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 population of about 95 000 people 1n 2016 (an increase of 1.3  percent over 2015), the Seychelles is one of the highest human development countries in Africa, with its Human Development Index ranking 63^rd  globally for the year 2016 (from 74th  in 2015).  It has met most of the Millennium Development Goals and reached high-income status in 2015.  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.

The growth rate dropped from 5.7 percent in 2015 to 4.8 percent in 2016 and is expected to fall further.  The main drivers are traditional tourism, fisheries and information and communications technology.  Given the open character of the country’s economy and its dependence on tourism and fisheries in terms of GDP contribution, trade and employment, Seychelles is highly vulnerable to external shocks and particularly environmental and climatic issues.  Heavy reliance on tourism makes it dependent on demand from other countries (notably from Europe and Asia), which has been erratic in recent years. Reliance on fisheries makes it dependent on commercial fish stocks that are also being exploited by neighbouring countries. Hence, the urgent need for diversification of the economy. The development of the private sector is paramount to achieving a more diversified economy, but it requires a more enabling environment to exploit its potential and expand into new business areas.

The World Bank 2017 Doing Business report ranked Seychelles 93 out of 190 countries in the Ease of Doing Business Index, the same rank as in 2016. While enforcing contracts has improved in Seychelles, starting business, getting credit, protection of minority investors and dealing with permits amongst others have not kept pace.

Prudent fiscal and monetary policies, coupled with continued political stability, have helped consolidate macroeconomic stability, and inflation is expected to remain in single digits. The Central Bank of Seychelles has adopted a tight monetary policy. The stable external value of the domestic currency coupled with the generally weak international commodity prices as well as the monetary policy stance adopted by the Central Bank led to the inflation being close to zero in 2016.

Access to Finance

The Seychelles has a relatively well developed financial system overseen by two regulators namely, the Central Bank of Seychelles and the Financial Services Authority. Nine banks are listed on the Central Bank of Seychelles website, together with 13 ‘class A’ exchange bureaux and 12 ‘class B’ exchange bureaux, four non-bank financial institutions and the Housing Finance Company. SBM Bank (Seychelles) Limited was granted a licence in 2016 but is yet to commence operations. The Financial Services Authority has licensed five domestic and six non-domestic insurance companies as well a number of insurance intermediaries. Seychelles also has a securities exchange and a number of intermediaries.

For 2016, credit granted rose by 17 percent to reach R7 578 million. Credit granted to the private sector amounted to R5 123 million, representing an increase of ten percent over the previous year. The share of credit to private sector fell from 72 percent in 2015 to 68 percent in 2016. Loans to private households and non-profit organisations represented 21 percent of the loans to the private sector. Mortgage loans increased by 15 percent to R578.4 million in 2016. However, credit to the real estate category, with a share of 12 percent of total private sector loan, dropped by two per cent.

Banks remain overall in good financial health and adequately capitalized despite the economic downturn, reporting solid earnings and high net interest margins, though these have declined since 2009 due to lower interest rates on government securities. Private sector credit remains low at about 25 percent of GDP and is growing slowly despite ample liquidity. The country’s banking sector continues to be dominated by state and foreign institutions.

Housing finance is dominated by semi-public institutions. The Seychelles Housing Development Corporation (SHDC) contributes approximately one-third of credit to the private sector in the form of subsidized lending for housing. Due to the large subsidies, the government has been making efforts to transfer a portion of the institution’s housing loan portfolios to commercial banks.

A Financial Literacy Baseline Survey was conducted by FinMark Trust in 2016 which revealed that 94 percent of Seychellois are banked. Moreover, of the six percent currently unbanked, 80 percent were previously banked. Most have an opportunity to use banking services, thus placing Seychelles as the most financially included country in the Southern African Development Community. The study also found that 75 percent of Seychellois earn regular and consistent income from formal channels such as government jobs, employment at private companies, receiving salaries from another individual or self-employment.

Surprisingly, despite receiving the same number of points, Seychelles has been ranked 118^th (out of 190 countries) for getting credit for 2017 in the Doing Business report compared to 109^th in 2016.  Microfinance is extremely limited, but growing slowly as international microfinance institutions begin to infiltrate the local financial services market.  However, Seychelles has shown no intention of developing a regulatory framework specific to microfinance as noted in the FinMark Trust SADC Microfinance study 2011.

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 SR733 million (US$55.32 million).

Analysis of other key segments of the economy shows positive growth across the remaining services sub-sector.  A growth of 4.0 per cent is estimated in ‘owner occupied dwellings’, reflecting an increase in home ownership compared to a decline of 2.7 per cent recorded in the previous year.

Housing Finance Company Limited (HFCL), incorporated in 2003, is a government owned company which provides financing to Seychellois for acquiring land, building homes and financing home improvements.  HFCL borrows affordably from banks and passes the lower interest rates to its clients. It has served low and moderate-income households, and aims to continue providing affordable loans to the less income earners while operating a proficient company.  As part of its growth strategy, HFCL will expand the loan portfolio through a SR150million loan from Barclays Bank.

The HFC offers a range of end-user products promoting housing affordability.  The Home Loan is available to Seychellois with a maximum income of SR20 000 (about US$1 481) a month.  There is no minimum qualifying income, though in practice loans are not affordable to those who earn less than SR6 000 (about US$444) a month.  The HFC registers a mortgage bond (“first charge”) on the properties, and requires 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 SR450 000, or (US$33 319). 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 SR75 000 (about US$5 553) 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 SR50 000 (about US$3 702). Applicants must earn less than SR8 000 (US$592) 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 SR21 million (US$1.55 million).  This scheme allows first time home buyers earning under SR20 000 (US$1 481) a month to qualify for a government subsidy in the form of a cash grant between SR50 000 (US$3 702) to SR200 000 (US$14 809) 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 3.6 percent at the end of 2015 increased to 5.5 percent as at the end of 2016.  As the country with the second highest GDP per capita in Africa (US$28 148 in 2016), after Equatorial Guinea, an oil exporter, the Seychelles is classified as the 47^th highest income country in the world.

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.  Through benchmarking with international governmental bodies for the last decade, the Seychelles Government has geared its housing policies from being the major supplier, hence subsidising to more of a facilitator given that families are being orientated to be more financially independent. The Government housing policies are not stagnant, but are intended to fluctuate with the current housing/economic conditions. The current policy is geared to refer upper income group earners to private/commercial financial institutions.

The Government of Seychelles has two schemes in place namely, the social housing and the condominium. The condominium targets semi-professionals and professionals and is based on loan sustainability and needs/urgency/priority. Social housing is provided to the general public in need of a decent house. Allocation is based on needs and established by priority rating and recommendation from the local district authority.

The Government of Seychelles has a policy to assist the Seychellois in seeking loans with financial institutions. There are six categories of house and loan schemes namely, full housing loan (to construct a new house), home improvement loan (for minor maintenance/renovation works), 2^nd housing loan scheme (for construction of a second house – new construction), house extensions schemes (for the construction of one extra bedroom bathroom only), land loan (to purchase land from the Government/private), and land and house loan (to purchase and existing property).

Government subsidised housing is currently being delivered for SR500 000 (US$37 021), and estate agents advise that for SR200 000 (about US$14 809) to SR300 000 (about US$22 213), a buyer can get a very basic unit.  An average three-bedroom home of about 150m² ranges from between SR750 000 (US$55 532) and SR1 million (US$74 043).  Construction companies advise that finished homes sell for between SR11 500 (US$851.49) and SR62 000 (US$4 590.65) 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.

The Financial Literacy Baseline Survey conducted by FinMark Trust in 2016, revealed that the second most important motive for borrowing by Seychellois was to buy or build a dwelling or simply to improve of renovate a dwelling. However, the percentage of Seychellois saving towards buying, building or renovating a dwelling is extremely low.  Unfortunately, the study also reveals that the main reason for borrowing is to pay off debt, with surveys showing around 26 percent of Seychellois are over-indebted. About 67 percent of adults make use of credit from banks. They may also access credit from other sources. Six percent access credit from informal credit providers, while about three percent exclusively rely on credit from family and friends.

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. There is a change in building materials and in living conditions and new patterns in lifestyle, from wood to stone/block, with palm/lattice houses to modern structures with modern telecommunication technology, household amenities and ownership of assets.

The housing market in Seychelles is still rudimentary. Most people prefer to build and move into new accommodation; existing accommodation is purchased primarily 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.  Three-bedroom apartment rentals range from SR 16 000 (US$1 184.) to SR 19 000 (US$1 406). 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 is showing signs of stagnation as per the quarterly national accounts bulletin of the National Bureau of Statistics with negative growth noted in quarters one and four. 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.

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.  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. Most land is privately held, with prices ranging from SR731 per m² (about US$56) to SR375 per m² (about US$28.30) for unserviced land. Serviced land averages about SR1 000 per m² (about US$74).

The Seychelles ranks 66^th out of 190 countries according to the World Bank’s 2017 Doing Business Report for the indicator ‘ease of registering property’.  The four procedures take 33 days and cost seven percent of the property value.

In Seychelles foreigners can own property.  Seychellois can purchase property at any time without permission and the transfer tax is set at five percent of the purchase price.  A non-Seychellois may purchase immovable property which is privately owned or rights therein in Seychelles subject to sanction being obtained from the Government of Seychelles. Sanctions granted are valid from one year from the date on which these were issued during which time the transactions must have been effected and registered.

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 announced in its national budget that for the year SR 14.5 million will be allocated for Home Improvement/Re-roofing Scheme for pensioners through HFC and SR 25 million for housing finance subsidy schemes. Moreover, SR 150 million is being reallocated from other infrastructure projects towards the financing of affordable houses with a view to reduce cost of living.

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 SR500, 000 to SR750, 000 (US$56 603),

Second Housing Loan          from SR300, 000 to SR400, 000 (US$30 188),

House Extension Loan             from SR75, 000 to SR100, 000 (US$7 547),

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

Housing Sector Opportunities

The Seychelles has been ranked 93^th out of 190 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 higher incomes.  Property prices in Seychelles’ high-end have risen continuously over the past several years. House prices in Mahe, the largest of the islands, were as follows:

• one-bedroom apartments sells for an average of SR6.17 million (US$475,000).
• two-bedroom apartments sells for an average of SR8.76 million (US$675,000).
• villas sell for an average of SR45.43 million (US$3.5 million).

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.