank 2016 Doing Business report ranked Seychelles 85 out of 189 countries in the Ease of Doing Business Index, the same rank as in 2015.

Inflation has fluctuated considerably in the past few years as a result of exchange rate issues and a consequent depreciation of the rupee. In 2015, the inflation rate appreciated to 4.0 percent from 1.4 percent in December 2014. This was particularly due to an increase in disposable income subsequent to the revision in the salary grid of the public sector coupled with a 20 per cent increase in minimum wage introduced at the start of 2014. A significant proportion of these facilities went towards the financing of consumer goods rather than to the productive sectors.

Access to Finance

The Seychelles has a relatively well developed financial system. Nine banks are listed on the Central Bank of Seychelles website, together with 14 ‘class A’ exchange bureaux and 12 ‘class B’ exchange bureaux, three non-bank financial institutions  (the Development Bank of Seychelles, the Seychelles Credit Union and the Housing Finance Company), four domestic insurance companies, three non-domestic insurance companies and multiple insurance intermediaries.  The two largest banks have a 69.5 percent share in the system’s total assets. Lending rate goes up to 12.36 percent.

Access to finance in the Seychelles is moderate.  The International Monetary Fund reports that there are 54.78 commercial bank branches per 100 000 adults and 102.17 ATMs per 1 000 km² (or 66.01 ATMS per 100 000 adults – 2014).  Outstanding loans from commercial banks as a percentage of GDP are 36.23 percent.  The levels of bank lending to individuals and business are also low, even as most of the banking assets held are in government obligations.  Seychelles scores 109^st out of 189 countries on the World Bank’s ‘ease of getting credit’ indicator, according to its 2016 Doing Business Report, rising 62 places from 171^th the previous year.  Microfinance is extremely limited, but growing slowly as international microfinance institutions begin to infiltrate the local financial services market.  As part of the country’s private sector development strategy, the government worked with the International Finance Corporation to put in place regulations to create a credit information system, which became operational on 1 July 2012.  The World Bank, together with the Seychelles government, prepared a Country Partnership Strategy (CPS) in 2012, focusing on reducing vulnerability to external shocks, building competitiveness, strengthening public-sector management and restructuring social-service provision.  This CPS is worth approximately US$7 million a year (total of US$21 million) and will also support Seychelles’ attempts to develop and manage an oil industry, should commercially viable reserves be identified. The IFC, the World Bank’s private-sector arm, will play a key role in the CPS, with a particular focus on the financial sector, small and medium-sized enterprises, capital-market development (including the proposal to launch a stock exchange), tourism, fisheries and infrastructure development.

By the end of 2015, total loan advances to the private sector increased to Rs 4,587 million (US$346 million), from Rs4 278 million (US$322 million) in 2014. The total outstanding domestic credit at the end of 2015 amounted to Rs9 727 million (US$734 million), which was a growth of 8.7 percent compared to the previous year.

A breakdown of the sectorial allocation of credit to the private sector showed that ‘tourism’ and ‘private households & non-profit organisations’ –each accounting for a share of 21 per cent of total private sector credit –represented the largest proportion. In 2015, the stock of outstanding credit to those sectors grew by5.4 per cent and 21 per cent respectively. ‘Real estate’, another prominent sector, recorded a growth of 14 per cent whilst ‘mortgage loans’, which accounted for 11 per cent of total outstanding loans, rose by 7.9 per cent. In terms of weighted contribution to the 6.9 per cent growth in credit to the private sector, the three main categories were real estate (1.8 per cent), wholesale & retail trade (1.5 per cent) and manufacturing (1.1 per cent).

Housing finance has received explicit attention through two state-sponsored institutions – the Housing Finance Company (HFC) Limited and the Property Management Corporation (PMC).  The HFC was established in 2004 from the merger of the Seychelles Housing Development Corporation and a former PMC.  In January 2013, the HFC underwent a transformation that saw the PMC split off again so that the two entities now operate independently though in co-operation with each other.  The HFC is the financier, offering construction and end-user finance for housing development, home purchase and home improvements, whereas the PMC is the developer, focusing on the construction, management and maintenance of government’s social housing stock.  In the past decade, the HFC has approved over 8 200 loans for a sum of Rs733 million (US$55.32 million).

The HFC offers a range of end-user products promoting housing affordability.  The Home Loan is available to Seychellois with a maximum income of Rs20 000 (about US$1 509) a month.  There is no minimum qualifying income, though in practice loans are not affordable to those who earn less than Rs6 000 (about US$452) a month.  The HFC registers a first charge over the property.  It is compulsory for beneficiaries to obtain mortgage insurance and provide ‘assignment of salary’.  The maximum loan period is 23 years.  The HFC also has a Home Savings Scheme to enable Seychellois to save a minimum deposit of 10 percent to qualify for government-constructed housing (the current purchase price of government subsidised housing is about Rs450 000, or (US$33 962). Should affordability of the 10 percent deposit be a problem, prospective beneficiaries must demonstrate that they can at least save 10 percent of their monthly income.

The HFC’s House Extension Loan has a maximum loan size of Rs75 000 (about US$5 660) at an interest rate of 10 percent and a maximum loan period of six years (which can be extended to seven or eight years under special circumstances).  There is no maximum qualifying income criterion and a guarantor is compulsory.  The guarantor is assessed on the basis that s/he can afford the monthly repayments, not necessarily that s/he is able to afford to repay the entire loan amount.  The HFC also offers Home Improvement Loans up to a maximum loan amount of Rs50 000 (about US$3 773). Applicants must earn less than Rs8 000 (US$604) a month per household.  The repayment period is five years and the interest rate is currently 10 percent.

A new housing finance subsidy scheme was implemented in 2014, with a total budget of Rs21 million (US$1.58 million).  This scheme allows first time home buyers earning under Rs20 000 (US$1 509.43) a month to qualify for a government subsidy in the form of a cash grant between Rs50 000 (US$3 773) to Rs200 000 (US$15 094) as a down payment. To qualify for the subsidy, applicants will need to have a minimum of 10 percent as personal contribution towards the cost of the property. However, having noted that some deserving households cannot afford to contribute the required 10 percent, HFC is considering reducing it to 7.5 percent, on case to case basis.

Housing Affordability

The Seychelles has a generous social welfare system that supplements incomes considerably.  Education is free, and subsidies are provided to support post-secondary education.  The government is the principle health-care provider and spends significant budgetary resources in the sector.  Housing is the primary capital and services expenditure item for the private sector.  Unemployment which was as low as one percent at the end of 2013 increased to 4.2 percent as at the end of 2015.  As the country with the second highest GDP per capita in Africa (US$15 592 in 2014), after Equatorial Guinea, an oil exporter, the Seychelles is classified as one of nine upper middle income countries.

Still, there are pockets of poverty.  Government has noted a rising trend in reliance on social assistance for income enhancement as well as growing social problems, which are impacting on the economy and society.  According to the Agency for Social Protection, the number of households seeking welfare assistance has more than doubled over the past two years.

However, with the review of the benefits system to ensure better targeting, there has been a decrease in the numbers of people on benefits from 18 000 people on benefits and 6 000 on welfare in 2012, to 13 210 on benefits and 1 964 on welfare as of September 2013.

Government subsidised housing is currently being delivered for Rs450 000 (US$33 962), and estate agents advise that for Rs200 000 (about US$15 094) to Rs300 000 (about US$22 641), a buyer can get a very basic unit.  An average three-bedroom home of about 150m² ranges from between Rs750 000 (US$56 604) and Rs1 million (US$75 472).  Construction companies advise that finished homes sell for between Rs9 000 (US$679.24) and Rs10 000 (US$754.71) per m².  Whilst there are no minimum house size regulations, 100m² is the accepted norm for a minimum size. A 100 m² house built by a private promoter costs around US$160 000.

Housing Supply

According to the latest National Bureau of Statistics figures, the Seychelles has 25 929 houses.  Of these, 87 percent are made of stone/block and 13 percent of wood/iron. Unlike in more developed and larger economies, the housing market in Seychelles is still rudimentary. Most people prefer to build and move into new accommodation rather than buy existing accommodation, unless it is for rental purposes.   According to the 2013 Housing and Population Census, the majority of the population (82 percent) say they own the dwelling in which they live.  Some 11 percent rent their houses privately.  Rental of a three bedroom apartment ranges from Rs16000 (US$1 207.54) to Rs19000 (US$1 434). Just under seven percent say they live rent free in a dwelling they do not own.  The vast majority of households (93 percent) have access to treated, piped water, and 82.4 percent have flush toilets connected to a septic tank.  In terms of energy use, 98 percent use electricity for lighting and 92 percent use gas for cooking.   In addition, 94 percent of the population has access to mobile phone and 95 percent possess a television set.

The construction sector has now recorded two consecutive years of growth following an expansion of 3.0 per cent in 2015, albeit this was 12 percentage points below the outcome of the previous year. From the period between 2008 and 2011, the sector had experienced significant growth that was linked with implementation of large-scale FDI projects as well as government housing projects. However, significant declines have been experienced thereafter.

The year saw the continuation of the H Resort, Carana, Eden Island and Felicity Island projects. In addition, infrastructural projects such as for the fisheries sector continued with additional external funding sourced by a key parastatal, ensuring that energy demand is met in the medium term. Developments in the sector were supported by production statistics which showed increases of 68 percent, 11 percent, 4.4 percent and 2.3 percent in production of aggregate, crusher dust, block and plastering dust respectively. However, output of crusher waste declined by 9.4 percent.

A Rs 90 million (US$6.79 million) grant from the Chinese government was received in March 2012, targeted at a variety of local projects, including housing and solar energy products.

In 2014, at least four housing projects were  identified and sponsored by the United Arab Emirates (UAE) government  amounting to Rs72.3 million(US$5.46 million), Corgat Estate housing project from the Chinese Government amounting Rs21 million (US$1.58 million) and a capital grant of Rs66.2 million(US$4.99 million) from the Indian Government.

There is no legislation governing the minimum size of a plot of land.  Properties can range from as small as 20 m² to sizeable small holdings.  Anecdotally, quite a lot of land is privately held, with prices ranging from Rs125 per m² (about US$9.43) to Rs375 per m² (about US$28.30) for unserviced land. Serviced land averages about Rs1 000 per m² (about US$75.47).

Property Markets

The Seychellois property market is strong, driven primarily by the tourist industry.  Real estate websites advertise properties in US dollars or euros, and investors buy new and existing properties, as well as land.  Land in the country is in great demand, and the tourism and agricultural industries compete with the housing industry for sites.  Conflicts over land and housing are set to deepen as the urbanisation rate continues to grow.

The Seychelles ranks 67^th out of 189 countries according to the World Bank’s 2016 Doing Business Report for the indicator ‘ease of registering property’.  The four procedures take 33 days and cost seven percent of the property value.

Housing Policy and Regulations

The Ministry of Land Use and Housing is intent, through a variety of measures, on ensuring access to adequate housing for all Seychellois.  Though the government continues to develop innovative programmes to address the demand for affordable housing, there is a need to increase its capacity to meet the considerable demand in the affordable and low income markets.

The government of Seychelles planned to spend Rs1.2 billion (US$90.56 million) on capital investment projects in 2015. The highest share – Rs329 million (US$24.8 million) – will be allocated to social housing and community development projects in an ongoing effort to provide affordable housing and community services.

In 2012, Seychelles adopted a new housing policy under which the government pledges to work closely with financial institutions by encouraging the supply of finance within the housing sector.  Accordingly, the government worked with the Seychelles Housing Finance Company to ensure that people who earn less than Rs8 000 (US$603.77) a year are able to access lower interest rates.  The government of Seychelles has obtained technical assistance from the World Bank for social housing. The Financial Services Authority Act, 2013, led to the creation of the Financial Services Authority, the regulator for non-bank financial services in the Seychelles.

In 2015, the Ministry of Land Use and Housing. In collaboration with the SHFC, has taken the following decisions to give a boost to the housing sector:

1. Increase in loan amounts

Housing Loan                                from R500, 000 to R750, 000 (US$56 603),

Second Housing Loan                 from R300, 000 to R400, 000 (US$30 188),

House Extension Loan                from R75, 000 to R100, 000 (US$7 547),

1. Increase in net salary for qualifying for a housing loan from R20, 000 toR25, 000 (US$1 886),
2. Decrease in contribution of Home saving scheme (HSS) from 10% to 7.5% of loan amount

Housing Sector Opportunities

The Seychelles has been ranked 85^th out of 189 countries overall in the World Bank’s 2016 Doing Business Report. With the country being a tourist destination, there is a focus on housing for the high income class, and the property market is limited to the luxury market.  House prices in Mahe, the largest of the islands, can start at US$160 000, a furnished two-bedroom house selling up to about US$1 000 000. In a bid to open the country to more foreign investment, recent changes in the law of property ownership have been approved to offer freehold title and residency rights to foreign owners and their immediate families.