Housing Finance in Lesotho

Overview

Lesotho is a high-altitude, landlocked kingdom covering 30 355 km with an estimated population of 2 161 829. The unemployment rate is 27%, about 58% of the population is trapped under the international poverty line of US$1.25 a day. Lesotho is primarily rural, with around 70% of the population living in the mountainous countryside. In 2020, 29.3% of the total population lived in urban areas, mainly in the capital city of Maseru and its surrounds. The housing deficit in Lesotho is estimated at 98 711 dwellings, mainly in urbanised zones. This number is expected to increase if national housing deliveries are not successful in delivering housing to meet escalating demand.

The biggest challenge in Lesotho is that financial institutions lack the capacity and technical knowledge in delivering microfinance products geared to the housing market. This is a disadvantage to those in the population who cannot afford housing mortgages. The Majority of formal financial institutions in Lesotho are risk-averse and lack long-term capital for housing. This is mostly because private property in Lesotho is still in its infancy. The state owns most of the land before land reform measures were introduced in 2010.

The Covid 19 pandemic has worsened the countries resilience and economic sustainability. Lockdown measures have impacted the domestic economy and resulted in weaker global trade, particularly with South Africa, Lesotho’s main trade partner. Economic growth was forecast to decline to 5.3% in 2020 owing to lockdown restrictions but later recover to 3.5% in 2021 amid improving global economic conditions. According to the Southern African Customs Union (SACU), although Lesotho’s revenue shares for 2018/19 and 2019/20 declined the unemployment rate is forecast to decline from 24.7% to 23.8% in 2022. The inflation rate should drop from 5.5% to 5%, and the interest rate may rise from 3.5% to 3.75%.

Lockdown restrictions negatively affected the housing and construction sector. Many developments were delayed and funds earmarked for construction were reprioritised to address immediate social and health issues. To mitigate the severe impact of COVID-19 on the wellbeing of residents, the government of Lesotho through the Central Bank, undertook to support the economy during this difficult time. Among immediate relief, measures were the provision of monthly cash transfers to the most disadvantaged households to mitigate livelihood loss.

 

[1] World Population Review. Lesotho Population. https://worldpopulationreview.com/countries/lesotho-population  (Accessed 27 August 2020).

[2] The World Bank. The World Bank in Lesotho: The World Bank helps the government enhance competitiveness, foster private sector-led growth, improve service delivery, and diversify its econimic base. https://www.worldbank.org/en/country/lesotho/overview/ (Accessed 4 Sept 2019).

[3] Central Banking (2020). Lesotho cuts interest rates to 6.25%. 29 January 202o.

[4] African Development Bank (2020). African Economic Outlook 2020 Supplement Amid Covid-19.

[5] Mpaki, B. (2020). Manufacturing, mining, lead economic downturn. 4 August 2020. Lesotho Times.

[6] African Development Bank (2020). African Economic Outlook 2020 Supplement Amid Covid-19.

[7] Mpaki. B (2020). Lesotho Government to assist businesses, factory workers affected by COVID-19. 20 April 2020. All Africa.

[8] International Monetary Fund (2020). IMF Executive Board Approves US$49.1 million in Emergency Support to Lesotho to Address the Covid-19 Pandemic. 29 July 2020.

[9] Central Bank News (2020). Lesotho cuts rate 4th time in 2020 as economy to shrink. 23 May 2020.

[10]  Ibid.

[11] Mpaki, B. (2020). Manufacturing, mining, lead economic downturn. 4 August 2020. Lesotho Times.

Access to finance

Financial institutions are licensed to operate in Lesotho in terms of the Financial Institutions Act No. 3 of 2012, the Insurance Act No. 12 of 2014, and the Collective Investment Schemes Regulations. These include approved formal banks, insurance companies, insurance brokers, microfinance institutions, credit bureaus, foreign exchange, and collective investment schemes, regulated by the CBL. Commercial banks include Standard Lesotho Bank Limited(SLB), First National Bank(FNB)Lesotho, Nedbank Lesotho, and Lesotho Postbank. Of these, SLB, FNB, and Nedbank Lesotho offer home loans ranging from M100000 (US$6925) up to M10 million (US$692500), and interest rates are generally between 11.25% and 13.25%. The mortgage term is payable over a 20-year period, with a 10% deposit usually required and loans are offered for the purchase of readily available housing stock on freehold and sectional title. PostBank, however, offers medium to long-term loans specifically to fund, refinance and/or enhance residential properties. The loan is primarily based on the property being bonded/mortgaged, and the individual’s ability to repay installments.

There are 98 registered microfinance institutions(MFIs)in Lesotho.8In 2021, only one of these MFIs provided housing-related loans, this being Lesana Lesotho (Pty) Limited. The average loan size is given by Lesana is M33359(US$1935), and the loans are payable at a high-interest rate of between 21.5 %for housing-related loans and 45%for other loans over a period of 60 months. Another MFI, Letshego Lesotho(Pty) Limited, does not specifically provide housing-related loans, but there are promising prospects to provide these types of loans in the near future.

Bond markets are used to finance infrastructural expansion and maintain infrastructure (including housing), expansion. However, these are fairly limited and mostly in the form of Treasury Bills and Bonds offered by the CBL. The bonds are listed on the Maseru Securities Market for secondary market trading. However, there are no other refinancing facilities or credit lines for banks to draw on for liquidity. The government needs to address this through policies that will enable the operationalisation of wholesale lending opportunities in Lesotho

 

[1] Central Bank of Lesotho (2020). List of Licensed Financial Institutions 1st Quarter 2020. https://www.centralbank.org.ls/images/Careers/Tenders/List_of_Licensed_Financial_Institutions_ad.pdf (Accessed 28 August 2020).

[2] FitchRatings (2020). Fitch Revises Lesotho’s Outlook to Negative; Affirms at ‘B’. 13 August 2020.

[3] Rakotsoane, L. (2020). Covid-19 stalls economic activity. 4 August 2020. The Post.

[4] Mpaki, B. (2020). LNDC unveils M410 million finance package. 18 August 2020. LesothoTimes.

[5] Email correspondence with Teboho Mhlanga, Head of Retail Division FNB Lesotho, 20 August 2019.

[6] Email correspondence with Moeketsi Mafereka: Nedbank, Head; Retail & Distribution, Retail Sales, Distribution and SME, 21 August 2019.

[7] Email correspondence with Kelello Rametse, Stanlib General Manager (Lesotho), 22 August 2019.

[8] Email correspondence with Tsépo Ramoholi, Compliance Officer at Lesana Lesotho, 19 August 2019.

[9] Central Bank of Lesotho. Government Domestic Debt. https://www.centralbank.org.ls/index.php/financial-markets-about/599-government-domestic-debts/ (Accessed 21 Sept 2019).

Affordability

Although housing is the mandate of the government, the housing sector in Lesotho is not financially supported by government budget allocation and remains one of the most vulnerable sectors during the COVID-19 era. Even the LHLDC sources its own funding for both operational and capital costs, including bank loans and revenues generated through rental portfolios. The Government of Lesotho acts as a guarantor only for civil servants who may wish to acquire a residential mortgage from any of the commercial banks. It also provides direct subsidised accommodation mainly to civil servants and other crucial staff such as the army, police, teachers, and nurses. Most urban residents generally do not have access to mortgages and live in rented homes and informal residential areas. As many people have lost their jobs during COVID-19, they face eviction due to non-payment of rentals. Most Basotho depend on social networks and inheritance to access land, particularly since most land is customarily owned or under a form of leasehold, and only a small amount is privately owned. A very small number live in houses financed through bank loans and, with rising costs, most individuals choose to build their homes incrementally.

The affordability challenge in Lesotho continues to widen as most poor people cannot afford mortgage terms and conditions as set out by commercial banks. The amount of the loan repayment is usually far above their net salaries. Financial inclusion for this low-income category is non-existent. Moreover, there are a record number of loan defaulters, with 2100 outstanding mortgages as of 2021. The total outstanding mortgage value of all banks in Lesotho is M4977226000 (US$344 659 087), as provided by the CBL. The situation is worsened by high unemployment, currently estimated at 4.7%, which is affects the economically active population aged between 15 and 45 years.

The minimum plot size in Lesotho is 375m according to 1990 Planning Standards. As of August 2021, the cheapest newly built house by a formal developer or contractor in an urban area was M95000(US$6232 for a one-bedroom unit (32m2) with an open plan kitchen, lounge, and toilet, and M175000 (US$12178)for a two-bedroom (54m2) unit with an open plan kitchen, lounge, and toilet. The total construction costs per square meter are M5156 (US$359) and the associated labor cost per square meter was M2500 (US$173). The cost of a 50kg bag of cement in August 2021 sourced from three different hardware retail stores ranged between M95 (US$6.58); and M99 (US$6.86).

A person working in Lesotho typically earns around M11700 a month which is an average salary for 50% of the working force. Salaries range from M2970(US$206) for the lowest average M52400 (US$3629) for the highest average –actual maximum salary slightly higher. If half of the working force (50%) is earning an average of this amount before deducting pay as you earn (PAYE Tax) it is clear the net balance per take-home will not be sufficient to accommodate other needs like loan repayments, such as mortgages.

 

[1] Email correspondence with Molefi Tlali, Acquisition and Development Manager at Lesotho Housing and Land Development Corporation, 20 August 2019.

[2] Email correspondence with Masetori Makhetha, Chief Phyiscal Planner at Lands Surveys and Physical Planning, 19 August 2019.

Housing supply

Lesotho is a signatory to the Global Declaration of Sustainable Development Goals (SDGs) 2030 and the New Urban Agenda(NUA)–Habitat III (2016). NUA was adopted at the United Nations Conference on Housing and Sustainable Urban Development in Quito, the Equator on 20 October 2016. The mandated Ministry in Lesotho for the implementation of Sustainable Goal No. 11 –Make Cities and Human Settlements Inclusive, Safe, Resilient and Sustainable–is the Ministry of Local Government and Chieftainship(MoLGC). The overall performance of the country on all 17 SDGs in 2018 was recorded at a score of 56.8% out of an average of 56.8% in the Sub-Saharan Africa Region.

The urban population represents 29.3% of the entire population. High urbanisation rates, poor land management, and weak planning institutions mean that the increasing demand for urban land has not been met. This has resulted in encroachments of settlements onto agricultural land and unplanned settlements, as residents find their own solutions to housing. The slums and informal settlements are estimated at 90% of the urban settlements, and house 64% of urban residents. The pandemic has worsened the plight of slum dwellers with the challenge of safe shelter becoming even more pronounced. Most people could not adhere to World Health Organization (WHO) health safety guidelines to stay home to save lives because of social distancing being almost impossible.

Habitat for Humanity Lesotho (HFHL), an international non-governmental organisation established in Lesotho in2001, aims to work in partnership with vulnerable groups to provide access to decent and affordable housing. This intervention provides housing for the most vulnerable such as orphans, children, the elderly, and people living with disabilities. Between 1 July 2020and 30 June, 2021,73 two-roomed houses with pit latrines were built for vulnerable households. Due to restrictions on the import of construction material imported from South Africa, the average cost per house unit inclusive of all costs increased from M45855 (US$3191) in 2020 to M53169 (US$3700) in 2021. However, most of the houses provided by HFHL are 100% subsidised by donor funding, which is not financially sustainable and may require government subsidies to continue.

There are new and upcoming property groups in the market. The largest of these is TT Group Properties, which offers affordable housing in sizes ranging from 52m2 to 96m2. The purchase price of a one-bedroom 52m2 unit is M215000 (US$14 962), while a two-bedroom 64m2 unit costs M275000 (US$19137). The prices of different three-bedroomed units range from M365000 (US$2500) for a 72m2 unit, M475000 (US$33 055) for an 84m2 house, and M595000 (US$41 202)for a 96m2 home. The cost is exclusive of the cost of land, which varies depending on the location. TT Group Properties have a development agreement with the LHLDC at Mokhethoaneng, in the north of Maseru 19 with 1179 plots for low, middle, and high-income earners. The project is progressing well and the LHLDC has already paid compensation to the landowners for the transfer of land to the state in 2020. Molefi Tlali confirmed that the selling of plots commenced for those who had a 50% pre-registration deposit prior to launch in October 2021. Another LHLDC project in the pipeline in 2021 is planned to start in the settlement of Linakotseng in Maseru, with600plots already available for disposal.

[1] Email correspondence with Ntsoaki Matobo, Planning and Development Director at Maseru City Council, 20 September 2019.

[2] Rakotsoane, L. (2020). A game-changer in property sector. 3 March 2020. Menafn.

[3] Email correspondence with Molefi Tlali, Acquisition and Development Manager at Lesotho Housing and Land Development Corporation, 20 August 2019.

[4] Ibid.

[5] Habitat for Humanity Lesotho (2019). Newsletter Release (June 2018 & June 2019).  Pg.2.

Property markets

In Lesotho, all land is nominally owned by the king, but leasehold land is generally applicable in urban areas, while rural areas are dominated by customary forms. According to the 2016 census, around 16% of the population have leasehold rights and only 4% have title deeds, while the rest is a combination of customary and Form C rights. Form C is a form of leasehold and accrual of land revenue by way of long-term rental(almost like ownership) by the state in urban and rural areas.

Historically, land planning in Lesotho concentrated on “colonial reserves,” mostly situated in urban areas, and where the most privately-owned property is located. Most customary land falls under the control of Chiefs and the King and grew without much planning both before and after independence in 1966. However, increased migration and dependence on cash remittances have spilled over to urban areas and caused the spontaneous growth of informal urban settlements. The lack of control over these urban zones is reflected in the lack of plans for Municipality and Urban Councils, as well as town and country planning legislation.

Land registration systems have drastically improved after the 2010 Land ActNo. 8 of 2010, which subordinated customary land rights to state and private rights of ownership. Land title registration now takes 11 days, while a 90-year lease is issued in a month. The time required to register a company has been reduced from 28 to seven days. The number of days required to obtain an industrial license has also been reduced from 35 to five days, and the turnaround time for a trading license has been reduced to 15 days from 30-50 days. From 2010 until August 2021,73 960leases were issued and registered in the Deeds Register at the Land and Administration Authority (LAA). However, it must be noted that this record shows only leases that have been produced and captured by the LAA. The process of capturing the leases is yet to be completed and is expected early in 2022 (before 30 March 2022).

Access to planned and serviced land for housing is still a major challenge, especially in the urban area where land allocation is not always controlled. The land allocation system is still characterised by the co-existence of formal and informal systems, and inefficiencies often force people to resort to informal land delivery mechanisms. Consequently, a large number of people are without any form of documentation for land. Strategies to address land informality and to develop pro-poor management and allocation of housing to reduce conflicts need to be formulated.

The Government of Lesotho has improved construction permit processes by moving from a manual to an electronic system, reducing the time and cost. It now takes three to four months to issue building permits for rated properties –it used to take between six months to one year and more. Rated properties in Maseru are limited to only 8000 properties that are mostly located in the former colonial boundaries.

Lesotho property markets tend to be skewed towards potential buyers in the middle to high-income category. Only a few, mostly middle to high-income earners, rely on real estate agents. Unfortunately, the real estate sector is not regulated there are no laws in place to guide its operations. This sector is also not officially registered with the Ministry of Public Works and Transport nor with the MoLGC. As a result, property prices are often inflated and properties are expensive and inaccessible to most Basotho. Land prices distort market prices and result in land hoarding and speculation. Limited data on both land and the housing sector affects informed decision-making relating to ownership patterns and the assessment of land tenure security in Lesotho.

The parastatal LHLDC offers a full rental service for residential properties and a responsive approach for the management of rented homes. Its properties are mostly located within the Maseru Central Business District, and are made up of six apartment estates with a total of 82 three-bedroomed flats with rentals ranging between M6200(US$436) and M7350(US$517); 42two-bedroomed flats with a monthly rental of M4800(US$338)and 47 bedsitters with rental prices between M2200(US$155) and M3700(US$260).

Green City, located in south western Maseru, is a housing development that is a public-private partnership initiative between Maseru City Council and OM Investments as the contracting developer. It offers housing stock priced between M95000 (US$6611)andM275000 (US$19137) per unit depending on size.

 

[1] 27 percent had other forms of rights, and 12 percent recorded  ‘none of the above.

[2] Email correspondence Tseliso Makhaphela, Lands Registra at Land Administration Authority, 3 September 2019.

[3] Email correspondence with Ntsoaki Matobo, Planning and Development Director at Maseru City Council, 20 August 2019.

[4]  MGC Properties (2015). Mpilo Estate. https://www.mgc.co.ls/subsidiaries/properties (Accessed 22 September 2019).

Policy and regulation

The National ReformsAuthority (NRA) was inaugurated in February 2020. This body was legally established to undertake major national reforms, specifically around constitutional, parliamentary, public sector, security, and economic sector reform. The committee chairperson disclosed that the NRA has pushed for the adoption of 31 out of 45 constitutionally-related amendment bills by the Lesotho Parliament. The most important is that of economic recovery, as well as an amendment to establish the CBL as an autonomous body of government, independent and free from political interference to protect financial and monetary stability. Clause 7 relates to the protection of Lesotho against poor debt management and the efficient management of consolidated accounts and recommends equitable sharing of national revenue. These projected changes will help to strengthen the fiscal capacity of local authorities to deliver on their respective mandates.

 

[1] Mohloboli, M. (2020). Senate adopts Immovable Property Bill. 6 May 2020. Sunday Express.

Opportunities

Across the continent, COVID-19has brought into perspective the relationship between housing and health. It is anticipated that the government in Lesotho will strategise on mechanisms and plans to assist the housing sector. The unmet demand for housing is an investment opportunity, although various impediments to market growth exist. Private housing developers may want to pursue such an opportunity as the demand for affordable housing in the country’s capital is expected to continue to grow unabated.

As much as COVID-19 brought along-lasting negative impact on the economy, it also motivated some innovations in a number of industries and sectors, particularly corporate responsibility. Nedbank Lesothomanaged to provide payment relief for over 375 000 clients amounting to M119 billion of loans during the lockdown and reduced various client fees amounting to M104million. It also launched digital innovations during lockdown to assist clients remotely, including various android apps. These enabled digital sales to increase from 18%to 53%.

This shows that the COVID-19 crisis can be turned into an opportunity for digitised financial inclusion platforms that support affordable housing solutions. Vodacom Lesotho (VCL)has already digitised financial services and launched a new application, My Mpesa App so that customers can access services without data. Launched in 2013, M-Pesa has grown from only 1900 registered customers to over one million with monthly transaction values surpassing M1billion.

SLB also launched Africa China Agent Proposition (ACAP) in September 2021 in a partnership with DHL Lesotho to facilitate trade and connect importers to suppliers from China. The ACAP arrangement is also aligned with Lesotho’s National Strategic Development Plan II on matters relating to trade, especially between Lesotho and China, which is estimated to account for 17%of all imports to Lesotho, valued at around M4billion.

Lastly, Econet Telecom Lesotho has increased accessibility for customers in the banking sector by entering into service level agreements with local shops through the use of EcoCash at the point of sales (POS). This allows customers to pay for goods and food effortlessly from their EcoCashaccounts into the merchant accounts. The purpose is to offer convenience and increase security by reducing cash handling and fraud so that payment happens smoothly between customers’ mobile phones and the shop’s POS device.

 

[1] Motsoeli, N. (2020). Govt committed to reforms – Majoro. 26 August 2020. Lesotho Times.

Availability of data on housing finance

Lack of housing and housing finance data is a major problem in Lesotho. This undermines statistical analysis and weakens the basis for decision-making by the private sector and government. Data is often outdated or may not be sufficiently disaggregated for useful analysis. The primary sources of housing finance data are:

• Bureau of Statistics (BOS) in the Ministry of Development Planning collects national statistics on different sectors but it has not specifically collected classified data on housing finance. The data available from BOS is classified census information according to a specific purpose and sometimes publicly shared on website.
• The Central Bank of Lesotho also collects data associated with the registration and control of the financial sector.
• Standard Lesotho Bank, FNB Lesotho and Nedbank Lesotho store data but this are not always in the public domain.
• The Land Administration Authority keeps records as it registers all land transactions that involve bonds and collaterals. The data is available on request.

Urban Informality

The MoLGC, through local authorities and its agencies, provides land for housing. The LHLDC, a government parastatal, provides planned sites in Lesotho. There are other private housing developers in the market that provide affordable housing, including Creative Properties. The MoLGC is engaged in the UN-Habitat Participatory Slum Upgrading Programme. In 2014 the Ministry developed four urban profiles, one national profile, and three for the fastest growing towns in Lesotho, namely Maputsoe, Mafeteng, and Maseru. The Ministry has also engaged a consultant to develop a National Informal Settlement UpgradingStrategy and Action Planforimproving informal settlements. The document will be the policy guideline for improving slums in the country.

Local Authorities prepare to upgrade schemes for the unplanned settlements. Maseru City Council has in the past two years been preparing upgrading schemes for Koalabata, Lepereng, Maseru East (liteneng), and Likotsi. The council only provides gravel roads in these upgraded settlements. Residents acquire electricity, water, and sanitation at a cost. Water is one of the country’s greatest natural assets. It is a source of wealth and prosperity for 2.1 million people. According to United Nations UN Water Report for 2020, 29% of the population in Lesotho use a safely managed drinking water service (SDG indicator 6.1.1); 8% use a safely managed sanitation service, and 6% have access to basic handwashing facilities(SDG 6.2.1.1b)

Additional sources

Ministry of Local Government and Chieftainship (2016).

Land Administration Authority Audit Report (2016/17).

Ministry of Local Government and Chieftainship (2018).

National Housing Policy: Implementation Strategy 2018-2022.https://riseint.org/ritc2018/wp-content/uploads/sites/4/2018/07/National-Housing-Policy-Lesotho-2018.pdf

United Nations Human Settlement Programme(UN-Habitat)(2015).

Lesotho Housing Profile.https://unhabitat.org/lesotho-urban-housing-profile

Websites

Myproperty Real Estate and Property in Lesotho www.myproperty.co.ls

Habitat for Humanity Lesotho www.habitat.org.ls

Central Bank of Lesotho www.centralbank.org.ls

Land Administration Authority www.laa.org.ls

Lesotho Bureau of Statistics www.bos.gov.ls

Standard Lesotho Bank /www.standardlesothobank.co.ls