Housing Finance in Togo

Introduction

Togo is a small country in the Gulf of Guinea which became independent from France in 1960.  A strip of land between Ghana and Benin, Togo occupies an area of 56 800 km², with 56km of coastline, making it a transit country to the hinterland (Niger, Burkina Faso and Chad).  Togo has a population of 7 304 578[i] in 2015, growing at 2.6 percent per year.

Togo is part of the West African Economic and Monetary Union (WAEMU).  The economy is dominated by the primary sector which contributes up to 38 percent to economic growth, while industrial activities contribute 22 percent.  In 2014, GDP growth was measured at 5.9 percent.  This reached 5.5 percent in 2015 according to African Economic Outlook estimates, and projected to 5.0 percent in 2016 due to slow down in infrastructure investments. GDP growth in Togo in 2014 was mainly driven by agriculture and investments in transportation infrastructure and an upturn in activities at the port of Lomé which now enjoys one of the most important investments of the sort on the West African coast. Good economic prospects in Togo over recent years are also the result of several ongoing economic and fiscal reforms in the country since 2008/2009.  In 2014 the Office Togolais des Recettes (OTR), the one-stop tax collection office became fully operational and launched major reforms in tax-collection, including tax paying through the banking system to increase efficiency, among other goals. The inflation rate was kept low at 1.8 percent in 2015.

Despite a significant decrease over the past decade due to government and donors efforts, poverty remains a major concern in Togo, with 55 percent of the Togolese living below the poverty line, according to the 2015 poverty profile.

In April 2015, Togo held peaceful presidential elections, amid political tensions over the need for deep constitutional reforms around the limitation of the number of term for the president, and a new government took office in June 2015. The Head of the State declared the new term a “social term”, thus emphasizing his priority for public spending on social sectors, including the housing sector.

Access to Finance

Togo is part of the Central Bank of West African States of which there are seven other member states (Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger and Senegal).  Togo’s national financial system is highly concentrated, with one bank owning over one fifth of the total banks assets in the country. At the end of 2015, there were 14 banks (including two bank branches), and two financial intermediaries in Togo[ii]: the Fonds Africain de Garantie des Investissements Privés en Afrique de l’Ouest (GARI) and the Regional Mortgage Refinancing Fund (Caisse Régionale de Garantie Hypothécaire – CRRH). The Banking system is dominated by commercial banks, a third of which are government-owned. Togo is also the headquarters of the pan-African bank Ecobank. At the end of 2015, there were a total of 445 bank branches in Togo[iii]. At the end of 2014 there were 218 ATM machines and 786 982 bank accounts[iv]. The Togolese banking system represents 7.4 percent of the WAEMU financial system.

As of March 2016, over a sample of 35 registered microfinance institutions (MFIs) representing 90 percent of the sector, there were 370 service points, totaling 1 729 123 clients or members with a total of CFA Francs 143 738 million in deposits and an outstanding loan of CFA Francs 113 622 million[v]. The Faîtière des Unités Coopératives d’Epargne et de Crédit (FUCEC – Togo) is the biggest microfinance network in Togo with over 500 000 members and consolidated assets worth about CFA Francs 50 billion (about US$83.94 million).

Over the past few years, the government increased initiatives directed to ease access to financial services for its population. In 2014, the government therefore created the National Inclusive Finance Fund (Fonds National de la Finance Inclusive – FNFI) with the aim of reaching those at the bottom of the revenue ladder. The FNFI developed a number of microfinance products specifically targeted to the needs of the poorest at close to zero interest rate. Microfinance clients represent about 43 percent of Togo’s population, one of the highest in the WAEMU region, after Senegal, compared to an average of 16 percent for the monetary union. Yet, Togo ranked 133th out of 189 countries on the “Getting credit” indicator of the Doing Business 2016 report[vi].

Togo has two social security institutions, the Togolese Pension Fund (CRT) for civil servants and the National Social Security Fund (CNSS) for private sector employees and other categories of government personnel.  A National Health Insurance Institute was created, which is a national universal health insurance scheme currently only open to civil servants but expected to be extended to the whole population in the future. As in many African countries, both social security institutions are unfunded defined benefit schemes and face financial difficulties and structural deficits challenges.

Access to credit as measured by credit to the economy was CFA Francs 886 billion[vii] (US$1.3 billion) in 2015, a 16 percent increase from its 2014 level. This represents 36.5 percent of the GDP. For the first time in many years, medium and long term loans represented more than half of all loans, at 53 percent. A few banks offer housing finance and mortgage products and services, ranging from loans for land acquisition to loans for housing enhancement and loans for housing purchase of construction.  Bank of Africa Togo, one of the newcomers of the banking market in Togo, recently launched a housing savings product to encourage its clients to save at least CFA Francs 20 000 per month over at least 36 months (remunerated at 4.5 percent per year), and then apply for a housing loan as high as six times the savings. Conditions of access to these products vary from one bank to the next, but the loan period is usually between four and 10 years.  The interest rate is between 11 and 12 percent on average, while guarantees requested by the lending bank range from a mortgage on the purchased land or house to life insurance.  Some banks request a percentage of up to five percent of the loan as a guarantee.  In general these loans are available to people with regular jobs and revenues from the public and private sector.

According to a recent note prepared by the Central Bank, 2 923 housing loan applications were approved by Togolese banks in 2013, the second highest number of approved loans after Senegal (7 676), for a total of CFA Francs 10.7 billion (US$17.96 million), and represented 5.3 percent of total loans[viii]. However, on average the proceeds of these loans were very small, at around CFA Francs 2.9 million (about US$4 869) per loan. Interest rates dropped in Togo, as in other WAEMU countries by an average of one point compared to their 2006 level, according to a recent report on housing finance in the WAEMU region.

Lomé, the capital city, is also headquarters of the Regional Mortgage Refinancing Fund (the Caisse Régionale de Refinancement Hypothécaire, or CRRH), a regional fund created in 2010 to mobilise long-term resources needed by partner banks to provide long-term loans such as housing finance and mortgages.  Several Togolese banks such as EcoBank and Banque Atlantique Togo are shareholders of the fund.

In September 2014, the Ministry of Housing and Urban Development organised a workshop to validate the feasibility study of a housing bank in Togo, as in Benin and in Mali. However, the creation of the bank is yet to be completed.

Housing Affordability

The average income per person (gross national income per capita) is estimated at US$ 1 320 (in purchasing power parity), according to the World Bank’s World Development Indicators in 2015.  At the same time, the minimum salary in Togo has remained at CFA Francs 35 000 or US$ 59.32 since 2013. In Lomé, the price per square metre of land varies between CFA Francs 16 500 (US$27.70) and CFA Francs 33 500 (US$56.24) in the suburbs and between CFA Francs 33 500 (US$56.24) and CFA Francs 83 500 (US$140.18)[ix] in downtown Lomé.  The minimum size of a plot is 150m² for a minimum housing size of 40m². On average, the land price in the country was estimated to CFA Francs 8 500[x] (US$14.27) per m² in settlement areas in 2010, while the building cost of a medium standing house (villa) was estimated at CFA Francs 75 000[xi] or 127 par m² before taxes.

While the cement price in Togo is the cheapest of all countries in the WAEMU, it is still far above the purchasing power of most Togolese.  Indeed, a standard 50kg bag of cement costs around CFA Francs 4 000 (US$6.71).  A standard galvanised sheet of iron for roofing costs between US$3.11 and US$5.37, depending on thickness. However, the price of cement is expected to decrease in the near future, as the construction of several cement plants was launched in the country, with good prospects for newcomers.

Despite the decrease in cement prices, other construction materials price are still at a prohibitive level for the average Togolese citizen. It will take between 10 and 15 years for a senior manager in the Togolese public administration to pay off the price of land in downtown Lomé.  The cheapest housing unit built by a developer is around CFA Francs seven million (or about US$11 752)[xii].  Under these conditions, housing affordability is a mere dream for most Togolese, even for many with a formal job and a regular income. This pushed most low income households outside of the more urbanized areas, where they develop informal settlements and slums. This is true for example on the northern outskirts of the city of Lome, in Tsevie, where those households can afford to buy a piece of land.

Housing Supply

Over fifty years of government policy in Togo has not yielded many results in terms of meeting the demand for housing. Today housing supply, especially the affordable housing segment is a real challenge that households overcome through self-construction.  But self-construction and poor provision of serviced lands, combined with a rural exodus, have contributed to urban sprawl on the northern side of Lomé, which is now mainly made up of slums.  Only richer people can afford to purchase land in Lomé II, the new settlement area in the capital city, and other secondary cities and build formal houses.  Conscious of challenges in the sector, the government of Togo has actively sought solutions to the problem of the housing shortage, engaging, for example, with Shelter Afrique and private developers in an attempt to supply the housing needed in the market.

Despite several announcements in the past about housing constructions, there has not been much progress. It is in this context that several private operators recently launched a few new housing projects. One is in Lomé, the “Cité des anges”, which plans the delivery of empty plots but also 156 housing units of different standings, and a 20-apartment complex, mostly targeted to the upper income quintiles, located on the west side of the city of Lomé. The project is being carried out by N Real Estates, a consortium of Togolese and foreign nationals. The second project is the Résidence Esperanza, promoted by CECO Immo, a Togolese developer who planned to build 200 housing units in Sotouboua for middle income households, in the center of the country. The project already started delivering a few of the promised units. The choice of Sotouboua to build these housing units is probably justified by the creation of a teachers’ school in that city. However, CECO Group, of which CECO Immo is a branch is currently under financial stress, which threatens the completion of the current development. The government announced in January 2015 the launching of the Cité Mokpokpo project which is supposed to deliver 1 000 social housing units. The project will be completed in public-private partnership with Ivorian real estate operator Societe ivoirienne de promotion immobilière (SIPIM). Three local banks have already expressed their support to the project, namely Orabank Togo, BIA Togo, and Banque Atlantique by offering mortgage loans over 15 to 20 years. The housing units will cost between CFA Francs seven million and CFA Francs 17 million (between US$ 11 752 and US$28 540). The government was clear that the targeted population for this project is mainly civil servants. The project which is partly located in Adidogome in the north-western part of Lomé will comprise 420 villas and 120 apartments.

In October 2015 a new developer launched a new project in Lomé. Derou & Partners, an international holding, through its branch Confortis International launched the first phase of “WellCity”, a new development in Adeticopé, in the vicinity of the Greater Lomé. 500 housing units are planned for this first phase (of which 200 are villas and 300 apartments). The second phase will supply 1 000 housing units and a few community amenities in an ecological design. The development is clearly targeted at the middle class according to its owners, who claim to be financially supported by local banks such as Orabank Togo, Ecobank, Bank of Africa, the International Finance Corporation (IFC) and Shelter Afrique. The first phase of WellCity will be completed in 2020 and those interested in buying properties in the development can get a mortgage up to 15 years at one of the partner banks.

There is a growing but informal rental market, mainly in urban areas, such as Lome, the Capital city, in Kara in the North, and a few other secondary cities such as Kpalime (in the west), Attakpame, Sotoubua and Sokode (in the center), and Aneho (in the south-east). This market is operated by individuals who build and rent out their houses. There are also a few self-called real estate agents who serve as intermediaries between those offering and those demanding rentals, but in the absence of any regulations on real estate, they operate according to their own rules. Renting an apartment or a house in become more and more expensive, because of the high demand for housing in urban areas, while salaries, especially in the public sector have not change much over the past 30 years. In Lome, one needs at least CFA francs 50 000 (US$83.94)[xiii] to rent a one-bedroom apartment.

Property Markets

Togo’s formal property market is still developing.  According to the 2010 general population and housing census, only 68 074 of all properties in the country had a property title, of which 14 238 were in Lomé.  A study commissioned in 2008 by the Ministry of Justice found that it took nine steps and 49 procedures to register land in Togo, and cost on average CFA Francs 250 000 (US$419.71).  Another study commissioned in 2011 in preparation for the Togo Land Code found that a total of 10 government agencies were involved in delivering a land title, through a process costing up to 25 percent of the property value.  This cost does not include the official cost of the land title, which comes to 11 percent of the value of the property. However, according to the World Bank’s 2016 Doing Business Report, Togo remains among the slowest in West Africa on the “Registering a property” indicator. It takes five procedures, 288 days and costs 9.20 percent of the property value to complete a property registration. As such, Togo ranks 182th out of 189 countries in 2015. However, Togo made it easier to register properties in 2015, by lowering property registration tax rate.

The cadastre in Togo is mostly limited to Lomé, the capital, despite the existence of a Central Directorate of Cartography and Cadastre (DGCC) with a national mandate.  It has been reported recently in a diagnostic study on land problems in Togo, commissioned by the Ministry of Urban Development and Housing that the land title had lost its unimpeachable character due to rampant corruption, which has resulted in many cases of double registration of the same piece of land.  Indeed, there were several court cases pending in which different people claimed ownership of property title on the same piece of land because the registry was corrupted at some point. To rectify this situation, the DGCC with financial support from the Japanese International Cooperation Agency (JICA), contracted ESRI France in 2015 to develop a new cartographic database covering the whole country, in order to establish a national cadastre.  It is also expected that the new Land Code will help to address more effectively the issue of land security, streamline the titling procedure and institutions and give back value to the land title.

Obtaining a construction permit became mandatory in 2007.  The rule is jointly enforced by the Togolese Order of Geometers, the Ministry of Urban Development and Housing, and some municipalities such as that of Lomé or Kara. Yet, it is still very expensive to get such permit (which remains unaffordable to most Togolese), as it costs 458.5 percent of per capita income, takes 155 days and 12 procedures to obtain it. In 2014, Togo has improved construction permit procedures, cutting down the time it takes to get it by half, from 309 days in 2013 to 165 days in 2014. People thus continue with direct sales of properties on the basis of a simple sales agreement in the informal market. Sometimes, for those who can afford it, the assistance of a notary is procured.

There are a few housing brokers operating on the Togolese housing market. Among those are Phillison and Co., Immowants, Le Logis, and Confortis international SA, which are all private real estate agents offering a platform for home buyers and home sellers to meet.

Housing Policy and Regulations

Most of the existing policies and regulations were enacted between the 1950s and 1970s and guided the Government’s willingness to provide adequate and affordable housing to every Togolese. Unfortunately most of these policies have failed to achieve the intended goals. Because of the failure of past policies, the housing deficit grew over the years and reached around 250 000 in 2014, requiring a supply of 23 000 units a year on average to clear the backlog.

However, during the decade starting in 2000, urban development, housing and land policy questions returned to the public policy agenda.  The government adopted a few policy documents, including the National Urban Sector Policy Statement, a Housing Policy Statement, and a new National Housing Strategy.  The focus of the latter is to reorganise the housing sector through the adoption of adequate legislation, the improvement of the existing real estate stock and provide all social strata, particularly low and middle income households, with affordable housing that meets minimum safety, occupancy, structural stability and temporal standards.  The strategy stipulates that the government will contribute every year to this demand by facilitating the supply (through public private partnerships and subsidy programmes) of 2 500 housing units against an annual demand estimated at 23 000 units. As of today, no concrete results can be shown on the ground.

Several other reforms were launched, including the revision of the Togo Land Code, the validation of a draft Law on Real Estate Development in December 2010 (which are still pending at the National Assembly – the Parliament) and the drafting of the Togo Urban Development and Construction Code.  The Real Estate Development draft law covers areas such as conditions required to perform the profession of real estate developer, social real estate development operations (the law imposes a minimum of 100 housing units for this type of operation) and the production of serviced land.

More recently, in April 2016, the government adopted a decree that completely overhauled the construction permit process. The previous regulatory framework dated back to 1967. With the new decree, the construction permit process was improved on two aspects: the length of the process, which was reduced from eight months to 30 days, and a drastic reduction of the cost of the permit through the streamlining of the administrative process. In March 2016, the Togolese Parliament adopted two new laws to enhance the business environment in Togo, in compliance with WAEMU requirements:  the Law on the regulation of Credit Information Bureaus, and the law on external financial relations between WAEMU member States.

Housing Sector Opportunities

One can say that Togo has fully recovered from more than a decade of international embargos. The government has engaged in several important economic and fiscal reforms which should continue improving the business environment, but also the road and energy infrastructure.  Togo improved its overall ranking by 2 places, from 152^nd in 2015 to 150^th in 2016. With a high demand for housing, several companies and organisations, including Shelter Afrique, have been positioning themselves to take advantage of a market that is still untapped. The Moroccan real estate investment group Addoha expressed interest in investing in cement plants but also in housing, while the feasibility study for a housing bank in Togo is now completed. This is all in preparation for major changes in the housing finance sector in Togo.

According to a 2011 study by the French Development Agency, the population in Togo should increase by at least 50 percent between now and 2030, and double by 2050 depending on the fertility rate and rural to urban migration.  As a consequence, social demand, including demand for housing, will experience a strong increase, presenting an opportunity for developing innovative housing policies, especially in a context characterised by low incomes. The scarcity of developers today leaves room for newcomers to take advantage of these opportunities.

The Head of the State has declared his new term a social term, and as such has put social expenses high on the Government expenditure schedule. The Government has also heavily invested over the past years in enhancing the urban environment, and servicing new neighborhoods so as to prepare them for new settlements. At the same time, the housing sector is almost virgin, with only a few small providers currently operating; which leaves a lot of opportunities for new comers to find their niche. The affordable housing segment is where lay most of opportunities.