Housing Finance in Botswana

Overview

Botswana is one of the few African countries that has managed to successfully deliver affordable housing to its urban low-income population by making land and urban housing accessible through appropriate policies and programmes. The Botswana Housing Corporation (BHC) and the Accelerated Land Servicing Programme are some of the initiatives delivering state mass housing. Botswana is highly urbanised with 75% of the population classified as urban. The major cities and towns have attracted a large proportion of the rural population. Botswana is classified as an upper middle-income country. Its gross domestic product (GDP) per capita levels are high by Sub-Saharan Africa standards, estimated at P7 349 (US$678) in 2021. This is far removed from a per capita income level of P974 (US$90) in 1966 and the discouraging prospects the country faced 50 years ago. The landlocked economy has beaten the odds by creating a thriving economy.

Much of this success is attributable to the stable macroeconomic environment, government’s commitment to fiscal discipline, the prudent management of mineral revenues and wealth, a well-capitalised banking system, and a sensible crawling peg exchange rate system. Furthermore, corruption is less pervasive than in other parts of Africa.

Real GDP contracted by 8.5% in 2020, compared to a growth of 3% in 2019. The contraction was mainly attributable to a decline in output of both the mining and non-mining sectors resulting from the adverse impact of COVID-19 on the economy. Real GDP is projected to grow by 7.5%, 5.4%, and 4.3% in 2021, 2022, and 2023, respectively. The positive outlook is attributed to the non-mining sectors which are expected to pick up further, driven by structural reforms, including economic stimulus supporting the national economy, and a move that provides utilities at reasonable prices to encourage domestic manufacturers. Construction is expected to continue benefiting from the ongoing fiscal stimulus.

The construction industry contributed 11.1% to GDP in 2020. The industry is still dealing with the consequences of COVID-19 and recorded negative growth of 7.4% in the last quarter of 2020. The industry recorded a decline of 4.8% compared to an increase of 4.3% in the corresponding quarter in the previous year.

The Botswana inflation rate increased from 1.2% in August 2020 to 8.9% in July 2021, remaining above the upper bound of the Bank of Botswana’s medium-term objective range of 3% to 6%. The Bank Rate has been maintained at 3.75%. Consequently, the prime lending rate of commercial banks has been maintained at 5.25%. In April 2021, the Botswana government increased Value Added Tax (VAT) to 14% from 12%. The VAT increase is expected to weigh on the consumer spending recovery outlook for the country. The Bank of Botswana maintained the current Pula exchange rate policy for 2021. The Pula basket weights remain at 45% for the rand, 55% for the Special Drawing Right with a downward rate of the crawl of 2.87%. The stability of Botswana’s currency provides investors with an advantage, as they are able to increase predictability in their financial modelling.

[1] Heritage Foundation (2020). 2020 Index of Economic Freedom 2020.  Country Rankings. https://www.heritage.org/index/ranking?version=356 (Accessed 30 September 2020).

[2] World Bank. Data. GNI per capita – Botswana. https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=BW (Accessed 26 August 2020).

[3] Worldometer. Botswana Population.  https://www.worldometers.info/world-population/botswana-population/ (Accessed 20 August 2020).

[4] Isaacs, S.M. and Manatsha, B.T. (2015). Will the Dreaded “Yellow Monster” Stop Roaring Again?: An Appraisal of Botswana’s 2015 Land Policy. Special Issue on Humanities at UB and Botswana’s 50 Years of Independence. Pgs. 383-395.

[5] Statistics Botswana (2019). Gross Domestic Product Quarter 1, 2019. http://www.statsbots.org.bw/sites/default/files/Grosspercent20Domesticpercent20Productpercent20Q1percent202019.pdf (Accessed 21 August 2020). Pg. 13.

[6] Vantage Properties. (2020). Property Market Outlook 2020. https://www.vantagepropertiesbw.com/botswana-property-market-report-2020/ (Accessed 2 August 2020). Pg. 10.

Access to finance

Botswana’s housing finance sector is expanding in all market segments. Botswana has 12 banks. Nine are commercial banks and three are statutory banks. Four of the banks are listed on the Botswana Stock Exchange. Commercial banks are well capitalised and liquid. Non-performing loans have decreased, and provisioning has improved. However, some COVID-19 relief measures, such as the six-month loan repayment moratorium, loan restructuring, and guaranteed loans to affected sectors, may have delayed asset quality deterioration.

The Government of Botswana also owns a number of development financial institutions, including the National Development Bank, Botswana Savings Bank, Botswana Development Corporation, Citizen Entrepreneurial Development Agency, and the Botswana Building Society.

Non-bank finance institutions include microlenders, pawnshops, and finance and leasing companies. The non-bank financial sector is regulated by the Non-Bank Financial Institutions Regulatory Authority. Botswana has 12 licensed microlenders, 170 registered Savings and Credit Cooperative Societies (SACCOS), and these are central for mobilising savings and funds for on-lending. Such loans are mainly used for consumption and education, and less on property investments.

Total residential mortgages by commercial banks increased almost fivefold in a decade from P3.2 billion (US$295 million) in December of 2010 to P14 billion (US$1.29 billion) between March 2020 and March 2021. The annual growth in mortgage loans fell from 3% in December 2019 to 2.1% in December 2020. Consequently, the share of mortgages in total bank credit to households decreased from 24.9% to 23.6% in the same period. Mortgage loan defaults remained acceptable at 6.1%in December 2020, identical to that of 2019.

In the greater Gaborone area, the average mortgage loan size increased to P1 110 000 (US$102 480) in 2020 from P950 000 (US$87 707) in 2019. Following the amendments of the Deeds Registry and Tribal Land Acts in 2017, the mortgage lending rate was expected to grow and this would facilitate the acquisition of property countrywide and ease the transferability of property rights in tribal land areas.

Most financial institutions offer 90% mortgage loans and the customer has to pay a 10% deposit of the value of a completed property. However, some commercial banks have stimulated the market by lending 100% mortgages, thus eliminating the requirement for customer equity. Unlisted banks pay only 30% for the purchase of old dwelling units, not more than seven years old, and 35% on market value or purchase of plot/vacant land.

Financial institutions also offer 80% on building projects if a customer is not purchasing a complete residential property. Other financial institutions offer a maximum of 25% on construction/repair and renovation. For refinancing and equity release, financial institutions were prepared to give 80% of the open market value of the property. The trend of 100% loan-to-value ratios being set by some commercial banks highlighted the demand for mortgages, and financial institutions have been coming up with strategies to increase market share. This was a key indicator of the willingness of financial institutions to finance houses.

Pension funds play a vital role in the financial system. The pension fund sector has an asset base estimated at 50% of the country’s GDP, mostly invested in offshore funds, with no third-party loans or housing loans to its members.

Botswana has 315 registered cooperatives with more than 200 000 members. Out of these, 83 are Financial Cooperatives and SACCOS, registered under the Cooperative Societies Act No. 5 of 1989. These promote savings among members by pooling savings and creating funds for lending with interest between 17% and 24%. A key aspect of these financial instruments is they are designed for short-term projects and are not ideal for housing finance because of their relatively high-interest rates and limited repayment periods. They tend to be more expensive, and are not adequate for construction or purchase of good-quality housing; however, they play a role in incremental construction of housing and housing assets, such as fencing and home improvements.

Capital markets have enhanced both financial inclusion and housing finance initiatives in Botswana. BHC, the main affordable housing developer, has enlisted the help of capital markets by listing bonds to access cheaper finance instead of borrowing from commercial banks. This reduces the cost of housing provision and is, therefore, a supply-side subsidy. These notes bear interest at the Botswana bank lending rate plus 2.9% per annum and interest is paid quarterly. Although other investors have been in the forefront in the supply-side housing finance with the International Finance Corporation, a member of the World Bank Group, investing in a P270 million (US$25 million) bond in the Botswana Building Society in 2017.

[1] Bege C. and Jing. F. (2010) Housing Finance: A Case of Botswana. Stockholm School of Economics. http://arc.hhs.se/download.aspx?MediumId=1102 (Accessed 22 July 2020). Pg. 1.

[2]Bank of Botswana (2020). Financial Stability Report. https://www.bankofbotswana.bw/sites/default/files/publications/FINANCIALpercent20STABILITYpercent20REPORTpercent20Julypercent2010percent20-percent20Verypercent20Finalpercent20forpercent20Print.pdf (Accessed 26 August 2020). Pg. 17.

[3] Bank of Botswana (2020). Monetary Policy Report. April 2020. https://www.bankofbotswana.bw/sites/default/files/publications/APRIL%202020%20Monetary%20Policy%20Report%20Final.pdf. (Accessed 26 August 2020). Pg. 15.

[4] Government of Botswana (2019). Highlights for Botswana Cooperative Movement 2019/2020. https://icaafrica.coop/sites/default/files/basic-page-attachments/botswana-cooperative-movement-highlights-2019-520904475.pdf  (Accessed 20 August 2020). Pg. 2.

Affordability

The unemployment rate went up by 1.3 percentage points, from 23.2% in quarter one of 2020 to 24.5% in quarter four of 2020. Average earnings were estimated at P5 853 (US$540) for citizens, P13 355 (US$1 332) for non-citizens, and P6 014 (US$555) for all employees over the same period.  Of those employed in 2020, the average household disposable income for urban areas was P9 630 (US$889), P5 731 (US$529) for urban villages, and P3 251 (US$321) for rural areas. These figures include expenses such as housing, transport, and groceries.

A household is considered able to afford a home if it costs 3.5 times the gross household income for a single-earner household or 2.9 times the gross household income for dual-income households. The average house price in urban areas is P650 000 (US$60 001), and P450 000 (US$41 545) in urban villages. Most housing finance products require borrowers to have a minimum net salary of P7 200 (US$665) or (in some cases) P9 500 (US$877) to qualify for the old stock of BHC low-cost houses valued at less than P470 000 (US$43 392). Generally, financial institutions do not approve mortgages below these amounts as they do not have adequate security on a property purchased below these prices.

Affordability has been eroded by the economic slowdown, rising unemployment, lower salaries, COVID-19 impacts, and rising local costs of imported materials that make up a considerable portion of the final sales price of residential units. The unavailability of affordable land has created a shortage of serviced land and stimulated demand to overtake supply.

Current urban land prices are unsustainable. Serviced land in cities/towns averaged P1 320 (US$122)/m2. Serviced land in rural villages within the 40km-60km range of Gaborone is priced at P230 (US$21)/m2. Serviced land in urban villages averaged P260 (US$24)/m2. Land prices exacerbate affordability problems, pushing most households into the rental market.

As Botswana has only a few large-scale housing developers, the state is engaged in this area. The BHC is a government housing agency that seeks to provide both rental and purchase affordability. Housing services are provided at cost recovery and this often results in below-market rental and sale prices. BHC has historically employed demand-side subsidies, which entailed subsidising tenants and purchasers directly. In recent years, after becoming the government’s Single Housing Authority (SiHA), there is evidence of supply-side subsidies in the form of turnkey projects.

Other programmes include the Destitute Housing Programme, the Self-Help Housing Agency (SHHA), and the Poverty Alleviation Housing Scheme. During the 2019/2020 financial year, and the BHC delivered 1 026 housing units under the SHHA Turnkey Scheme. This is available for citizens earning between P4 400 (US$406) and P52 000 (US$4 800) per annum. The maximum loan entitlement is P60 000 (US$5 539). The repayment period for the scheme is 20 years at zero interest on the loan and 10% interest is charged to beneficiaries who default on their payment.

Innovative property acquisition methods such as installment purchase schemes have been sought by developers such as the BHC as an affordable housing strategy. Others, including the Public Officers Housing Initiative (POHI) and the Youth Housing Scheme, have provided more affordable alternatives. POHI depends on BHC-built housing units in different parts of the country at a capped cost of just under P153 000 (US$12 981).

In response to COVID-19, the BHC has invited companies and individuals whose incomes have been adversely affected by the pandemic to come forward, such that a deferral of rental payment, as well as a payment plan, could be negotiated and agreed upon.

[1] Statistics Botswana (2020) Quarterly Multi Topic Survey: Labour Force Module Report. Quarter 3 2019.

http://www.statsbots.org.bw/quarterly-multi-topic-survey-labour-force-module-report-quarter-3-2019

(Accessed 22 August 2020). Pg. 37.

[2] Statistics Botswana (2018) Botswana Multi-Topic Household Survey 2015/16. Poverty Brief Stats. January 2018. http://www.statsbots.org.bw/sites/default/files/publications/BMTHS%20POVERTY%20STATS%20BRIEF%202018.pdf (Accessed 15 August 2020). Pg. 78.

[3]Statistics Botswana (2018) Botswana Multi-Topic Household Survey 2015/16. Poverty Brief Stats. January 2018. http://www.statsbots.org.bw/sites/default/files/publications/BMTHS%20POVERTY%20STATS%20BRIEF%202018.pdf (Accessed 26 August 2020). Pg. 11.

[4] Mosha, A. (1996). An Evaluation of Botswana’s Strategies to Regularize Informal Settlements. Review of Urban & Regional Development Studies, 8: Pgs. 46-65.

[5] Vantage Properties. (2019). Botswana’s Property Market Report 2019. Gaborone. https://www.vantagepropertiesbw.com/botswana-property-report-2019-2/pdf  (Accessed July 2020). Pg. 6.

[6] KPMG (2020).  Botswana – Government and institution measures in response to COVID-19. https://home.kpmg/xx/en/home/insights/2020/04/botswana-government-and-institution-measures-in-response-to-covid.html (Accessed 12 August 2020).

Housing supply

The provision of affordable housing in urban centres is generally inadequate due to rapid urbanisation. In many instances, urbanisation has outpaced the rate of housing provision in urban zones, which has exerted enormous pressure on land. Increased population pressure has created many urban informal settlements as well as an increased conflict between Land Boards and land occupiers.

In managing urbanisation, the Botswana government has introduced the following policies: National Policy on Housing in Botswana of 2000; Revised National Destitute Policy of 2002; the Rural Development Policy of 2003; the Revised National Settlement Policy of 2004; and the Revised Town and Country Planning Act of 2013.

The BHC delivered 1 734 housing units between 2019 and 2020. In the revised strategy, BHC is set to deliver 12 300 houses by 2023. Since its establishment in 1970, BHC has delivered almost 25 400 houses. At least 14 422 houses of the 25 400 houses have been sold to Batswana while the remaining 10 662 are rented out. Private property developers have shown that they are profit-motivated institutions and that their housing prices are targeted at upper-middle and high-income households. A two-bed 45m2 unit sells for around P650 000 (US$60 200).

[1] Vantage Properties (2020). Property Market Outlook 2020. https://www.vantagepropertiesbw.com/botswana-property-market-report-2020/  (Accessed 2 August 2020). Pg. 18.

[2] Botswana Housing Corporation (2019). BHC Annual Report 2018. http://www.bhc.bw/sites/default/files/BHCpercent20Annualpercent20Reportpercent202018.pdf (Accessed 12 August 2020). Pg. 19.

[3] Botswana Housing Corporation. The BHC Business Case. http://www.bhc.bw/bhc-business-case (Accessed 27 August 2020).

[4] Kampamba, J. (2017). An Investigation of the Role of Private Property Developers in Provision of Housing in Gaborone, Botswana. Volume 5, Issue 12 December 2017. Pgs. 20-31.

[5]LouieVille Estate (2020). Brochure.  http://www.louieville-horizons.com/pdf/louieville_forest_hill_brochure.pdf (Accessed 2 August 2020).

Property markets

Real estate activity remains subdued because most property users have not yet returned to full use in the major cities and certain towns. COVID-19 remains front of mind for investors and occupiers, despite the recovery in global economic activity. The economic effects of COVID-19 include staggering job losses, reduced consumer spending, and changing behavioral patterns.

Residential properties are likely to see an increase in rentals. This comes after discussions of a rental increase by BHC, with more than 100% in some cases, as well as the increase in VAT. The residential market has surged in satellite villages as a result of increased migration of tenants from major cities as they adjust to cheaper locations after the pandemic dealt a heavy blow to incomes.

Peri-urban villages offer a higher supply of low-cost apartments, mainly attributed to the availability of relatively cheap land. Two and three-bedroom low-cost apartments are more popular than one-bedroom apartments, with average prices of P400 000 (US$36 929) for a one-bedroom, P550 000 (US$50 788) for a two-bedroom, P750 000 (US$69 243), and P1 000 000+ (US$92 342) for a three bedroom and four-bedroom respectively. Upcoming developments include Kgosi Estates in Gaborone North, Tsolamosese, and RIC Development. K-Hill Property Development’s Kgale Lake City in the southern part of Gaborone is billed to be the next major residential development.

Botswana’s worldwide competitiveness is generally low, based on the factors that influence private investments. The 2021 report by the World Bank ranked Botswana at 87 out of 190 countries in the ease of doing business index compared to the 86th position the previous year. Even more relevant, Botswana fell from 45 to 53 in 2020 in the Global Real Estate Transparency Index. It remains in the semi-transparent region and will have to address issues surrounding corporate governance and regulatory enforcement to progress to a transparent tier.

Policy and Legislation

COVID-19 has had particularly severe effects on certain economic sectors. In response, parliament has approved a P14.5 billion (US$1.3 billion) stimulus to support the recovery and facilitate structural transformation.

The government also established a COVID-19 Relief Fund with a P2 billion (about 1.1% of GDP) contribution that will finance a wage subsidy, finance a waiver on training levy for a period of six months, build up fuel and grain reserves, support the acquisition of relevant medical equipment, improve the water supply, and fund a government loan guarantee scheme financed by commercial banks for businesses that are tax compliant.

The VAT increase that took effect from 1 April 2021 is expected to affect some property transactions. Vendors will have to increase the VAT component on rentals and developers and landowners will be adding VAT when selling new units or land parcels. The effect of the Transfer Duty (Amendment) Act No. 24 of 2019, which came into effect on 1 March 2020, is yet to be felt. Transaction volumes in the residential sector have not significantly changed.

The Financial Intelligence Act No. 11 of 2019 was passed to steer Botswana toward combatting financial crimes, in particular money laundering and financing of terrorism. There is considerable uncertainty surrounding the Act as actions consistent with a stricter anti-money laundering regime can result in less inflamed housing markets. Housing sale transactions recorded from January to March 2021 (458 transactions) are slightly lower than transactions that took place from January to April 2019 (480 transactions).

The year 2021 began with a virulent second wave of COVID-19, amid a spike in infections and deaths. Botswana’s COVID-19 vaccine rollout is h the largest-ever vaccination drive. The country had received 473 000 doses of the AstraZeneca- Covishield, Pfizer, and Sinovac vaccines by early August 2021 and 218 418 people had been fully vaccinated, around 20% of the country’s adult population.

[1] Government of Botswana (2019). Financial Intelligence Regulations. https://www.bica.org.bw/common_up/bica/doc_1568800423.pdf (Accessed 27 August 2020).

Opportunities

Botswana’s economic freedom score is 69.6, at number 40 in the 2020 Index of Economic Freedom, indicating a highly economically free society. GDP growth has remained solid, bolstered upswings in the volatile diamond markets.

The investment of many homeowners has not only kept up with inflation but outpaced it. Property developers have earned positive returns through escalating rentals and home prices. The basis of rent reviews in Botswana is pre-agreed escalations, typically 6%-10% per annum. Capital values have also grown.

Botswana’s real estate investment and lending have been stable over the years. Liquidity remains available as conservative financing continues, while private equities are highly liquid and invest in opportunities as they arise. The positive growth of the property market generally has favorable ratings. According to Transparency International (2020), Botswana is the least corrupt country in Africa and has been classified comparably to several OECD and European countries for decades.

[1] Statistics Botswana (2011). Population and Housing Census. http://www.statsbots.org.bw/sites/default/files/publications/Populationpercent20percent26percent20Housingpercent20Censuspercent20Disseminationpercent20analyticalpercent20reportpercent20.pdf (Accessed 27 August 2020).

[2] Jones Lang LaSalle Inc. (2018). Global Real Estate Transparency Index 2018.  (Accessed 25 July 2020).

Availability of data on housing finance

Real estate data is not readily available in Botswana. Most information comes from public organisations and government departments but is either outdated, subjective, or it is incomplete. Private organisational data is usually available on subscription or by purchasing various reports, particularly as many tend to be secretive about their information, and who they choose to disclose it to. The primary sources for housing finance are the following:

• The Bank of Botswana provides financial information such as interest rates, mortgage uptake, exchange rates, and inflation rates on a quarterly basis. Available At: https://www.bankofbotswana.bw/
• Statistics Botswana collects demographic information and conducts multiple surveys on business, household incomes, and expenditure. Very little information has been collected on the real estate sector. Available at: http://www.statsbots.org.bw/
• Botswana Housing Corporation keeps information on property listings and developments in the sector. It is, however, not possible to find price catalogues and property information from private developers. Available at: https://www.bhc.bw/

Urban Informality

Botswana has had phenomenal urbanisation in the last 60 years from 3% in 1960 to 71% in 2020. The management of urbanisation includes equitable delivery of services throughout all settlements (urban and rural) and the creation of equitable human settlements across the country in an attempt to stop the rural population from migrating to urban settlements. Others include the National Policy on Housing in Botswana (2000) and squatter upgrading programmes such as SHHA.

Botswana’s population grew from 502 745 people in 1966 to 2.015 million in 2011. At a population growth rate of 2.06% in 2020, by 2025 the population will be around 2.6 million. The impact is mainly on the expansion of towns and villages (sprawl) into scarce arable land, and a shortage of land, housing, social services, and infrastructure.

Botswana’s economic success has transformed the quality of life through the provision of clean drinking water. Access to drinking water in urban areas had reached 99.5% in 2008 and was 84.1% in rural areas. There has also been an impressive infrastructure development with 86% of the population having access to sanitation.

Websites

Websites

Government of Botswana portal.  www.gov.bw

Bank of Botswana hhttp://www.bankofbotswana.bw/

Statistics Botswana http://www.statsbots.org.bw/

Botswana Housing Corporation https://www.bhc.bw/