Zambia 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 Zambia is 27 percent, as of September 2016 and requires at least a 20 percent down payment. There are currently 1300 mortgages in the country, with the average mortgage size being US$ 4 000. The cheapest newly built house by a developer recorded by CAHF is US$ 65 000, which is for a 90 square metre unit. Cement prices are lower than the continental average, at US$ 5.3 for a 50-kilogram bag.
With an urbanisation rate of 4.13 percent, demand for affordable housing will remain strong, both for rental and purchase. Housing microfinance will play an important role in increasing the supply of housing, and efforts to increase access should be undertaken. The existing housing stock in Zambia is estimated to be 2.5 million units, of which 64 percent is rural and 36 percent is urban housing. About 40 percent of the urban stock is good quality housing; 28.5 percent are detached single unit houses. 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 Zambia can afford.
Find out more information on the housing finance sector of Zambia, 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 2017 edition, which has up-to-date profiles for 54 African countries.Download yearbook
Zambia is a lower-middle income country with a real GDP growth rate of 3.3% and a GNI of US$1 490. The “Zambia Plus” economic recovery programme was launched to reduce budget deficit and create more jobs. Only 11% of the labour force is formally employed. Zambia is a highly unequal country, with a GINI co-efficient of 0.69 as of July 2017. Annual inflation dropped to 6.4% in July 2017 from 21.8% in July 2016. Zambia’s external debt stands at US$8.78 billion while FDI and ODA inflows have increased to US$1.58 billion and US$797.1 million in July 2017 respectively.
The population is estimated at 16.9 million with an annual growth rate of 3% per annum. About 40.47% live in urban centres where population growth is 4.37%. An estimated 60.5% of the population live below the poverty line with 77% of the poorest living in rural areas. Zambia’s population is projected to increase to 24.9 million in 2030 and 44.2 million in 2050 while the urban population will grow to 12 million by 2030, and 25.8 million by 2050, clearly indicating the need for a focused urban housing strategy.
Access to Finance
Zambia has experienced a marked improvement in financial inclusion with 59.3% (4.8 million) inclusion in 2015 exceeding the Government’s 50% target. About 24.8% (2 million) adults used bank services; 28.5% (2.3 million) used non-bank formal services. About 6.5% of adults (0.4 million) belonged to Savings Groups while 12.5% (1 million) were members of Rotating, Savings and Credit Associations (ROSCAs)[i]. At least 1.5% of adults (100 000) belonged to Savings Groups.
In July 2017 an estimated 21% of the population were using the internet while 74.5 out a 100 people had mobile cellular subscriptions. Point of Sale (POS) transactions and e-payments increased, as such citizens have economic access through mobile networks. Barriers include a cash based economy, weak market competition, inadequate financial depth and inability to tap into the informal markets and financial needs of low income home seekers.
There are 19 well-regulated and licensed commercial banks, 15 of which are subsidiaries of foreign banks, four are locally owned private banks, and two are partly owned by the Government.[ii] Bank lending for housing mainly targets individuals or institutions in the formal sector. Average bank lending rates (2017) ranged between 25% and 38% with high credit risk clients paying even higher rates. The Bank of Zambia (BoZ) reduced the Policy Rate to 11% (2017). For non-banking financial institutions the maximum interest rate charged is still calculated at 1.6 on the BoZ policy rate, while for Microfinance Institutions (MFIs) it is 2.3 times the BoZ policy rate. Mortgage financing still remains the main source of formal housing finance. The Zambia National Building Society (ZNBS) is the largest mortgage lender commanding about two-thirds of the mortgage market share. Others are Pan African Building Society (PABS), Finance Building Society (FBS), First National Bank (FNB), Stanbic Bank[iii] Madison and Meanwood Finance Companies and Royal Money Lender of Zambia. The total mortgage loan portfolio of all building societies was ZMK533million (US$59 million) while total deposits amounted to ZMK421million (US$47 million) (June 2017). ZNBS disbursed over ZMK130 million (US$14 million), had 1,212 mortgage accounts with a book value of ZMK177 million (US$20 million) and disbursed ZMK14 million (US$1.5 million) worth of mortgages (July 2017). ZNBS interest rates were between 20% and 31.5% while other building societies were charging between 36% and 51%. Long term demand remains high in Lusaka, the Copperbelt and North Western regions. A MoU between ZNBS, Public Service Management Division (PSMD) and Mopani Copper Mines resulted in a spike in ZNBS loans in 2017.[iv] Government has continued to capitalise the ZNBS to increase affordable housing development especially in rural Zambia.
Barriers to affordable mortgage finance include high interest rates ranging between 20% and 51.5 %, expensive wholesale finance,[v] BoZ Policy Rates, short maturities on available funds, few reinsurance firms, inadequate matched funding for long term credit, high default rates, high transaction costs (usually more than 5% of total loan value), deposit requirements of 10% to 20% and relatively short loan repayment terms from two to 15 years.
The BoZ requires a MFI (of which there are over 36 as of 2017) to have least 80% of its total loan portfolio serving MSMEs, less than 20% of the total loan portfolio serving individuals in formal employment and an average loan size per borrower not exceeding ZMK2500 (US$276) making most MFIs non-bank financial institutions. Most MFIs are payroll based consumer lenders, accounting for more than 90% of total MFIs assets; four are microenterprise lenders while six are deposit-taking financial institutions in terms of the 2006 Banking and Financial Services Act. MFI interest rates range between 42-118%; with most MFIs charging a rate between 60-80%. Some MFIs offer housing loan products in the range of ZMK2 000 to ZMK350 000 (US$221 to US$38, 717) with maximum loan term of 60 months. The BoZ minimum policy interest rate caps have led to many MFIs streamlining their operations, closing marginal branches with high operating costs or decreasing loan sizes and group lending, in an effort to make lending more cost effective. In 2006 the Bankers Association of Zambia (BAZ) established the first credit bureau with the BoZ making it mandatory for all financial service providers to go through the Credit Reference Bureau (CRB). In 2012, TransUnion purchased the CRB which to date remains the sole credit bureau in Zambia.
Lafarge, a building materials company, provides loans of up to ZMK2 500 (US$276) to its clients in partnership with BancABC and ZNBS.[vi] In 2014 Lafarge donated 1 008 bags of cement and free technical (home) designs to Habitat for Humanity Zambia to build 2 150 houses. Pension-backed lending is permissible by Zambian law, though the huge reserve of pension funds (in excess of ZMK4 380 billion or US$484 million), has not been fully exploited for housing. NAPSA has invested in a new Housing Estate in Kalulushi on the Copperbelt, though the units remain largely unoccupied, possibly due to their high cost previously starting at ZMK400 000 (US$44 248) but which have been reduced by more than 30% to attract buyers. NAPSA has been soliciting land from councils to deliver affordable houses. Private developers like Lilayi Estates often draw on pension funds to enable pensioners to purchase housing, but the packages are unaffordable. Public service workers are able to obtain salary-tied loans for home improvements.
Informal finance administered mainly by ROSCAs is commonly used for small loans and home construction or purchase.[vii] The Peoples’ Process on Housing and Poverty in Zambia’s (PPHZs), Swalisano Urban Poor Fund allows members to access low-interest loans. People in statutory and improvement areas can borrow using sub-leases and land records and Occupancy Licenses respectively Councils are reluctant to allow use of their head-leases as collateral.
In Zambia, households spend 40 to 50% of their monthly income on rentals against a minimum allowable expenditure of between 28-30% on housing. Low income households in urban areas can purchase a house costing between ZMK61 300 and ZMK100 000 (US$6,781 – US$11 062) while small scale farmers in rural areas can afford a house costing ZMK24 900 (US$2,754). Developers targeting young professionals are building in the range of US$60 000 and US$100 000. The construction cost of a 2-3 bedroom high cost house is US$80 000 and US$150 000 with monthly rentals of US$800 to US$1 000 while a 2-3 bedroom middle-income house cost from US$65 000 to US$100 000 with monthly rentals of US$350 and US$500.
In 2016, the cheapest newly built 2 bedroomed 65m2 house by a formal developer cost about ZMK227 500 (US$25 166[i] but more affordable housing options are delivered by other means. Construction costs for an NGO funded houses range from ZMK8 000 (US$885) for one room, ZMK12 000 (US$1 327) for two rooms, and ZMK153 200 (US$16 946) for three rooms while a low income council house costs around US$1 000 and US$1 500 with monthly rentals of US$100 to US$150. A 35m2 house costs USD131/m2 to USD162/m2 compared to USD667 and USD950/m2 for high cost housing.
Zambia’s existing housing stock is estimated to be 2.5 million units of which 64% are rural and 36% are urban. About 40% of the urban stock is good quality housing; 28.5% are detached single unit houses. About 60% are substandard, informal housing, of which 20% are traditional, while 21.5% are improved, traditional huts. About 32% of the dwellings in rural areas are traditional housing. The urban housing backlog is estimated at 1 539 000 units, that is expected to reach over 3.3 million by 2030 nationally.[i] The national annual production rate of about 73 000 units per annum[ii] falls far below the national requirement with the Copperbelt, North Western and Lusaka Provinces and the 33 newly created districts facing the most critical housing shortage, supply constraints exist across the market.
The main housing suppliers have been the mining houses, local authorities, and government. By law, housing was supplied as part of an employment contract but following the liberalisation reforms of the 1990s, this link was broken and each household became responsible for its own housing. Many who could not afford homeownership or pay market rentals moved into low income areas and informal settlements. Most current housing supply is self-built, mainly for rent or owner-occupation, and may take up to seven years to complete. About 80% of the total housing stock is informal self-built housing.
The NHA’s delivery track record has not met national expectations since 1994 it has produced less than 100 units per annum. NAPSA, Zambia State Insurance Corporation (ZSIC) and Workmen’s Compensation Fund have built units for rent in major towns. However, due to the high cost of completed units many have remained unoccupied. Both the NHA and NAPSA are renting them out, selling at reduced prices or have initiated rent-to-own schemes.Government allocated ZMK823m (US$92m) or 1.3% of the 2017 budget to housing and community amenities.
Private developers like Meanwood, Lilayi Estates, Silverest Gardens, Nkwashi, Roma, Vorna Valley, and Salama Park have emerged, but their contribution to housing supply is less than 5 000 completed units per annum focusing more on the high end of the housing market. Smart Homes Africa,[iii] is building two to four-bedroom units and student housing in the US$40 000 to US$80 000 range. Phathisa[iv] is building 1000 (52-56m2) mixed income units costing US$60-70 000 on 7 hectares and 192 walk-up 2 bed apartments on 1.7 hectares at Makeni in Lusaka. Ellomax Zambia is partnering with ZNBS to build 2000 mixed income houses in Ndola.
NGOs like Habitat for Humanity (HfHZ), Zambia Homeless and Poor People’s Federation (ZHPPF), People’s Process on Housing and Poverty in Zambia (PPHPZ), Shelter for All and the UK-based Homeless International[v] help to fill the affordable housing supply gap through organized collective action. HfHZ secures land from Local Authorities and then provides micro loans of between ZMK40 000 – 45 000 (US$4 424 – 4 978). The PPHPZ through its Swalisano Fund[vi], a form of ROSCA, with savings currently at US$172 248, has continued to support the poor to build core houses and complete units in various towns of Zambia. The ZHPPF has mobilised more than 50 000 urban poor families to secure land in 42 municipalities and signed a MOU with the NHA, to commit land to federation members. PPHPZ has profiled more than 57 slums nationally for upgrading with 24 (or 42.1%) of these in Lusaka.
Constraints include exchange rate fluctuations, high unemployment rates and national debt, lengthy environmental approvals for new housing developments; an inefficient land delivery system; high cost of land (a 25 x 35m (875m2) stand/plot pegged at USD800/stand)[vii], and application fees (of US$30). Other factors include provision of infrastructure, services and legislated planning standards (now under review) particularly for existing large residential plots which range between 1 350m2 for high cost areas; 540m2 for medium cost areas and 288m2 for low cost areas. Large plot sizes have a constraining effect on efforts to reduce the projected three million housing deficit by 2030.[viii
At the top end, Zambia boasts a vibrant and growing residential property market; and its rental housing market has registered a threefold increase since 2014. The demand for high end quality housing is driving several developments in modern clusters and gated communities. Resale housing stock is limited, especially given that 70% of Zambia’s total housing stock is classified as informal. Lower income groups have challenges obtaining affordable housing as there is little formal development.
Land for property development is owned by the state but administered mainly by local authorities and traditional leaders. In Zambia at least 194,600 ha of land is required of which 139,000 ha is for housing and 55,600 ha for amenities and infrastructure. About 60% of land is required for rural housing while 40% is for urban housing. Private developers and individuals are able to obtain 99 year leasehold with no limitations and land is transferable. Zambia has an overall doing business ranking of 98 out of 190 countries and stands at 145 in the ranking of 190 economies on the ease of registering property. Registering property requires six procedures, takes 45 days and costs 9.9% of the property value.
Housing Policy and Regulations
Government has created a new Ministry for Housing and Infrastructure Development (MHID) and is implementing the Seventh National Development Plan (SNDP) with emphasis on public-private partnerships. Delays in completing the National Housing Sector Development Policy (NHSDP) is likely to affect delivery of affordable housing in Zambia. The NHSDP aims to facilitate reforms to the housing finance system, increase government financing and develop public social housing estate funds and group housing improvement finance schemes. Other measures include improving affordability of mortgages by providing mortgage guarantee schemes, fiscal incentives to private financial institutions and introducing mortgage specific policy rates.
Significant challenges remain in reforming legislation around collateral and credit recovery. The slow land delivery system is a major constraint on private sector finance. The ongoing review of the Lands Act of 1995; approval of the Land and National Urbanisation Policy, enactment of the Urban and Regional Planning Act (2015)[i] and the Urban and Regional Planners Act (2014) will provide an enabling environment for housing delivery. The URP Act recognises informality[ii], and creates potential for housing microfinance by providing collateral. Only 40% of the population hold formal title as collateral for loans. A ZMK6 billion (US$644 million) land audit programme is nearing completion and is expected to improve title registration enhancing access to housing finance.
Housing Sector Opportunities
After the 2016 General Elections and Referendum on the Bill of Rights, relative stability has contributed to a predictable housing market. The residential property market remains largely untapped. Government has continued to create more new districts[i] with the current total standing at 105 districts which provides an opportunity for new affordable housing development. The huge informal housing stock requires an upgrade to decent and acceptable standards thereby increasing both their quality and market value. The microfinance sector has good potential for growth while housing microfinance could benefit from specialised institutions away from traditional MFIs. There is huge potential to increase financial inclusion among the majority poor as well as use of existing accounts for loans and mortgages.