- Access to Finance
- Housing Affordability
- Housing Supply
- Property Markets
- Housing Policy and Regulation
- Housing Sector Opportunities
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2018 edition, which has up-to-date profiles for 54 African countries.Download yearbook
East African Community (EAC)
In the last 16 years, the East African Community (EAC), has made significant progress in deepening and widening regional economic cooperation and facilitating cross-border interaction, among its Partner States and other Regional Economic Communities (RECs). Notable achievements in 2015 alone, include (i) developing Bills for the establishment of the East African Monetary Institute and the East African Statistics Bureau to support the transition to a single currency; (ii) implementation of the roadmap for the development of the EAC trading, payment and settlement systems; (iii) initiating the process for determining an appropriate model for the EAC political federation and (iv) development of cross infrastructure, including establishment of One Stop Border Posts at 11 borders.
The EAC is now ranked as the top performing REC in Africa, with higher than average scores across each dimension of the Regional Integration Index. Developed in 2016, by the African Union, the African Development Bank, and the United Nations Economic Commission for Africa, the Integration Index assesses the following dimensions regional infrastructure, trade integration, productive integration, free movement of people and financial and macro-economic integration.
Today, the EAC boasts of a common market of 154 million people, following the admission of the Republic of South Sudan, in April 2016, and a combined nominal GDP of US$154.5 billion. The EAC is considering further enlargement, to include the Democratic Republic of Congo and Somalia. The goal is to broaden the common market to about 250 people, and also promote investment and competitiveness, across a bigger membership that is politically and economically secure.
Kenya, Tanzania and Uganda are the main contributors to wealth creation in the region with 39 percent, 33 percent and 21 percent of regional GDP. Rwanda, Burundi and South Sudan, the newest entrant account for the balance.
Economic performance in the EAC region, during 2015, remained strong, despite unfavourable global conditions, including the gradual slowdown and rebalancing of economic activity in China, lower prices for energy and other commodities, and the gradual tightening in monetary policy in the United States of America.
Average real GDP growth for the region was estimated at 6.1 percent in 2015, up from 5.9 percent in 2014. Real GDP growth in Tanzania was driven by good performance in communication, construction; financial intermediation and transportation sectors. In Kenya, growth was driven by public infrastructure spending, buoyant credit growth and stronger consumer demand. In Uganda, real GDP growth was largely supported by public investments and high output growth in the services sector. Rwanda’s performance was owed to strong construction and services activity, with modest performance in agriculture and manufacturing sectors. In Burundi, growth was subdued, due to recent political tensions. Average inflation in the region eased to 5.2 percent in 2015, mainly due to a decline in global commodity prices, especially oil prices.
In the medium term, however, more efforts (public and private investment) are needed to scale up the region’s average GDP growth rate to double-digits, for economic growth to meaningfully contribute to a significant reduction in poverty. Partner States are implementing comprehensive and inclusive national social economic development plans that will help transform their economies to middle income status, in the next five to 20 years, in line with EAC’s Vision 2050. EAC’s Vision 2050 espouses for an upper middle income region in the next 35 years, within a secure and politically united East Africa, based on the principles of inclusiveness and accountability.
Average GDP per capita has increased from US$249.8 in 2002, to US$1 014.10 in 2015. However, the distribution of the wealth has not been equitable. In that period, the number of east Africans living below the poverty line increased from 44 million to 53 million, even though all partner states, with the exception of Burundi and Kenya, reduced the share of their population who lived below the respective national poverty line.
The Region’s sound economic growth and the improving business environment have been instrumental in the growth of Foreign Direct Investment (FDI). Overall FDI inflows into the region grew from US$2.57 billion in 2011 to US$3.85 billion in 2012, US$ 6.2 billion in 2013 and US$ 7.09 billion in 2014.Following the progressive implementation of programs and projects, towards the attainment of a single customs territory and removal of non-tariff barriers, trade and economic prosperity have evidently increased. Intra-EAC trade is valued at US$ 5.6 billion, compared to US$ 3 billion in 2009.
Tanzania is the most urbanized country in the EAC. The latest available statistics show that 31 percent of Tanzanians live in urban areas in 2014, compared to 19 percent in 1990. Rwanda urbanized the fastest between 1990 and 2014, when the share of its population living in urban areas increased from five percent to 28 percent. Kenya’s urbanization rate increased from 18 percent to 25 percent and Uganda’s from 11 percent to 16 percent during the same period. Burundi has the region’s second lowest rate of urbanization, at six percent in 1990 and 12 percent in 2014. South Sudan, the latest entrant into the EAC, has urbanized at an annual rate of 4.23 percent, for the last six years (2010 – 2016).
Access to Finance
In all the six partner states, the levels of financial inclusion are improving; however, the financial markets still lack depth and breadth. Latest statistics (2015) on financial inclusion show that in all Partner States, with the exception of Tanzania and South Sudan, the population served by the formal financial system is above Africa’s average of 24 percent. In Uganda and Rwanda, 33 and 47 percent of the population have access to the formal financial system. In 2010, less than a third of the population in the above two partner states had access to the formal financial system, while almost 65 percent of the population had no access to financial services at all. In Burundi, the level of financial inclusion is still low, but improving; 25.9 percent of the adult population have a savings account with a formal financial institution, compared to 23.8 percent in 2013 and 19 percent in 2011. Tanzania has the second lowest population with access to the formal financial system, estimated at 22 percent, by the Central Bank of Tanzania. In South Sudan, only three percent of the population is financially included in the formal system.
Kenya ranks ahead of other partner states in ease of access to financial services, with 75.3 percent of the population formally accessing financial services. Financial exclusion is estimated as low as 17.4 percent of the population that is bankable, compared to above 34 percent in 2006.
However, poor access to financial information and low levels of analytical capacity weaken commercial banks’ incentives to lend. In Burundi for example, only 10 percent of population is well informed about the various services available on the financial market. Further, interest spreads and banking industry margins are high. In East Africa, bank lending spreads, are about six to eight percent higher than in South Africa, while banks’ return to assets is nearly three times as high. There is a high preference for liquidity in banks in all the partner states, as evidenced by the low ratio of net loans to assets (on average between 40 and 60 percent).
Nonetheless, in the last decade, commercial bank credit to the private sector, in all the partner states has grown by more than 10 percent. The annual growth in credit to the private sector between 2002 and 2015 averaged 24 percent in Uganda, 20 percent in Tanzania, and 12 percent in Kenya. In Rwanda and Burundi credit to the private sector has grown at an annual average rate of 20 percent since 2005.
To date, mortgages (building, construction and real estate loans) comprise the largest share of commercial total lending (between 15 and 35 percent) to the private sector, in all partner states. The growth of the mortgage industry in all the partner states has been modest, largely because of a lack of enough long-term funds within the domestic banking system. However, there is a growing demand for mortgage lending to middle and high income groups, requiring loans of maturities of up to 20 years. In Uganda, for instance, more than a half of the liabilities in the banking sector (68 percent) are short term and do not exceed 30 days in maturity, while liabilities with the longest maturity (greater than 12 months) only account for 16 percent.
The ratio of the mortgage debt to GDP, in 2016, in the partner states ranges between 0.3 and two percent, compared to less than one percent, a decade ago. Kenya has the most advanced and dynamic mortgage industry, with 44 banking institutions; a mortgage portfolio of US$1.8 billion, and 23 013 mortgage loans. Tanzania has the second most dynamic industry, with 27institutions that offer mortgages, a mortgage portfolio of US$171 million, and 4 065 mortgage loans. In Uganda, five banks dominate in mortgage finance. The mortgage portfolio is estimated at US$190 125 million, with between 6 000 and 10 000 mortgage loans. In Rwanda, eight financial institutions offer mortgage finance. The mortgage portfolio is estimated at US$68 million, and there are between 1 000 and 1 500 mortgage loans. In Burundi, three banks offer housing/real estate loans. The mortgage portfolio is estimated at about US$177 million. There are about 6 000 mortgage loans. The mortgage portfolio in South Sudan is estimated at between US$100 and 150 million.
The demand for housing and housing loans remains extremely high in the EAC Region; however constrained by inadequate supply of affordable housing and high interest rates. In all the partner states, the cost of houses on the market, range between US$40 000 and US$200 000. These houses are indeed expensive, and can only be afforded by less than 10 percent of the population in the region. In Rwanda, for example, only five percent of the population own houses in this price range. The high cost of construction (about 50 percent of the cost of the house) and the high cost of setting up the requisite support infrastructure (between 15 and 25 percent of the cost of the house) are the reasons why current house prices are not affordable to the majority of the population.
With the cost of houses remaining high, more East Africans are being priced out of the real-estate market and are instead looking to rent. In Uganda for example, 57 percent of the population in urban areas rent, while in Kenya more than 75 percent of the buildings under construction in urban areas are high-rise flats for rent.
Unfortunately in most cases rental housing is provided informally, at very poor standards and with limited or no protection for the tenants. Further, although individual private rental schemes have been a feature of the market in a small way in most African countries, the extent of activity in those markets has not generated a steady flow of schemes or the emergence of a generally acceptable body of practice or market benchmarks.
The irregularity of incomes of prospective home owners also contributes to the low levels of affordability of houses on the market. The informal sector is by far the most important employer in all the partner states, supporting more than 80 percent of the households, with irregular monthly incomes of below US$100. As such, these households are unable to access housing finance to invest in house improvement, house purchase or house completion. The terms at which commercial banks offer loans are not achievable; for example, several East Africans are not in salaried jobs while many earn below the required qualifying incomes (about US$ 700 per month) for mortgage loans.
The deposit requirements of between 30 and 50 percent make mortgage finance inaccessible to the majority of people without formal employment. In addition, collateral requirements by lending institutions, including commercial banks, are a major challenge to many potential borrowers. The interest rates on mortgages are also high, in range of 15 to 26 percent.
In varying degrees, all the five partner states face severe housing shortages especially in urban centres where shelter conditions are dire. In Kenya, government has estimated an urban housing need of 150 000 dwellings a year, yet formal production is only 30 000 units, giving an annual deficit of 120 000 houses. In Tanzania the annual demand for housing construction nationwide is estimated to be 200 000 units. Uganda, has a housing deficit of 1.6 million units, 1.29 million in rural areas and 211 000 in urban centers. Rwanda’s annual delivery is estimated 34 000 units.
Several factors account for this pressing housing challenge: high urban growth rates (average for the region is 22 percent), as a result of both rural-urban migration and natural population growth (slightly over three percent per annum in each partner state) low-incomes making it difficult, if not impossible, for the vast majority to afford the housing finance products typically on offer and weak housing markets that lack the capacity and capital to: (a) expand the supply of affordable housing; and (b) provide appropriate housing finance products.
Over 90 percent of existing housing is built incrementally by individual households, using own savings. Nonetheless, in the past decade, the region started attracting modestly sized private real estate developers, to complement the government owned National Housing and Construction Companies, whose rate of delivery of housing has been very low. In Kenya, for example, the National Housing Corporation has developed 46 000 units in its entire 46-year lifetime. In Uganda, the National Housing and Construction Company Limited has constructed less than 20 000 units in its 48 years of existence. Modestly sized private real estate developers include Nationwide Properties (a construction arm of Mukwano Group of Companies in Uganda) and Ultimate Developers Limited; however, because of the high debt exposure and the generally low demand for properties, they deliver fewer units than planned, annually.
In 2016, Shelter Afrique, in partnership with GuarantCo, embarked on a project of assessing the feasibility of promoting the development of a rental housing project in Rwanda. The proposed rental housing project plans to build 2 800 units, over a period of five years.
A major requirement in all five partner states is for developer finance to boost housing supply in view of the low levels of formal housing production. PAHF, a private equity investment vehicle that is focused on sustainable development, provides risk capital on a joint venture basis to residential projects and also to projects where commercial properties are combined with residential units.
The residential property market in East Africa has registered significant growth, boosted by rapidly increasing consumerism, and the expansion of the middle class. A report by the African Development Bank (2015) estimated the size of the middle class — those spending between US$2 and US$20 a day — at about 29.3 million, representing an average of 22.6 percent of the population; 44.9 percent of Kenya’s population, 18.7 percent in Uganda, 12.1 percent in Tanzania, 7.7 percent in Rwanda, and 5.3 percent in Burundi.
In the last five years (2010 to 2015), the high demand for quality infrastructure – well designed properties with great finishing and in safe and secure locations, by the emerging middle class, led to a double-digit increase in the price of houses. In that period, there was a marked preference for apartments (of one to three bedrooms), compared to bungalows and maisonettes, because they are generally more affordable. A three bedroom apartment costs between US$ 70 000 and US$ 100 000, while a bungalow costs above US$ 150 000.
The ease of registering and transferring property in the region has also contributed to the growth of the residential property market. Notable reforms in the registering and transferring property (i) Burundi made transferring property easier by creating a one-stop shop for property registration; (ii) Rwanda made transferring property easier by eliminating the requirement to obtain a tax clearance certificate and by implementing the web-based Land Administration Information System for processing land transactions; and (iii) Uganda made transferring property easier by eliminating the need to have instruments of land transfer physically embossed to certify payment of the stamp duty.
Huge investments in infrastructure, particularly the construction of road networks, connecting major towns to cities has catalysed the development of modestly sized housing projects (less than 300 units). However, these developments are targeting middle and high income earners, thus, creating a huge shortage of housing among modest and low income earners. Real estate developers target middle and high income earners, because, the high cost of land and construction materials, makes the return on investment in low income housing projects meagre. Projects targeting middle and high income earners make a margin of between 20 and 30 percent, while low income housing projects make a margin of between 5 and 10 percent.
Towards the end of 2014, to date, the demand for residential properties has generally been low. Exchange rate volatility and inflationary pressure have led to tightening of monetary policy and therefore a shift towards a high interest rates regime. In Kenya, for example, the Prime Global Rental Index, which tracks the performance of luxury residential rents, across 17 key world cities, fell by 2.9 percent, between Q4 of 2015 and Q1 of 2016. The changing political environment ahead of next year’s (2017) general election and commercial banks’ reluctance to accumulate high portions of NPLs, have and will continue to constrain growth of the property markets.
The generally slow economic activity and growth in the partner states has also had negative impact on the uptake of residential and commercial properties. In Uganda for example, marketing periods for prime property took much longer to register interest from potential buyers, in first half of 2016. There were few buyers with the capacity to close deals at asking prices. This led to a downward correction in the market prices of about 10 to 15 percent.
Housing Policy and Regulation
All partner states, with the exception of Burundi and South Sudan, have comprehensive policy and regulatory frameworks governing the housing industry and housing finance sector. The policies and the frameworks are all pro-poor, and they delineate several measures on how to address housing challenges in the partner states, including expanding the range of securities for accessing mortgages to include insurance policies, pension and provident funds and employer guarantees and also the development of housing finance products that cater to the needs of all income groups.
A major challenge however, has been inadequate implementation of the policies, and the low budget allocation to the Ministries of Housing, Lands and Urban Development. In Kenya, the Ministry Lands, Housing and Urban Development; receives only three percent of the national budget, similar to Rwanda, where the Rwanda Housing Authority receives only two percent of the national budget. In Uganda, the Ministry of Lands, Housing and Urban Development receives only 0.2 percent of the national budget, similar to Tanzania, where the Ministry of Lands and Human Settlements receives only 0.3 percent of the national budget. In Burundi, the Directorate of Land Management and Urban Planning receives less than one percent of the national budget.
Housing Sector Opportunities
Investing in alternative technology to deliver affordable housing, should be promoted, in all partner states. Examples include the stabilized earth technology (ABT Select Brick and HydraForm stabilized earth blocks), which has the potential to deliver cost effective building solutions that are less labour-intensive, and fast to use.
The establishment of the EAC Monetary Union (EAMU) should be fast tracked. The EAMU will help institute more stable and sustainable macro-economic environments within the partner states, including harmonizing interest rate policies. Other advantages of the EAMU include: (i) creation of a zone of economic, monetary and financial stability; (ii) establishment and maintenance of sustainable and low risk debt budget financing mechanism; (iii) promotion of intra-regional economic and financial system integration; and (iv) promotion of financial deepening and inclusion.
The region’s insurance sector is a major source of long-term funds that should be adequately tapped into to develop the housing finance sector. However, the sector is still underdeveloped, with a penetration (ratio of premiums underwritten to the GDP), estimated at less than four percent of GDP. South Africa, in comparison, has a penetration rate of 14.2 percent, which is among the highest in the world.