Housing Finance in Cabo Verde

Overview

Cape Verde is a volcanic archipelago composed of 10 islands, nine of which are inhabited. It is located about 550 kilometers off the coast of Senegal and is 4 033km² in total land size. The capital is the city of Praia, but the country has other important cities, such as Mindelo and Assomada. Cape Verde had 561 901 inhabitants in 2021[1] with a population density of 129.2 inhabitants/km² nationally, with up to 300 inhabitants/km² in Santiago, the largest island.[2] The islands of this developing archipelago are characterised by their limitations: resources, remoteness, exposure to natural disasters, dry climate and severe and prolonged droughts.[3] Freshwater resources are scarce and arable land represents only 10% of the national territory.[4]

Because of its scarce local resources, Cape Verde’s economy relies heavily on the outside world, which makes it particularly sensitive to the international context. Indeed, although leading in terms of development among other sub-Saharan countries, its human development index placed it in 126^th place out of 189 countries in the overall United Nations Development Programme (UNDP) ranking in 2020.⁶ The primary sector accounts for only 6% of GDP due to the scarcity of arable land, and industry accounts for only 18% of GDP, pushing the country to import 85% of its food needs.⁷ Tourism (25% of GDP) and diaspora remittances (16%) accounted for a total of 41% of its GDP in 2021.⁸ In 2020 the country was strongly destabilised by the pandemic, causing its GDP growth rate to fall to -27%. Despite this, the country retains the confidence of major financial institutions such as the IMF.⁹

This country’s economy impacts directly on housing demand.  With tourism being the most important sector of the archipelago’s economy, young people move to the most popular islands to find jobs, which suddenly increases the demand for housing on these islands. For example, in 2019, 45.3% of the 233 271 tourists who came to Cape Verde stayed on the island of Sal.¹⁰ In the same year, the island of Sal had the largest quantitative housing deficit; 20.2% of households on the island lived in makeshift shelters or overcrowded dwellings or coexisted with other households under the same roof. ¹¹

The impact of COVID-19 has not spared the real estate sector. The deficit (qualitative and quantitative) of 42 000 housing units (71% of which are in urban areas) in 2021 has not decreased in part because of the inability of middle- and low-income households to obtain loans to finance their housing, or to access formal rental housing. Unemployment jumped from 12.2% in 2019 to 15.4% in 2021¹² reducing households’ ability to access formal housing. In addition, nearly 68 000 dwellings have a qualitative deficit (poorly built shelters which are inadequate in meeting household needs). More than half of the housing located in urban areas is of low quality or even dilapidated. This is partly due to the fact that, of the 140 000 units in the Cape Verdean residential housing stock in 2010, 80% were self-built.¹³ Population pressure in urban centres and high construction costs, particularly due to the prices of imported materials, exacerbate the problems of access to adequate and affordable housing.¹⁴

In terms of basic services, impressive progress has been made by the country over the last decade, but gain must still be consolidated. While in 2010 only 54% of Cape Verdean households had access to drinking water, this figure rose to 70% in 2017.¹⁵ However, half of the households with access to water received only untreated water.¹⁶ Also, 79% of Cape Verdeans had access to basic sanitation in 2020.¹⁷ Finally, the country is almost entirely electrified with 94.2% of the population benefiting from access to electricity.¹⁸

Resolutions on housing shortages for middle-income households have been taken by previous governments. The Casa Para Todos (A House for All) programme, designed to offer social housing for purchase to the less fortunate, has not delivered as expected. Of the 6 010 housing units planned, it has produced only 4 994 and only 2 774 have been marketed.¹⁹ The main pitfall of this programme is the housing prices: costing between CVE2.7 million (US$25 492) and CVE 5.4 million (US$50 984). At this price these social housing units remained inaccessible to the 80% of the Cape Verdean population who do not meet the requirements of credit agencies.²⁰

Access to Finance

Cape Verdean banks benefit from the refinancing of the Central Bank and customer deposits. The country’s economy is highly dependent on foreign direct investment. The growth of foreign direct investment was initiated by privatization, followed by tourism growth spurred on by the real estate sector. Real estate is also developing thanks to the financing of mortgage loans by banks. The high rate of non-performing loans to gross loans (12%) increases risk and erodes the stability of the financial sector.²¹

In addition to mortgages, some banks offer other housing-related services such as renovation, restoration, painting and expansion. Banco Interatlântico (BI), for example, offers mortgage loans to finance the acquisition, construction and improvement of permanent residences or the acquisition of land for the construction of housing. The amount of these loans can go up to 90% of the value of the property, or even reach 100% within the framework of the protocols.²²

However, these services only allow a small part of the Cape Verdean population to access financing. Although the Cape Verdean banking system is developed to such an extent that 79% of its population has a bank account,²³ access to housing finance remains very uneven. In 2015, only 10.2% of Cape Verdeans had access to formal credit to finance their housing, due to requirements that are not adapted to local realities, excessively high interest rates, and the lack of repayment capacity of the mostly low-income population.²⁴

Low- and middle-income households have other financing levers, mostly informal and based more on social networks. Many microcreditors are contracted and used by households excluded from the bank loan system to cover the construction costs of their homes. If the income of a part of the population does not allow them to save enough to finance their housing, informal savings group schemes, housing cooperatives or money received from family members living abroad are all alternative sources of financing. In addition, private sector companies, being solicited only by the minority of the wealthiest populations, have a very limited reach into the real estate market.²⁵

Finally, the subsidisation of housing through public institutions such as Imobiliária, Fundiária e Habitat (IFH) allows vulnerable parts of the population (young people, people with disabilities, and single women) to obtain financial support that they would not have received through the traditional banking system.

Affordability

In Cape Verde, access to housing differs greatly depending on social class, area of residence and gender. Culturally, Cape Verdeans prefer to own their homes. Indeed, 65% of households live in a dwelling which they own,²⁶ while 21% of the population rent their housing.²⁷ The policies put in place by the government do not promote renting, but encourage the construction of housing for purchase, as for the Casa Para Todos programme. Due to the large housing deficits in urban areas (30% of the quantitative and qualitative deficit is located in Praia), more than 25% (or 40 000) Cape Verdean households live in low-quality housing without access to basic services.²⁸

Restricted by their limited financial means, many households are turning to more affordable rental or self-construction. Indeed, the prices charged on the Cape Verdean housing market do not allow the majority of the population to live in formal housing. In 2015, 35% of the population still lived below the poverty line.²⁹ Thus, among Cape Verdean households, 40% have a gross monthly income of CVE 45 000 (US$425) per month or less, making low cost housing the only available option.³⁰ In addition, the cheapest formal housing to buy, which costs about CVE 2.85 million (US$50 984), is only accessible to the 15% of Cape Verdeans who meet the requirements to obtain a bank loan.³¹

Although the scarcity of gender-disaggregated data  limits a clear understanding of the sector, access to housing for women is difficult for many reasons. The COVID-19 pandemic reduced employment, especially for the more service-oriented female population. Women seem to be particularly affected by the pandemic because they are employed in services sector or do unpaid domestic work.³³ In addition, widows, elderly or divorced women with disabilities, female victims of gender-based violence, and women heads of household are subject to severe discrimination in access to housing. In 2017, an estimated 49% of Cape Verdean households were headed by women.³⁴

Serving as the State’s instrument to facilitate access to housing for the most vulnerable populations, the Single Social Register makes it possible to assess the social, economic and housing situation of families in order to standardize the monitoring and care of the most vulnerable among them. Thus, persons (young people under 35, and youth with disabilities) who are registered can apply for a subsidy to cover part of the purchase price of their home from Imobiliária, Fundiária e Habitat (IFH), a public real estate development company responsible for producing social housing. This subsidy remains limited because the beneficiaries must be able to obtain a bank loan or have savings covering the non-subsidized portion of the property price.³⁵

Housing Supply

The supply of housing in Cape Verde is characterised by a shortage of family residential housing and developed land for housing, but also by a lack of territorial management instruments.³⁶ The residential property market is characterised by economic inequality, with the low income population residing in self-housing, and while public or private real estate development is responsible for housing  reserved for the wealthiest.³⁷

As housing for all is a right enshrined in the Cape Verdean constitution, the government has put in place many policies to reduce the housing deficit. Aware of the difficulties in financing the construction of social housing, the government relies in part on bilateral cooperation with countries such as China. Indeed, in 2017 the country signed an agreement with China to build social housing in São Vicente for women-headed families. The seven-phase project managed by the China Urban Construction Research Institute delivered the first phase of housing in January 2022.³⁸  The CVE 1.1 billion (US$10 million) project offers a total of 88 social housing units, divided into four-storey buildings each, with two two-bedroom apartments on each floor, for sale to the poorest families.³⁹

Beyond external cooperation, in January 2022 the government launched its National Housing Plan (PLANAH) 2021-2030. Based on an in-depth diagnosis of housing in Cape Verde, the document provides an action plan for how government will reduce the country’s housing deficit. Over 10 years, the State will mobilize CVE 82.3 billion (US$777 million) through public funds, bilateral/multilateral cooperation, public-private partnerships, etc. The plan foresees the construction of 3800 decent and affordable housing units per year between 2021 and 2030 for a total of CVE 11.5 billion (US$108.6 million), as well as the rehabilitation of 8 000 housing units between 2021 and 2025 for CVE3.6 billion (US$34 million). To allow a response more adapted to the needs and financial capacities of the population, the plan supports managed self-construction and places particular emphasis on facilitating access to land, particularly through the development of microfinance products. Finally, PLANAH focuses on the materials used, and promotes “the protection of the environment by encouraging the use of building materials with less environmental impact and equipment with low consumption of water, energy and other natural resources.”⁴⁰

Finally, these government initiatives are timely, in a context where the purchase of building materials is barely recovering from the global crises including the pandemic and the Russian-Ukrainian war. Indeed, in the last quarter of 2021, the purchase of construction equipment fell by 8.9% year-on-year, reflecting a decline in civil construction activity .⁴¹ Despite the predominance of self-construction, most households use conventional building materials 80% imported from abroad. As a result, over the past 10 years, construction costs have increased by 55%,⁴² making even self-construction unaffordable for some households. Finally, the country’s island geography creates inequalities in terms of access to a skilled workforce, including for self-construction.

Property Markets

It is difficult to trace the ongoing trade in the Cape Verdean real estate market as there is currently no central system for land registration and property transfers.⁴³ There is, however, a growing real estate market in Cape Verde. Investments in the real estate market in Cape Verde, especially in large urban centers (Praia, Mindelo) or tourist sites, are often, de facto, reserved for the foreign market.⁴⁴

The predominance of tourism in the country’s economy has an impact on the real estate market. Indeed, the development of seaside tourism is accompanied by a proliferation of hotels, and the transformation of residential housing into Airbnb or short-term rental, financially more profitable for developers and owners. Housing is thus a profitable source of investment suitable for those who wish to invest in an emerging economy, obtain an income, have the opportunity to enjoy their apartment several weeks a year and perhaps, late have a basis for retirement.⁴⁵

The government, both national and local, also sees the real estate market as a sector with great potential for economic growth and job creation.⁴⁶ However, such a boom in the real estate market is not possible without rational land management. In a volcanic archipelago where land is clearly a scarce resource, there is little land reserved for social housing, and land may be underused in consolidated urban areas. This under-utilisation combined with the fact that in large cities such as Praia, at least half of the households occupy their land informally, causes municipalities to lose significant income, thus hindering them in their initiatives to strengthen access to affordable housing.⁴⁷

With respect to land management, the municipality makes a certificate of parcel or cadastre available to third parties after the acquisition of land. It issues the title deed (certidão predial) of the land register within one week at a cost of CVE1 243 (US$12). When a third party wants to carry out a construction project, they must fill out a form to apply. The same form can be used for new construction or for an extension of an existing permit. The cost of the project is based on the size of the construction project, the projected impact on traffic, and the duration of the project (three, six or 12 months). The building permit is issued within two weeks at a cost of approximately CVE 75000 (US$708). The title deed must indicate the value of the property as well as information about the beneficiary. In addition, the lawyer must check with the land registry to ensure that the seller is the sole owner and has the exclusive legal rights to sell the property.⁴⁸

Policy and Legislation

2022 saw  the culmination of extensive work to develop a National Housing Policy (HNP) by the Cape Verdean Government. The National Habitat Plan (PLANAH), an instrument for the implementation of the HNP, aims to achieve a “Cape Verde recognized regionally and internationally for having developed an inclusive, resilient, effective and sustainable housing framework, capable of fully ensuring respect for the right to adequate housing and contributing sustainably to the socio-economic development” of the country.⁴⁹

The HNP and PLANAH were conceived out of the failure of the existing regulatory apparatus for affordable housing. Indeed, the disconnect between needs, local and operational realities, and the regulations in place has made the existing regulatory framework obsolete and inapplicable on the ground. PLANAH provides a budget of CVE 7 billion (US$66 million) for the development of more than 190 urban plans at the local level, focusing on the issue of affordable housing in each municipality. Thus, PLANAH sets the framework for the formulation of future national programmes. This will include the construction of social housing, the development of housing areas, the regeneration of housing, the development and monitoring of urbanisation plans, and the strengthening of the institutional legal framework.⁵⁰

To ensure the proper implementation of PLANAH, several initiatives have been taken by the government. Progress in the implementation of PLANAH will be assessed every five years.⁵¹ This system will make it possible to ensure that the progress is made in reducing the housing deficit, and also to avoid possible pitfalls as experienced in the Casa Para Todos programme. PLANAH will also provide for the creation of a National Housing Fund. This fund  must be able to mobilise financial resources exclusively for social housing programmes.⁵²

The government’s primary objective is to put in place strategic guidelines for a policy to promote the development of the housing sector in Cape Verde. Indeed, the fundamental concern lies in the identification of regional and local housing needs, through segmentation of housing demand, , and the identification of the necessary decision to adequately address the situation.⁵³

Opportunities

Since the 1990s, the country has embarked on a development policy which has enabled it to rise above other sub-Saharan countries, thus gaining significant trust from international financial institutions. Despite these great efforts, the reduction of inequality is still slow, putting the needs of the inhabitants below those of wealthier minorities and international private developers in the housing market. By 2030, 26 000 new homes will be needed to meet demand.⁵⁴

The implementation of the PLANAH offers many opportunities to entities wishing to take advantage of the economic development of Cape Verde.  Indeed, CVE 16 billion (US$151 million) in investment, representing 25% of the state’s annual revenues, is required in the next 10 years to support the Plan.⁵⁵ Actors in the housing chain, international financial institutions, bilateral and multilateral cooperation efforts, and many others are invited to take part in boosting the Cape Verdean real estate market by investing in affordable housing. Enabling the majority low-income population to live in decent housing contributes not only to the achievement of the Sustainable Development Goals (SDGs), but also to better access to services, better health, and thus to better social and economic development outcomes which are in turn, more favorable to future investment. The rehabilitation of the existing housing stock is a necessary measure to improve the urban environment and provide hotel real estate projects with an environment conducive to the realisation of their potential.

In order to support the low-income population, it will be essential to financially support self-construction and the rehabilitation of low-quality housing, but also the initiatives of housing cooperatives, informal savings groups and microcredit institutions which are the most accessible financing instruments for these populations. The development of lease-purchase products with very low monthly amortization costs could also make it possible to compensate for the lack of access by low income households to bank loan services.

Availability of Data on Housing Finance

New government decisions to help improve access to affordable housing came into effect in 2022.  The experience of the Casa Para Todos program provided many lessons learned and best practices, which can be taken into account in the new PLANAH.  Not all official government websites are up to date, and some documents would benefit from also being published  in English, so as to be easily accessible to any outside actor interested in the issue of housing in Cape Verde.

The data published by Banco Cabo Verde (BCV) is interesting in several respects, but should be further disaggregated to speak specifically to housing needs and supply, by income level and gender.

Green Applications for Affordable Housing

Currently, much remains to be done to  integrate the environment into the issue of affordable housing. Indeed, 80% of the materials used, including in self-build, are imported materials.  In addition to the pollution caused by their transport, these materials are not adapted to climatic conditions and local hazards. The construction techniques favoured by Cape Verdans take into account the natural hazards to which the archipelago is exposed. Indeed, often subject to floods, strong winds and volcanism among others, residents put in place ad hoc strategies  to protect their homes (e.g., construction of elevated housing, etc.).⁵⁶

PLANAH differs from previous planning documents because it pays particular attention to the role of the environment in the production of social housing. Strategic action n°6 under the specific objective of “significantly reducing quantitative housing shortages” insists on the use of local materials, with a lower environmental impact.

Similarly, the 2017/21 Government’s Strategic Development Strategy aims to reduce inequalities and protect the environment. The solution may be to abandon the “All Inclusive” tourism model in favor of ethical and sustainable tourism that benefits the local economy and the country’s ecosystem.

Starting from 2% renewable energy in 2009, the country aims for full energy autonomy by 2025. The village of Monte Trigo is an example of the country’s current energy policy. Located in Santo Antão, the most isolated island had access to electricity through an oil-fired generator. In 2012, the village was equipped with 210 solar panels offering electricity to residents 24 hours a day.⁵⁷

Websites

Banco Comercial do Atlântico (BCA) www.bca.cv/

Banco Interaltântico www.bi.cv/

Kaps Habitat  www.kaps-habitat.com/fr/

Habitat WorldMap   www.habitat-worldmap.org/

Habitat-Cité  www.habitatcite.wordpress.com/  

Fair Moov  www.fairmoove.fr/voyages/

Instituto Nacional de Estatística www.ine.cv/

Banco de Cabo Verde  www.bcv.cv/