Swaziland 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 Swaziland is eight percent, as of September 2016, and requires at least a 10 percent down payment. The cheapest newly built house by a developer recorded by CAHF is US$ 50 000, (which is for a 160 square metre unit). Cement prices are lower than the continental average, at US$ 6.00 for a 50-kilogram bag.
Demand for affordable housing remains strong, both for rental and purchase, as mortgages are only 11 percent of GDP. Housing microfinance will play an important role in increasing the supply of housing, and efforts to increase access should be undertaken. The largest mortgage lender is the Swaziland Building Society, with the four big banks making up the rest of the market. High levels of tenure security provide a strong basis for market growth, but supply is remains constrained, with only 614 new residential units approved in 2014. 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 Swaziland can afford.
Find out more information on the housing finance sector of Swaziland, 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
The Kingdom of Swaziland is a landlocked country in Southern Africa and has a population of 1.3 million inhabitants with a gross domestic product (GDP) per capita of about US$3 000[i]. An estimated 63% of the population lives below the poverty line, and about 29% lives below the extreme poverty line. Inequality is very high with a Gini coefficient of 49.5[ii].
According to the World Bank 2015 report, Swaziland’s economic growth has slowed since 2013, and is projected at 1.3% in 2016 down from 1.7% in 2015. The downward trend is due to continued drought and a difficult external environment, especially from South Africa, leading to a sharp decrease in South African Customs Union (SACU) revenues[iii]. Accordingly, such decrease in revenue, combined with increased public spending, is generating higher fiscal deficits and a growing public debt. Under the current policy stance, the public debt to GDP ratio could increase from 17.4% in 2015 to 24% in 2018 increasing risks of fiscal unsustainability. Economic growth will also be negatively affected mainly by the significant fall in SACU revenues in the short-to-medium term, which is expected to affect government sector-reliant projects. With government being the main driver of the economy’s aggregate demand and a major player in some sectors such as construction, any shocks in revenue would have a negative impact on growth prospects[iv].
Access to Finance
Swaziland’s banking sector is comprised of three private commercial banks, all of which are subsidiaries of large South African banks and one state-owned development bank. The South African subsidiary banks control approximately 86% of the market. Together with Fincorp, a development finance corporation and the largest consumer lender in Swaziland, the banks have 44 branches, 204 ATMs and approximately 1 313 POS terminals.
All the banks remain compliant to set prudential and regulatory requirements in terms of capital adequacy, liquidity and reserve ratios. Despite the slow growth in the Swaziland economy, the banking sector has continued to grow and remained profitable over the last year. Total assets for the banking sector were valued at E15.4 billion (US$1 billion) as at 31 December 2015 compared to E13.4 billion ($865.6 million) in December 2014, which is an increase of 14.3%. This growth was fueled by positive growth in customer deposits which translated to growth in loans and advances. During the same period, it is noted that the quality of assets slightly deteriorated from 6.6% to 6.8%.
Total profits for the banking sector amounted to E485.9 million (US$31.38 billion) in December 2015 compared to E366.1 million (US$23.65 billion) in 2014. This 32.7% increase was attributable to improved cost efficiency by banks as revenues before tax increased by 18.1% whereas total costs only increased by 9.6%. The return-on-assets increased from 3.8% in December 2014 to 4.4% in December 2015. Total banking sector deposits increased by 15.9% to reach E11.65 billion (US$752.9 million) in December 2015 from E10.05 billion (US$649.2 million) a year earlier.
Based on data from the 2014 FinScope in Swaziland, the level of financial inclusion in Swaziland continues to improve with 65% of the adult population using some type of formal financial product. This is a substantial increase from 2011 when only 50% of adults used formal products. This increase was primarily driven by greater usage of formal savings in banks/savings and credit cooperatives (SACCOs) and formal remittances. These inclusion numbers rank Swaziland near the upper third of countries in Africa in terms of financial inclusion for those countries that have undergone a demand-side survey of financial services.
Rural residents are twice as likely to be financially excluded (32%) as urban residents (16%). This may be more of a function of lower incomes of rural residents as opposed to physical barriers which only 3% of persons cite as their reason for being unbanked. Despite broad socio-economic challenges the financial sector in Swaziland has been profitable, well capitalized and stable in recent years.
The primary provider of mortgages in Swaziland is the Swaziland Building Society (SBS), with the four big banks providing the balance. The SBS, established in 1962 is a viable, self-financing development and housing finance institution, and the major provider of long-term mortgage lending.
It provides loans mainly for buying vacant land and housing construction but also for residential and commercial mortgages, and has E1.8 billion (US$116.3 million) in assets. Through a pioneering project, it also lends to residents of informal settlements by working with savings groups. The scheme involves providing loans to buy small plots and for house improvements.
Swazi Bank provides normal commercial banking services with a particular focus on business and development finance. It has been the most pro-active of the banks in serving lower income households. The bank has historically obtained interest-free deposits from the government however; this has since stopped in light of the poor fiscus. The government continues to channel, among others, its mortgage programme for public servants. As of 31 December 2015, urban public servants could borrow up to E400 000, (US$25 856) while rural public servants can borrow up to E200 000 (US$12 920). A variety of other mortgage products are also available. Swazi Bank offers a rural housing loan, mortgaged either by a freehold property, or secured with the borrower’s pension withdrawal benefits. Commercial banks provide a few mortgages for the upper and middle income settlements of the market. The Swaziland Building Society like Swazi Bank also participates in the Swaziland Government Civil Servants Housing Scheme under the same terms as the Swazi Bank.
The Swaziland National Housing Board (SNHB), apart from being a developer and owner of housing, also provides housing finance through the Swaziland Building Society as well as developed land for sale. Nedbank, First National Bank (FNB) and Standard Bank all offer mortgages in Swaziland. Urban housing loans are offered generally at a LTV ratio of 80 to 90%. FNB requires a 40% deposit for a mortgage for a plot of land, while the Swazi Building Society allows an 80% LTV ratio for the purchase of a plot, and a 95 % LTV ratio for the purchase of a house. The maximum loan term across all the lenders is 25 years, although Nedbank allows 20 years and FNB 30 years for house purchase. Interest rates are similar to what is available – 10.5 % as per the prime rate in 2015. The Swaziland Building Society offers its mortgage at slightly below prime at 8%.
The vast majority of members of SACCOs and the Building Society also have accounts at banks; as such, the current product offerings are doing little to expand the frontiers of financial inclusion. The capital market segment in Swaziland is small comprising of a limited number of institutions, relatively new starting in 2010 and an extremely low level of activity in the primary and secondary markets – two dealers, five managers of collective investment schemes (CIS) and nine investment advisers which take custody of assets and four exempt dealers. Of the four CISs, one controls about 61 % of the total funds under management. There are only seven listed shares with only four trades in shares and a number of government bonds with maturities from three, five and seven years listed on SSX. The issuance program for government bonds has not been stable. In the past year, one new company was listed in the first quarter of 2014, but this was an introduction of existing shares rather than a capital-raising IPO.
The SBS has established lending for plot acquisition among low income earners. The scheme has less onerous income eligibility criteria than mortgages and provides a starter property for incremental building. Loans are partly guaranteed by the state. Loan uptake has been modest, however, due to among other reasons a reluctance to use plots as collateral among poorer households, reluctance to be taxed, general risk aversion by the SBS to lend more, and insufficient targeted marketing. The concept is, however, pioneering and offers a platform for greater lending, taking lessons learnt into consideration.
Since 2010, SNHB has had low-cost offerings priced at E280 000 (US$18 087) to E450 000 (US$29 070). This required a monthly income of E6 486 (US$419) to E10 422 (US$673) to qualify to service the loan. This is beyond the reach of the vast majority in a country where more than 63% of the population is classified as earning less than US$2 a day.
The high levels of tenure security and the availability of housing microfinance products create an adequate platform for this. Housing finance plays a significant role in the Swazi credit economy though; the coming into law of the Consumer Credit Bill 2015 may impact credit extension in the short term as credit institutions adopted with the regulations of the piece of legislation.
Total loans secured by mortgages were E1.8 Billion (US$345.7 million) as at 31 December 2015 and the according to the World Bank 2016 Doing Business report indicated that the ease of registering a property regressed two places to 113 from 111 the previous year. The cost of registering a property is about 10% of the selling price and it takes roughly takes three weeks to have the property registered.
Self-build is the predominant method of housing supply. Households source funds from social support networks (family and friends), moneylenders and other finance sources such as business income and rental revenue.
The Swaziland Housing Board (SNHB) was established in 1988 to provide affordable housing and end-user finance, but current and future developments suggest that the SNHB primarily caters for middle to higher income earners. The SNHB also has a rental portfolio of about 1 085 units in Mbabane and Matsapha and rentals range from E1 231 (US$80) to E4 291(US$277) SNHB claims that this is discounted on the market rate charged by private landlords for similar units. It has three projects underway; 316 units in Mhobodleni Township, 437 units in Nhlangano Township (extension 9) ranging from 361 m2 to 1 150 m2 and 28 upmarket plots in Woodlands. The SNHB has plans for a further three projects: 1 000 hectares for upper and middle income development in Woodlands (phase 2); a mixed development of 330 plots in Ngwenya New Township; and a middle income township in Pigg’s Peak.
The property market in Swaziland continues to show growth and opportunity for potential home buyers.
Property prices in Swaziland are often overly inflated, making them unsustainable and unaffordable to majority of people. This results in the inability to sell available stock at the initial asking price. It is often not the agent or the seller who determines the value of a property. This is influenced by the current market conditions and what buyers are prepared to pay for property in that market.
Another element that will have an influence over the market is the fact that more and more new developments have been built, which has resulted in an oversupply of residential options.
“The oversupply of developments has led to a drop in demand for standard residential plots and housing. A price correction in the market could stimulate demand and could perhaps entice further foreign investment”[v].
The high municipal rates levied in the urban areas of Swaziland have contributed to the trend of more and more people moving out of the cities and building property on Swazi nation land. The problem with this trend is that the land does not hold a title deed, which means that homeowners are unable to use their property as collateral to access bank loans or mortgages from financial intuitions, says Hutton[vi].
Housing Policy and Regulations
In the 2016 World Bank’s Doing Business Report, Swaziland ranked 70 out of the 189 economies under the ease of getting credit indicator.[vii] Out of the 12 questions that measure the strength of legal rights, Swaziland performed poorly on eight of them, attributable to the lack of: i) a unified secured transactions framework, and ii) an electronic notice-based collateral registry available to both incorporated and non-incorporated entities. Swaziland’s framework also fails on the account of inadequate protection of lenders in case of the borrower’s insolvency. On the micro level, access to credit is one of the top obstacles cited by Swazi businesses. In theory, having a framework in place that allows businesses and individuals to use their movable property as collateral for loans can lower the cost of credit, increase access to finance, and reduce risks for creditors.
A 2013 World Bank study comparing access to bank finance pre- and post-collateral reforms in seven countries found that a collateral reform increases access to loans by seven percent, reduces interest rates by an average of three percent and extends loan maturities by six months.[viii] Similarly, the Asian Development Bank assessed the impact of collateral reforms in the Pacific completed since 2006 and concluded that secured lending has expanded significantly.[ix] However, Swaziland is not able to take advantage of the opportunities to lower costs, increase access to credit, and reduce risks, because the framework governing securing movable property as collateral is non-existent. This means that while banks can take movable property as collateral, there is very little value from securing this property as there are practically no ways to register the collateral, enforce against the collateral.
In this regard, priority needs to be given to the promulgation of a Rental Housing piece of legislation; this legislation would assist in addressing in detail deficiencies with the Housing Policy of 2001. Furthermore, concerns have been raised with the slow implementation of the Residential Tenancies Bill, intended to address relationships between landlords and tenants.
Finally, much of the current legislation and policy framework dates back to almost 40 years. There remains relevant and more up to date draft legislation and policies which have not moved much. These include the draft National Land Policy and draft peri–urban Growth Policy. Contrasting these policies with the 1961 Town Planning Act, Building and Housing Act of 1968 and Local Government Act of 1969, it is clear that many of these laws are now out of touch with global changes.
Housing Sector Opportunities
The Central Bank has continued to maintain lower interest rates (50 basis points) than in South Africa. Subsequently, the local banks’ prime lending rate increased by a similar 125 basis points to 10 percent while the South African prime rate was higher at 10.5 percent. The differential gives an opportunity for banks to provide cheaper credit for their customers thus stimulating borrowing that can translate to growth of the economy.
The total number of building plans approved, which is a good leading indicator on construction activity, depicted a positive trend rising by 5.5 percent from 728 units in 2013 to 768 units in 2014. Residential building plans approved increased significantly from 519 units in 2013 to 614 units in 2014, indicating potential within the sector.
One of the major reasons behind poor FDI inflow and downward trend in investment in general is the poor business climate in Swaziland. In full cognisant of this challenge and need to prioritize ease of doing business in the country, the government of Swaziland established an Investor Roadmap unit (in August 2014). This unit is tasked with accelerating the implementation of a comprehensive reform action plan (which was crafted in April 2012) that seek to create a conducive business environment not only for foreign investors but also for local small medium enterprises (SMEs) for all sectors. Slight reforms carried out between 2014 to 2015 saw the country improve in the World Bank ease of doing business rankings. The country was ranked 105th in the World Bank Ease of Doing Business report in 2016 from ranking 110 in the 2015 report. However, the country still ranked poorly in enforcement of contracts, registering of property, trading across borders, getting electricity and starting a business. Notably these are corner stone areas that need to be addressed if the country is to realize a turnaround in attracting new investment.