Since the beginning of March this year, almost all countries around the world have introduced measures to protect their citizens and their economies exposed to the threat of the Covid-19 pandemic. This has included voluntary or forced lockdown measures, quarantine, curfew, and compliance with basic hygiene rules, among other steps. Although certain features of the measures implemented have been similar, countries have adapted these to their own circumstances.
While commendable, it is necessary to recognise the indirect consequences these measures have had on various national, regional, and international economies. The real estate sector as a whole has felt economic repercussions that have affected commercial real estate as well as residential and hotel real estate. Other players such as mortgage and commercial banks, private and institutional investors, landlords and tenants have also been affected.
For each of the players in a rental market, the economic impact is different. Residential tenants question their ability to pay rent and what will happen with reduced working hours and wages for some, and the loss of income and/or employment for others. Those homeowners, who rely heavily on regular income from the rent of their property, allowing them to sometimes determine their annual liquidity plan, financing or mortgage refinancing, are now exposed to uncertainty and are having to question how best to manage a large-scale loss of rental income in the event of economic difficulties experienced by their tenants.
This article explores rental residential markets in Africa with a focus on the owner-tenant relationship. The aim is to highlight the impact of the Covid-19 pandemic on these markets and to explore solutions and measures, inspired by the measures taken in industrialised countries that have attempted to reduce the negative effects of this pandemic in this segment of the real estate market. It first defines the rental residential market and then presents the reasons for its fragility in the face of the pandemic. Second, it explores some measures taken by developed countries to control the level of exposure of landlords and tenants. Finally, it makes suggestions for the adoption of some of these measures on the African continent.
Defining the residential rental market
A rental residential market is composed of all real estate properties intended for simple or social rental in a given space. Simple tenancy is the rental of a fixed-term property on an open market where the costs of rents are not determined beforehand. Social renting refers to low-rent or supervised housing estates for people with modest incomes who are unable to access the offer available on the open market. Social rental is usually concluded for an indeterminate period.
This rental relationship is often framed by a real estate lease or lease agreement. This document is established between two parties, the landlord/lessor and the tenant, and defines the provision of the property subject to the tenancy (term of the lease, cost of the lease, obligations of the tenant, obligations of the landlord, and conditions for renewal).
Why the African residential rental market?
In 2013, according to a survey by Credit Foncier on property in Europe, there were 70 percent homeowners and 30 percent of tenants across Europe in these three European areas as follows: Eastern Europe (Romania, Slovenia) with 87 percent of homeowners, Southern Europe (Spain, Greece, Portugal, Italy) with 71 percent and Northern Europe (England, Germany) with 60 percent.
In contrast, home ownership in Africa, particularly in the urban sector of major African cities and capitals, remains low. In 2017/18/19, the Centre for Affordable Housing Finance in Africa (CAHF) undertook a series of studies on rental markets in Côte d’Ivoire, Senegal, Uganda, Tanzania and Angola. CAHF has also published a paper setting out a methodology to identify key indicators for understanding rental markets in African countries. These studies show that in Côte d’Ivoire, three-quarters of households living in Abidjan (78 percent) are renters; in Dakar, Senegal, the rate is 50 percent; in Kampala, Uganda, 71 percent of households are renters, and in Dar Es Salam, Tanzania, the rate is estimated at more than 55 percent.
Moreover, data on the performance of the mortgage market in Africa, when available, remain limited compared to European countries. According to the 2019 Housing Finance in Africa Yearbook, the top five African countries with a relatively operational mortgage market are (in descending order) Namibia, Cape Verde, South Africa, Tunisia and Eswatini (according to ratio of mortgages to GDP). The number of mortgages outstanding in these countries is 73 396 (Namibia) and 1 700 436 (South Africa), with data for Cape Verde, Tunisia and Eswatini not available. The mortgage credit-to-GDP ratio is 24.57 percent in Namibia compared to 5.60 percent for Eswatini (last of the African top five). In most countries across the continent, the mortgage-to-GDP ratio is less than one percent (such as for Côte d’Ivoire, Senegal, Ghana, and the Democratic Republic of Congo (DRC)).
In Europe, real estate markets are more active. Mortgage credit is often the largest debt in the household, with housing representing the family’s most important asset at the same time. For example, in Holland, the total stock of mortgages represented 83 percent of the GDP; in Switzerland, it represented over 90 percent of GDP; whereas in Denmark it is estimated at over 109 percent.
The mortgage-to-GDP data are crucial for understanding the relevance of rental residential markets in Africa. Indeed, they show that, contrary to European practice where mortgage credit remains the major form of housing finance and access to housing for households, this practice remains weakly developed in Africa. Mortgage credit is available only to a small segment of the population in Africa, thereby limiting the direct impact of banks and financial institutions on housing finance. If the greatest housing risk arising from this Covid-19 pandemic is the high probability of default of mortgage borrowers, this issue is less of a concern in the context of banks and financial institutions in Africa.
From this analysis it appears that, in Africa, the pandemic will have a greater impact on residential rental markets and landlord-tenant relationships, since this formula represents the most common formula for homeownership. Unlike In Europe, where mortgage markets would be most exposed because of the depth of their mortgage markets (as illustrated by their total volume by GDP by country), African mortgage markets will not really be affected by the decline in economic activity and the reduction in human capital.
Examples of measures to protect the rights of landlords and tenants around the world
On 30 March 2020, as a response to the Covid-19 pandemic, the Mayor of Los Angeles issued a temporary moratorium  on evictions for non-payment of rent by tenants. The essential measures of this moratorium are aimed at protecting the rights of both parties (owners and tenants) and are generally as follows:
Protecting tenants’ rights:
- No eviction of a tenant due to non-payment of rent due to:
- The tenant’s loss of income due to the closure of his workplace or the reduction in his working hours due to the Covid-19 pandemic;
- Loss of income or increased childcare expenditures due to school closures;
- Medical insurance expenses resulting from a Covid-19 infection of the tenant or one of the tenants living with the tenant and diagnosed positive with the Covid-19 test; and
- Reasonable spending following the government’s announcement of emergency measures.
- No owner will be allowed to evict “without prejudice” during the local Covid-19 eviction moratorium. An eviction “without prejudice” is an eviction that takes place without fault on the part of the tenant. For example, if an up-to-date tenant in the payment of his rent would be forced to leave the property if it had been the subject of a sale and the new landlord was against the idea of continuing the tenancy. Thanks to the temporary moratorium, the eviction of a tenant in such a case cannot occur.
- No landlord will be able to evict a tenant in the event of unauthorised presence of occupants, pets or noise nuisances as a result of the Covid-19 pandemic.
- No landlord will be able to apply interest or late rent payment fees on late or unpaid rents due to the Covid-19 pandemic.
Protection of the rights of homeowners:
- Tenants are required to pay unpaid rents due to the circumstances of Covid-19, and will be given up to 12 months from the expiry of the local Covid-19 eviction moratorium to pay their outstanding rent.
- Tenants are encouraged to inform their landlords within a reasonable time (at least seven days before the due date of payment of said rent) of their inability to pay the rent.
- Landlords subject to prejudice in the event of non-payment of rent may take out a claim credit related to economic damage from the Covid-19 through the Small Business Administration.
The Minister of Finance announced the freezing of any rent increase and protection against unilateral cancellation of the lease agreement for six months under the Amendment Act in response to the Covid-19. The important changes made by this Act include:
- No rent increase will be allowed unless it has been notified to the tenant and comes into effect before March 26, 2020.
- No lease will be completed during the lockdown period unless there is a bilateral agreement between the parties.
- Any tenant can retract their decision to complete the lease even if an end-of-lease notification had already been sent to the landlord. This is possible if it is necessary to remain in the leased property during the containment period.
- If the tenant is tested positive with Covid-19, this does not give the landlord the right to end the lease. The tenant is not obliged to inform his landlord of his status although this is simply suggested.
With respect to unpaid rent, since 26 March 2020, any landlord can apply to the Tenancy Tribunal if the tenant has at least two months of unpaid rent. The Tribunal’s verdict will consider fairness and whether or not the tenant makes efforts to pay off the outstanding debts.
The government has undertaken aid initiatives under the Government of Canada’s Economic Response Plan for Covid-19, including support for Canadians such as the payment of their rent. At the provincial level, action has also been taken. In the province of British Columbia, the authorities have put in place the following short-term provisions:
- A temporary rent payment for low- and middle-income households, up to Can$500/month, paid directly into the landlord’s account.
- Prohibition of evictions subject to exceptional cases.
- Temporary halt to all evictions by the Residential Tenants Division, subject to exceptional cases.
- Freezing of rent increases planned for this year during the state of emergency.
- Homeowners are prohibited from accessing rented properties without the consent of tenants, subject to exceptional cases.
Examples of some actions taken or suggested in Africa
Since the beginning of the national state of disaster, measures have been taken by the public authorities to reduce the impact of the pandemic on the South African rental market. Since 26 March 2020, the official date of the beginning of the lockdown in the country, the government has promulgated a special regulation contained in the Governing Gazette of March 26, 2020 (Gazette) which touches on points relating to the real estate sector. Article 5(f) states that “all evictions and enforcement of foreclosure orders, securities and real estate including the movement or removal of personal assets and the sale in execution is suspended with immediate effect for the duration of the lockdown”.
Article 5(f) has a direct impact on evictions that could result from unpaid rents due to the pandemic, and even on evictions that were issued long before the health crisis began. However, this moratorium is temporary and cannot protect the parties once the lockdown is over. Besides, for the duration of the lockdown, a tenant cannot be forced to leave his or her home even if another tenant is waiting for the rented property. The future tenant will have to wait in his or her current home and will not be able to move in until after the lockdown has been lifted. Nevertheless, all rent is required to be paid, and this even in the event of termination of the lease, as long as the tenant remains in the rented property because of the lockdown. Tenants in a sensitive financial situation are required to notify their landlords and negotiate new terms. All extraordinary measures detailed in the Gazette take precedence over all existing contracts.
It should also be noted that real estate professionals in general and rental real estate in particular are looking into the situation by proposing approaches to mitigate the negative impacts of this crisis on the rental housing market. Dave McGlashan, Chief Operating Officer of the SA Property Investors Network, advised homeowners “… to deal with the situation by setting up a security deposit or a rent deferral agreement” with their tenants. These measures should be extended and applicable to tenants who have always demonstrated good faith and who have always paid their rents on time before the pandemic started. Some other bilateral agreements recommended by some professionals in the sector concern contractual arrangements of the parties (owners and tenants) in the adoption of measures that best serve their interests. These include:
- The Income Declaration Agreement (IDA). This agreement allows any tenant to declare to his landlord that his income has been reduced as a result of the lockdown, either in part or in total, because of dismissal, temporary unpaid leave; or because of reduced working hours. The lessor, in turn, can verify the allegations with the tenant’s employer and even request additional documents justifying the tenant’s current employment status.
- The Caution Use Agreement (CUA). This allows the tenant to authorise, or not, the use of his deposit to replace the unpaid rent by committing to the payment of this deposit once the lockdown has been lifted.
- The Rent Deferral Agreement (RDA). This simply allows landlords to confirm in writing an agreement for the subsequent payment of unpaid rent at a future date. The RDA has legal force and is legally binding.
The Minister of Construction, Housing and Town Planning, Bruno N. Koné, recognised the issue of the landlord and tenant relationship in these times of crisis and thus suggested six measures relating to the payment of rents. These measures include:
- The prohibition of any rent increase for any type of lease agreement.
- Suspension of all evictions except those following a court decision and suspension of rent payments for those whose economic activities are interrupted for three months from 1 April 2020.
- Rent reduction or deferral that will be refundable in 12 months.
- Deferral of payment of taxes for lessors who have accepted a reduction in rents.
- The establishment of a Housing Solidarity Fund financed by the economic, social and humanitarian support plan to the amount of FCFA1 700 billion (US$2 814 002 734. 47)
Some suggestions for rental residential markets in Africa
It is worth noting that most of the measures adopted in the few countries mentioned have not been approached as a one-way street. They incorporate elements of protection for the interests and rights of different stakeholders. On the one hand, the social aspect justified by the need for an orderly society and policing has enabled decision-makers to ensure that the right to housing and access to housing is respected and ensured during this difficult period. On the other hand, the precarious economic aspect justified by the decline in economic productivity in some industries, and the decline in wages and/or working hours, was also considered. This has allowed the establishment of temporary moratoriums which, in the first place, “excuse” delays and unpaid rents and, second, provide economic “softeners” to ensure landlords do not to suffer unjustly during the pandemic.
The authorities in many major African cities, such as Abidjan, Dakar, Luanda and Kinshasa, can draw on some of these measures to reassure their stakeholders. In the African context, three aspects appear to be important for effective intervention by public authorities to protect rental markets.
First, to take measures to protect tenants from evictions related to non-payment of rent due to the Covid-19 pandemic. This protection could cover rents due from the “first” of the current month or following the declaration of any state of health emergency in each country. It should not be general and indeterminate, but temporary and strictly limited to individuals whose:
- Jobs and incomes have been affected by any declaration of a state of emergency.
- Professional performances have been impaired due to a positive screening for Covid-19.
- By unforeseen expenses relating to food survival, household expenditures, health and the education of children following the declaration of the state of health emergency
- Other acceptable and context-based measures for each African country under the state of health emergency.
Second, prohibiting increases in rental charges and applying interest in the case of unpaid rents. It is vital and crucial that governments ensure that the disaster caused by this pandemic does not create an environment of “undue” enrichment to the detriment of poor and vulnerable populations. The regulation of the lessor-lessee relationship at the economic level will aim to adequately preserve the economic interests of these stakeholders. On the one hand, this will guarantee the existence of the rental debt and its subsequent payment without putting the tenant in a position of over-indebtedness born of an event independent of his will. On the other hand, it will reassure the owner about the recovery of his debt eventually.
Finally, the immediate protection of the economic conditions of the owners. This is extremely important to ensure social balance and minimise extra Covid-19 hazards. As noted, rent represents a fixed income for some homeowners and an important economic base in planning household consumption, liquidity, and mortgage financing or any refinancing plan over a given period. Large African cities, with their large percentage of tenants, imply that a large mass of household-homeowners or individual-homeowners could be negatively affected if the temporary moratoriums did not address the preservation of their economic interests. Government intervention, through partial or full subsidies, or credit mechanisms, with immediate effect, could be used to support those landlords who find themselves in a precarious situation in the event of unpaid rents.
Admittedly, in countries with struggling economies, the limitations of the fiscus will not allow for government programmes to subsidise rental payments by tenants. The assumption of a line of credit from public funds or funds from a public-private partnership seems more appropriate as it would allow the State to recover its debt from the landlord-borrower once the state of health emergency has been lifted and the unpaid rentals recovered from the tenant.
Finally, given the greater constraints of smaller African economies, a fair and rational allocation of funds and resources will play a more critical role in the response of African States to the challenges of this pandemic in the rental residential markets in Africa.
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