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 2016 edition, which has up-to-date profiles for 51 African countries.Download yearbook
Zambia is a lower-middle income country and the second largest copper producer in Africa. Zambia’s real GDP growth rate is 3.4 percent compared to about seven percent per annum during the past decade due to falling copper prices, reduced power generation, lack of economic diversification, and depreciation of the Kwacha. Zambia is a highly unequal country, with a GINI co-efficient of 0.69 in July 2016. Sixty percent of the population lives below the poverty line (average GNI is about US$1 801.89) and unemployment sits at 9.2 percent. The annual inflation by July 2016 was 21.8 percent, up from 7.1 percent in June 2015 and 8 percent in August 2014.
Zambia’s population, estimated at 15.5 million in 2015, is very young and still quite rural. Just under half the population (46.2 percent) is under the age of 14 and only 2.4 percent are older than 65. The population is projected to increase to 24.9 million in 2030 and 44.2 million in 2050 while the urban population will grow to 12.0 million by 2030, and 25.8 million by 2050, clearly indicating the need for a focused urban housing strategy.
Access to Finance
According to Finscope (2015) the Government’s national target of 50 percent financial inclusion has been exceeded. In 2015, 59.3 percent (4.8m) of adults were financially included up from 37.3 percent (1.5m) in 2009. About 24.8 percent (2m) adults used bank services; 28.5 percent (2.3m) used non-bank formal services. About 6.5 percent of adults (0.4 million) belonged to Savings Groups while 12.5 percent (1.0 million) were members of ROSCAS (or Chilimbas). At least 1.5 percent of adults (100 000) belonged to Savings Groups and Chilimbas. Barriers to financial inclusion include an economy in which over 50 percent of sales are still cash based, weak market competition, and inadequate financial depth.
The banking sector is well-regulated with 19 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. Bank lending for housing mainly targets individuals or institutions in the formal sector. In July 2016 the BOZ Policy Rate was 15.5 percent, down from 18.5 percent in 2015, but up from 12.5 percent in 2014 and 9.75 percent in 2013. The average commercial bank lending increased to 26.47 in 2016, up from 20.5 percent in 2015; it has been above 20 percent for at least the past three years. For non-banking financial institutions the maximum interest rate charged is still calculated at 1.6 on the BOZ policy rate, while for 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) commands about two-thirds of the mortgage market share. The ZNBS reported a total mortgage loan portfolio of K181 million (US$19 million) in mid-2016, an increase from K112 million (US$15 million) held in 2014. A total of K67 million (US$7 million) of home mortgages was made in 2015-16 of which 10 percent was mortgage refinance. In 2014, Government recapitalised the ZNBS with K167 million (US$18 million) which increased access to mortgages by about 63.2 percent from 1 238 in December 2013 to 3 363 by December 2014. The total number of home mortgages outstanding decreased from 2 000 in 2015 to 1300 in 2016. The Pan African Building Society (PABS), Finance Building Society (FBS), First National Bank (FNB), Stanbic Bank, Madison and Meanwood Finance Companies and Royal Money Lender of Zambia are key mortgage lenders. The total mortgage loan portfolio of all Building Societies in December 2015 was K550 million (US$59 million) compared to K1 493 million (US$53 million) in July 2014 and K298.7 million (US$32 million) in 2013. The total deposits amounted to K395 million (US$42 million).
Long term demand for mortgages has continued to be recorded in Lusaka, the Copperbelt and North Western regions. Mortgage finance is expensive with interest rates ranging between 22.5 and 27.5 percent. Access to wholesale finance, high Bank of Zambia (BOZ) Policy Rates and short maturities on available funds, absence of reinsurance firms, inadequate matched funding for long term credit, potential loss due to high default rates, high transaction costs of more than five percent of total loan amount and deposit requirements of 10 to 20 percent and relatively short loan repayment terms from two to 15 years are main constraints.
In 2016 the microfinance sector comprised just over 45 MFIs up from 35 MFI in 2014 and 25 licensed MFIs in 2013. The BoZ requires a MFI to have least 80 percent of its total loan portfolio serving MSMEs, less than 20 percent of the total loan portfolio serving individuals in formal employment and an average loan size per borrower not exceeding K2500 (US$269) making most MFIs non-bank financial institutions. Most MFIs are payroll based consumer lenders, accounting for 92 percent 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.
The BoZ minimum policy interest rate caps for MFIs range between 47 to 50 percent which has further pushed MFI interest rates to 52 percent and above. The Policy 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. The high default rates compelled the Bankers Association of Zambia (BAZ) to establish the first credit bureau in 2006 and the BoZ to make 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.
Some MFIs offer housing loan products in the range of K2 000 to K350 000 (about US$215 to US$37 600) with maximum loan terms of 60 months at an interest ranging between 51 and 53 percent annually. Lafarge, a building materials company, provides loans of up to K2 500 (US$269) to its clients in partnership with BancABC and ZNBS. 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 K4 380 billion or US$470 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, starting at K400 000 (US$42 965). 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 or ‘chilimba’ is commonly used for small loans and home construction or purchase. The Peoples’ Process on Housing and Poverty in Zambia (PPHZ)’s Swalisano Urban Poor Fund allow members to access low-interest loans. People in statutory and improvement areas can borrow using sub-leases and land records and Occupancy Licenses respectively though Councils are reluctant to allow use of their head-leases collateral.
In Zambia, households spend 40 to 50 percent of their monthly income on rentals. Low income households in urban areas can purchase a house costing between K61 300 and K100 000 (US$6 584 – US$10 741) while small scale farmers in rural areas can afford a house costing K24 900 (US$2 675). 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 bedroom 65m2 house by a formal developer cost about K227 500 (US$24 382 but more affordable housing options are delivered by other means. Construction costs for an NGO funded houses range from K8 000 (US$859) for one room, K12 000 (US$1 289) for two rooms, and K153 200 (US$16 455) 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.
Zambia’s existing housing stock 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. About 60 percent is substandard, informal housing, of which 20 percent is traditional, while 21.5 percent is improved, traditional huts. About 32 percent 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. The national annual production rate of about 73 000 units per annum 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, even at the top end.
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-build for mainly for rent or owner-occupation, and may take up to seven years to complete.
The NHA’s delivery track record has not met national expectations: between 1971 and 2002 it built or upgraded only 13 938 dwellings; and since 1994 it has produced less than 100 units per annum. Other state agencies like 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 plan to rent them out, sale or initiate rent-to-own schemes. It is not clear how the NHA’s or other state agency efforts in housing will be funded, however, as the housing budget is small and declining as a proportion of the budget overall. Government allocated K469million (US$50 million) or 0.9 percent of the 2016 budget to housing and community amenities – a significant decrease on the 2015 budget which saw K799million (US$86 million) or 1.7 percent directed at housing.
Private developers like Meanwood, Lilayi Estates, Silverest Gardens, Nkwashi, Roma, Vorna Valley, 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. Developers like Smart Homes Africa, have plans to build two to four-bedroom units and student housing in the US$40 000 to US$80 000 range.
NGOs like Habitat for Humanity, 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 help to fill the affordable housing supply gap. HfHZ secures land from Local Authorities and then provided micro loans of between K40 000 – 45 000 (US$4 300 – 4 833). The PPHPZ through its Swalisano Fund, a form of ROSCA, 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.
Housing supply is constrained by various factors including lengthy environmental approvals for new housing developments; an inefficient land delivery system; high cost of provision of infrastructure and services and legislated planning standards (now under review) particularly existing large residential plots which range between 30x45m (or 1 350m2 for high cost areas); 18x30m or 540m2 for medium cost areas) and 12×24 or 288m2 for low cost areas. Large plot sizes have a constraining effect on efforts to reduce the projected three million housing deficit by 2030.
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 shortage of quality housing at the higher end of the market is driving several developments of modern cluster-style and gated communities. Resale housing stock is limited, especially given that 70 percent 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. Private developers and individuals are able to obtain 99 year leasehold with no limitations and land is transferable. In Zambia it takes on average 45 days to go through the five procedures involved in registering a property in 2015. The cost of the registration process is about 13.6 percent of the property’s value. In 2015 Zambia was ranked 111th out of 189 countries but dropped to 97 of 189 in the 2016 Doing Business Report
Housing Policy and Regulations
The 1996 National Housing Policy (NHP) commits government to spend 15 percent of the national budget on housing. This is clearly unrealistic: in 2016, only 0.9 percent of the national budget was dedicated to housing. The 1996 NHP is also out-dated prompting Government to formulate a new housing policy whose main goal is to facilitate reforms to the housing finance system, increase government financing of housing and developing 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. By mid-2016 the new policy was still in draft state.
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 on going review of the Lands Act of 1995; approval of the Land and National Urban Policy, enactment of the Urban and Regional Planning Act (2015) and the Urban and Regional Planners Act (2014) will provide an enabling environment for housing delivery. The URP Act recognises informality creating potential for housing microfinance by providing collateral. Only 40 percent of the population hold formal title as collateral for loans. A K6 billion (US$644 million) land audit programme is expected to improve title registration enhancing access to housing finance.
Housing Sector Opportunities
The period leading to the 2016 General Elections and Referendum on the Bill of Rights has negatively impacted on national economic performance and created uncertainties in the housing market. Zambia, however, still retains a large untapped residential property market especially for affordable housing. Government has created 33 new districts which require new housing while the huge informal housing stock can be upgraded 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.