Housing Finance in Malawi

Overview

Malawi is located in the southern part of Africa. The country had an estimated gross domestic product (GDP) per capita of MK501 514.67 (US$625.29) in 2020, up from MK467 684.15 (US$583.11) in 2019. With an estimated population of 19.1 million in 2020, the country is predominantly rural as 84% of the total population lives in rural areas,3 and mainly depends on subsistence rain-fed agricultural activities. Of the 16% of the population in the urban areas, 12% live in the four major cities of Blantyre, Lilongwe, Mzuzu, and Zomba. The housing market is characterised by insufficient supply due to high poverty levels and increased demand caused by a rapid rate of urbanisation of 4.12%. Organizations such as the Center for Community Organization and Development (CCODE) report a huge demand for low and middle-income homes in the cities.

Major challenges affecting sustainable urbanisation in Malawi, exacerbated by COVID-19, include limited opportunities for revenue collection and planning; weak governance structures; poor land-use planning; the threat of climate change and disasters; and a high level of informal settlement and unregulated developments. As a result, 65.1% of the urban population live in slums, informal settlements, or have inadequate housing. The number of households living in informal settlements is estimated at 480 799. The government is trying to solve the challenge of insecure tenure, especially in traditional housing and slum areas. First, the government is preparing a legal framework sectional titling bill to improve the regularisation and issuing of titles for flats and other compound households. Second, the government is formalising informal settlements which have met minimum standards in the major cities through rezoning and issuing of titles.  Also, to ease the pressure of housing demand, the government has begun constructing 10 000 staff houses for security institutions.

As a result of the slowdown in local and cross-border economic activity due to COVID-19, Malawi’s economy weakened in 2020 and real GDP registered a growth of 0.9% against the 5.1% growth recorded in 2019. The economy is, however, expected to rebound by 3.8% in 2021. The projected recovery in 2021 is premised on the availability of the COVID-19 vaccine, which has allowed the gradual resumption of economic activity. Further, the positive spillover effects from economies across the world opening up are expected to aid the domestic recovery. However, the outlook remains cloudy due to uncertainty about the evolution of the pandemic. Meanwhile, annual average headline inflation stood at 8.6% in 2020, down from 9.4% in 2019, mainly driven by a gradual drop in food prices following an above-average harvest in 2020 and low nonfood inflation.

[1] The World Bank (online). GDP per capita (current US$), Malawi. World Bank Open Data. https://data.worldbank.org/indicator/%20NY.GDP.PCAP.CD%20?locations=MW (Accessed 8 August 2020).

[2] Trading Economics (2020). Malawi population.

https://tradingeconomics.com/malawi/population (Accessed 8 August 2020).

[3] The World Bank (2018). Rural population (% of total population), Malawi. World Bank Open Data.

https://data.worldbank.org/indicator/%20SP.RUR.TOTL.ZS%20?locations=MW  (Accessed 1 September 2020) and The World Bank (2018). Urban population (% of total population), Malawi. World Bank Open Data.

https://data.worldbank.org/indicator/%20SP.URB.TOTL.IN.ZS%20?locations=MW (Accessed 1 September 2020).

[4] National Statistical Office (2018). 2018 Malawi Population and Housing Census Main report. 20 May 2019

http://www.nsomalawi.mw/images/stories/data_on_line/demography/census_2018/2018%20Malawi%20Population%20and%20Housing%20Census%20Main%20Report.pdf(Accessed 8 August 2020). Pg. 11.

[5] Reserve Bank of Malawi (2020). Financial and Economic Review. Volume 54, Issue 2, 2020. https://www.rbm.mw/Publications/EconomicReviews/ (Accessed 16 September 2020). Pg. 8.

[6] Reserve Bank of Malawi (2019). Financial and Economic Review. Volume 53, Issue 4, 2019.  Pg. 2.

[7] Reserve Bank of Malawi (2020). Financial and Economic Review. Volume 54, Issue 2, 2020.  Pg. 2.

[8] Reserve Bank of Malawi (2019). Report and Accounts for the Year ended 31 December 2019.

https://www.rbm.mw/Publications/AnnualReports/ (Accessed 11 August 2020). Pg. 148.

[9] Reserve Bank of Malawi (2020). Financial and Economic Review. Volume 54, Issue 2, 2020. Pg. 10.

[10] Reserve Bank of Malawi (2020). Financial and Economic Review. Volume 54, Issue 2, 2020. Pg. 10.

[11] National Statistical Office (2018). 2018 Malawi Population and Housing Census: Main report. 20 May 2019.

http://www.nsomalawi.mw/images/stories/data_on_line/demography/census_2018/2018%20Malawi%20Population%20and%20Housing%20Census%20Main%20Report.pdf (Accessed 11 August 2020). Pg. 32.

[12] National Statistical Office (2018). 2018 Malawi Population and Housing Census Main report. 20 May 2019.

http://www.nsomalawi.mw/index.php?option=com_content&view=article&id=226:2018-malawi-population-and-housing-census&catid=8:reports&Itemid=6  (Accessed 11 August 2020). Pg. 31.

Access to finance

The financial sector comprises eight banks, one less than in 2019, due to the acquisition of one bank by another. In terms of assets, the National Bank of Malawi (NBM) and Standard Bank continue to dominate the sector, accounting for 48.0% and 48.2% respectively. Following the revision of policy rate downwards by monetary authorities from 13.5% to 12%, the commercial banks’ base lending rate marginally declined to 12.3% from 12.5% recorded in December 2019. Despite the changes in interest rates, the minimum mortgage rate remained at 21.0% throughout 2020. Out of the eight commercial banks, five banks, namely New Building Society (NBS) Bank, Standard Bank, NBM, First Discount House (FDH) Bank, and Continental Discount House (CDH) Bank offer mortgages. The number of mortgages of the five commercial banks stood at 1 616 in 2020 and the average loan size was MK15 million (US$18 702) to be paid back in 240 months. Non-Performing Loans (NPL) of commercial banks increased by 16.5% to MK46.9 billion (US$58.5 million) during 2020.

COVID-19 caused credit losses among banks due to defaults. As one way of mitigating the anticipated impact of COVID-19 risk in the banking sector, commercial banks were allowed to restructure and grant moratoria on loans to clients on a case-by-case basis. As of December 2020, a total of 350 facilities amounting to MK20.4 billion (US$30.4 million) were still under moratorium.

NBM wrote off loans amounting to approximately MK4.5 billion (US$5.6 million) during 2020. To guard against further loan losses, some banks such as the NBM introduced measures such as loan repayment deferrals, and during 2020 loans valued at approximately MK32.9 billion (US$41.0 million) were restructured. Out of these, those restructured due to Covid-19 accounted for approximately MK28.4 billion (US$35.4 million). Some microfinance institutions (MFIs) such as CCODE trained their beneficiaries in income-generating skills so that they can diversify sources of income and also extended loan repayment periods. CCODE also offers mortgages to low-income home buyers and the average loan size for this low-income group is MK5 million (US$6 234), to be paid back in three years.

At least 61 MFIs and non-bank financial institutions operate in Malawi. The leading MFIs that offer housing finance include CCODE, Select Financial Services (SFS), People Development Fund (PDF), Epik Finances, and Enterprise Development Holdings.

[1] Reserve Bank of Malawi (2019). Financial Institutions Supervision Report 2019.  https://www.rbm.mw/Supervision/BankSupervision/?activeTab=BASUAnnualReports (Accessed 12 August 2020) Pg. 16.

[2] Reserve Bank of Malawi (2019). Financial Institutions Supervision Report 2019.  https://www.rbm.mw/Supervision/BankSupervision/?activeTab=BASUAnnualReports (Accessed 12 August 2020) Pg. 16.

[3] Reserve Bank of Malawi (2019). Financial Institutions Supervision Report 2019.  https://www.rbm.mw/Supervision/BankSupervision/?activeTab=BASUAnnualReports (Accessed 12 August 2020) Pg. 14.

[4] Interview with Mr Mlongoti, National Bank of Malawi Blantyre Branch, 17 August 2020, Malawi

[5] Reserve Bank of Malawi (2020). Financial and Economic Review. Volume 54, Issue 1, 2020.  Pg. 18.

[6] Reserve Bank of Malawi (2019). Financial Institutions Supervision Report 2019.  https://www.rbm.mw/Supervision/BankSupervision/?activeTab=BASUAnnualReports (Accessed 12 August 2020) Pg. 11.

[7] Interview with Zilire, Centre for Community Organisation and Development, 21 August 2020, Lilongwe, Malawi.

Affordability

Market segmentation exists by household income groups and the first segment comprises low-income households with monthly incomes of MK50 000 (US$62.3) or less, and with rental expenditures of MK30 000 (US$37.4) or less. The second group is the middle low-income households with monthly incomes of between MK70 000 (US$87.28) and MK100 000 (US$124.7) and rental expenditures of MK40 000 (US$49.9) or less, for example, primary school teachers. Third, the middle-income household group has incomes of between MK300 000 (US$374.0) and MK800 000 (US$997.4) and their rental expenditures range between MK100 000 (US$124.7) and MK200 000 (US$249.4). Last is the upper-income group with a monthly income of at least MK800 000 (US$997.4). The low middle income and the middle-income households have difficulty accessing adequate and affordable housing due to low supply. Most people in low- and middle-income groups, for instance, teachers, cannot get mortgages from commercial banks.

For middle-income home buyers, the monthly mortgage repayment is approximately MK175 000 (US$218.2) and for those with low incomes, the monthly mortgage repayment is approximately MK35 000 (US$43.6). The repayment amount does not exceed 35% of a client’s income and under some circumstances, a client is asked to contribute a down payment of 15% of the purchase price. COVID-19 made mortgages less affordable, as 80% of low-income clients who obtained mortgages found it difficult to pay back the loans. To support the affordability of housing projects, initially, the government used to grant land to organisations implementing housing projects for the poor. Nowadays, where the main sources of funding of cities and districts are in land sales, both city and district councils have stopped granting free land. However, on a case-by-case circumstance and district, city councils are offering subsidised land to low-income residents.

[1] Government of Malawi (2019). National Budget Statement 2019-2020.  https://www.finance.gov.mw/index.php/blog/budget  (Accessed 6th September 2020) Pg. 49.

[2] Interview with Zilire, Centre for Community Organisation and Development, 21 August 2020, Lilongwe, Malawi.

[3] Interview with Zilire, Centre for Community Organisation and Development, 21 August 2020, Lilongwe, Malawi.

[4] Interview with Mr Mlongoti, National Bank of Malawi Blantyre Branch, 17 August 2020, Malawi.

[5] Interview with Mr Mlongoti, National Bank of Malawi Blantyre Branch, 17 August 2020, Malawi.

^[6] Interview with Ministry of Lands, Housing and Urban Development official, Blantyre office, 15 August 2020, Malawi.

Housing supply

The Malawi government is committed to achieving Sustainable Development Goal 11 (SDG11), especially target number one, to ensure access for all to adequate, safe, and affordable housing and basic services, and to upgrade slums. The government is also implementing the New Urban Agenda, which calls on countries to implement their urban policies. To respond to staff housing needs, in December 2020 the government embarked on a project to construct staff houses for security institutions such as the Malawi Police, Malawi Defence Force (MDF), the Immigration Department, and Prison Services. This is a five-year project and the first phase will see the construction of 1 000 houses with 2 500 houses planned for the second phase. Construction has started at Changalume MDF Support battalion in Zomba district, an Area police station in Lilongwe, Karonga Support Battalion, and Mvera Support Battalion in Dowa district. Malawi Housing Corporation (MHC), a government agency, is also building 254 housing units across the country for rental and sale.

Furthermore, in the national budget for 2021/22 the Malawi government has set aside around K400 million (US$498 721.2) for the construction of houses of persons with albinism. The impact of these housing initiatives, however, is minimal compared to demand.

Besides these government initiatives, private sector organisations are initiating projects to increase the supply of houses in cities and districts across Malawi. Sustainable Urban land and Shelter Development Consultants (SULSDEC) is constructing affordable houses in the cities of Blantyre, Mzuzu, Zomba, and Lilongwe. The company plans to construct approximately 1 000 affordable houses by 2030.

In November 2020 the Ministry of Lands, Housing and Urban Development (MoLHUD) initiated the Land Rent Roll System (LRRS) which will produce accurate ground rent notices and deliver notices to leaseholders, improving the ability to collect revenues. The LRSS is a component of the Land Information System that the Ministry will soon develop. The ministry is also expected to implement its National Land Titling to Promote Tenure Security and Sustainable Development programme when funds are available. This is one of the flagship projects that has been developed with support from the World Bank under the agriculture commercialisation project.

Different cities have developed their own urban strategies to supply houses. For instance, Lilongwe city has the Lilongwe City Development Strategy and the Lilongwe City Master Plan. Neither local building methods nor materials are used to meet the supply of affordable housing. Rather, city councils are promoting the use of cement bricks and iron poles, which are more expensive than traditional materials. Most housing initiatives are private sector-driven and the private sector is generally interested in profit, not job creation.

The government is implementing several road infrastructures projects, some of which have been completed, such as the modern interchange in Area 18 in Lilongwe city. However, the public transport system is not well coordinated and does not support affordable housing development. Authorities have given less attention to waste management, especially in slums and low-income areas such as Chinsapo in Lilongwe city.

[1] National Statistical Office (2018). 2018 Malawi Population and Housing Census Main Report. 20 May 2019. http://www.nsomalawi.mw/index.php?option=com_content&view=article&id=226:2018-malawi-populationand-housing-census&catid=8:reports&Itemid=6 (Accessed 10 August 2020). Pgs. 31-32.

[2] Interview with Ministry of Lands, Housing and Urban Development official, Blantyre office, 15 August 2020, Malawi.

[4] Government of Malawi (2020). The National Budget Statement 2020/2021. Pg. 38.

[5] Kalua, K. (2020). Facebook page of Kamlepo Kalua. https://web.facebook.com/kamlepokaluaa/posts/2307610399540379  (Accessed 27 August 2020).

Property markets

The impact of COVID-19 on the property market has been mixed. Formal real estate agents reported that house and land transactions slowed. City councils also stated that there were fewer change-of-ownership transactions than before the pandemic. Approximately 350 property-transfer transactions took place in Lilongwe, while in Blantyre, change-of-ownership transactions ranged between 40-52. A residential resale market exists in both urban and semi-urban areas. The resale transactions are handled by city councils.

Over the past year, there has been a mushrooming of formal real estates companies such as Summer Holdings and Innobuild. These companies have brought speculation into the land market in urban and semi-urban areas and this has contributed to increasing prices of land in cities and districts that were once customary. CCODE officials have suggested that the government should formalize the process of buying and selling land. Companies buying customary land and reselling it are neither paying ground rents nor development charges and hence the government is losing revenue.

Fully 70% of the urban population operates in both land and housing informal markets. In these markets households trade and hold properties, both on ownership and rental basis, but their properties are unsecured. The lands and deeds registries in the MoLHUD are paper-based, though with support from the World Bank the government has successfully implemented the digitisation of land cadastral mapping and attendant land transactions across major cities, which will expand to targeting land in rural areas.

According to national statistics, 74.3% of houses are owner-occupied and 12.4% are rented. Due to the pandemic, rental prices of approximately 70% to 85% of both residential and commercial properties remained unchanged between January and December 2020. It takes 47 days to register a property in Malawi with a registration cost of approximately 1.6% of the total value of the property.

Constant cost increases in construction materials jeopardise housing affordability. Moreover, Malawi lacks an umbrella body for institutions in the housing and property markets.

[1] Sangala, T. (2018). The Property Market in Malawi.  30 January 2018. The Times. https://times.mw/the-property-market-in-malawi/ (Accessed 29 August 2020).

[2] Sangala, T. (2018). The Property Market in Malawi. 30 January 2018. The Times. https://times.mw/the-property-market-in-malawi/ (Accessed 29 August 2020).

[3] Africa Development Bank (2020). Speeding up the Devolution of District Land Registries for Increased Land Registration Titling and Improved Agriculture productivity. COMW Policy Brief No. 1/2020 Page 5.

[4] Chome, J. (2020) Urbanisation. National Development Conference 2020.

[5] Republic of Malawi (1965). The Land Act (1965). http://extwprlegs1.fao.org/docs/pdf/mlw41845.pdf (Accessed 1 September 2020).

[6] The first serious attempt to provide a comprehensive body of land law was made in 1967 with the passage of the Registered Land Act (Cap 58:01) and the Customary Land Development Act (Cap 59:01) which was piloted in Lilongwe West, and not to the entire country.

[7] World Bank (2020). Doing Business 2020 Malawi Profile Pg. 24.

Policy and Legislation

Malawi launched its national development vision, the Malawi 2063 (MW2063) Agenda, in February 2021. The MW2063 recognises that land-related laws are key factors in realising the vision. The country enacted 10 land-related laws in 2016. The MoLHUD has, however, embarked on a review of land laws and policies, as directed by the president. The process began in February 2021 and involved the MoLHUD consulting various stakeholders for their input on the review. Following these consultations, the MoLHUD developed a Land Law Review report and draft amendment bills. These were given to the Ministry of Justice to finalise. MoLHUD is expected to present the draft bills to parliament during November 2021 sitting. In addition, the MoLHUD’s flagship project, the National Land Titling to Promote Tenure Security and Sustainable Development programme, will establish district physical development plans and land use plans, district land registries, and the Land Reform Implementation Unit.

The government intervenes in the market on both the supply and demand sides. Through its agencies the Malawi Housing Corporation (MHC) and MoLHUD, the state builds houses and provides land for house construction through public-private partnership arrangements. MHC in partnership with a Chinese real estate company, Henan Gouji, has constructed 104 houses for sale and for rent in the Area of Lilongwe in the first phase of a project called Guoji Dream Town. One hundred and fourteen houses are expected to be built in the second phase of the project and this phase is expected to be completed in 2021.

Although there has been an influx of private sector players in the land and housing markets in the past two years, this does not signal that the government has created a conducive environment for the private sector. However, these private companies are filling a gap in the land market that the government was supposed to fill. It takes at least two years for a client to be allocated land to buy by the government and even longer to find a government house to buy or rent. In the private sector, the client can complete these transactions within a month.

[1] Africa Development Bank (2020). Speeding up the Devolution of District Land Registries for Increased Land Registration Titling and Improved Agriculture productivity. COMW Policy Brief No. 1/2020. Pg. 6.

[2] Chirwa, J. (2020). Land Laws to roll out nationwide next year. 9 July 2020. The Nation. https://www.mwnation.com/land-laws-to-roll-out-nationwide-next-year/ (Accessed 1 September 2020).

[3] Banda, J., Tukula, F. and Chilonga, D. (2019). Land Use Policy: Implementing Physical Planning Act in the Context of Malawi Land Reform Program. Annual World Bank Conference on Land and Poverty, Washington D.C, 25-29 March 2019. Pg.5.

[4] Garcia, A.C Abrassart, T and Barker, L.H. (2020). Building a safer, healthier, more resilient Malawi. 5 May 2020. World Bank Blogs. https://blogs.worldbank.org/africacan/building-safer-healthier-more-resilient-malawi (Accessed 27 August 2020).

[5] Africa Development Bank (2020). Speeding up the Devolution of District Land Registries for Increased Land Registration Titling and Improved Agriculture productivity. COMW Policy Brief No. 1/2020. Pg. 5.

Opportunities

The Malawi housing sector presents a number of opportunities for investors. The first is investing in houses for the low-income segment of the population. CCODE, which constructs houses for low-income citizens, reports a backlog of approximately 5 000 low-income residents across Malawi looking for houses to rent.

The second opportunity is in investing in 3D printing house construction. In Malawi, the Joint Venture named 14 Trees is producing 3D-printed houses and schools. In July 2021 it was reported that the company constructed an environmentally friendly and affordable house in 12 hours using 3D printing technologies. The venture is now taking orders for houses at just under MK8 020 513 (US$10 000).

The affordability approaches adopted by CCODE can be adopted and scaled up to serve more people in the informal sector. This involves providing loans and mortgages to members of community savings groups who are trustworthy when it comes to loan repayment. In addition, these beneficiaries must be empowered with income-generating skills to diversify their sources of income.

Some private companies are also planning to implement housing projects specifically targeting civil servants. For instance, the People Development Fund in collaboration with Raymka developers is introducing the Civil Servants Housing Project. The project aims to sell plots to civil servants so that they can build their own houses

[1] Habitat for Humanity (2019). Malawi Country Profile. https://www.habitat.org/sites/default/files/documents/1_Malawi_2019.pdf  (Accessed 16 September 2020).

Availability of data on housing finance

The main organisations that collect and share data on housing finance are the Central Bank of Malawi and commercial banks such as NBM and NSO of Malawi. These institutions publish data on investments in real estate, loans extended to the real estate sector, mortgage interest rates, mortgage loans and NPLs of both MFIs and banks in Malawi, outstanding loans, and the number of housing units. The data is publicly shared through online and printed reports on a quarterly and annual basis. Other institutions that provide data on the housing sector include the National Construction Industry Council of Malawi, the Department of Lands, MHC, private developers, city councils, and the Surveyors Institute of Malawi.

Other institutions, such as city councils and microfinance institutions, do not publish their data. Data such as construction labour costs, the number of properties with title deeds, taxable properties in the city, and resale transactions are not publicly available.

Urban Informality

The government has not yet established a comprehensive programme to deal with urbanisation and slum upgrading, except for the land regularisation project. However, the government has prepared a project to improve the living standards of people living in slums through the provision of good quality houses. The project, called the National Slum Upgrading Project, is to be piloted in Lilongwe city. The government has already identified a site to construct 500 housing units.

The World Bank estimates the population growth rate in Malawi at 2.7%, while the urbanisation rate stands at 4.1%. The proportion of the urban population living in slums, informal settlements, and inadequate housing is at 65.1%. Malawi has a better track record in the urban water supply sector and access to sanitation services than many other developing countries. The proportion of the urban population with access to clean water (piped source) is at: 64.9% while the proportion of the urban population with access to sanitation stands at 65.5%.

Additional sources

Ministry of Lands, Housing and Urban Development. (2020). Speech by Minister

of Lands Honourable Kessie Msukwa, MP during the launch of Land Rent Roll

System at Cross Roads Hotel In Lilongwe on 28th October, 2020. 28 October

2020. Unpublished

Msukwa K.K (2021). Ministerial Statement on Land Laws Review delivered in the

National Assembly by Minister of Lands. 28 June 2021 Pg.7 Unpublished

 

Websites

Blantyre City Council www.bccmw.com

City for Community Organisation and Development www.ccodemw.org

FDH Bank www.fdh.co.mw/index.php/rates-tariffs/bank-interest-rates

Habitat for Humanity www.habitat.org/where-we-build/malawi

Lilaga www.lilagamw.com

Malawi Housing Corporation www.mhcmw.org

Microfinance Network of Malawi www.mamn.mw

Ministry of Lands, Housing and Urban Development www.lands.gov.mw

National Bank of Malawi www.natbank.co.mw/index.php/interest-rates

Reserve Bank of Malawi www.rbm.mw

Sustainable Urban Land and Shelter Development Consultants www.sulsdec-mw.com

Sulsdec http://www.sulsdec-mw.com/

Standard Bank of Malawi https://www.standardbank.co.mw/

New Building Society (NBS) Bank https://nbs.mw/

Continental Discount House (CDH) Bank Bank https://www.cdh-malawi.com/

14 Trees Ltd https://www.14trees.com/