Zambia: Implications of the 2014 budget announcements in terms of housing

The Minister of Finance in Zambia recently delivered his national assembly Budget Speech for the 2014 financial year. With a robust economy measured at 7.3% in 2012 and projected to increase to 7.8% in 2014, the minister sees this economic growth as a chance for all Zambians to also benefit from the growth. The total budget proposed amounts to US$7.6 billion which makes up 30.7% of total GDP, of which 1.5% will be directed towards Housing and Community Amenities. 

The housing deficit is estimated at 1.3 million units countrywide which means that 130 000 units must be delivered annually over 10 years. The current average annual delivery is only 11 000 units, at this rate Zambia’s housing sector is nowhere near to reaching the delivery scale required. The only feasible option thus far seems to be housing microfinance. Affordable housing supply in Zambia’s cities is mostly informal, and residents spend as much as 50% of their monthly income on rent alone. The ministry sees housing as being important to economic growth. Government capacity to deliver houses is limited by the fiscal budget. The housing budget for the 2013/2014 financial year is a mere K661 million (US$118 million).  Still, the Ministry is interested in other levers to stimulate the country’s affordable housing sector.

To address rental affordability, the minister wants to decrease rental income tax from 15% to 10%.  Other areas of attention include titling, infrastructure, and improving access to amenities. A total of K6 107 billion (US$1.2 billion) has been earmarked for the titling.  It is estimated that around 60% of the population has informal title deeds. The titling process aims to ensure that property owners have access to title deeds and enable access to finance.

Ninety percent of the land mass in Zambia is under customary tenure. The land transfer system was slow and particularly expensive for low income earners. In July of this year, the Ministry of Lands, Natural Resources and Environmental Protection (MLNREP) launched the Zambia Integrated Land Management and Information System (ZILMIS).   The ZILMIS will improve the slow titling process and the system will improve secure, transparent and traceable land transactions. The proposed fees under the program are set to increase, which will put further pressure on most people as the previous rate was seen as being too steep.

Zambia’s transport network is vital for the country’s economic development. A good transportation system enables goods to be transported with ease and reduces their price.  The cost of a 50kg bag of cement (US$10 – US$13) has increased and this has been attributed to the costs incurred by transporting the cement from the manufacturer. Bad roads are a direct link to the costs of commodities being high which affect the affordability levels for the end user.

The Ministry also presented a number of tax proposals relevant to the housing sector, including:

• Increasing the property tax rate from 5% to 10%
• Introducing a 0.2% money transfer fee (inside or outside Zambia)
• Shifting some zero rated VAT goods to a standard VAT rate
• Extending the withholding tax to foreign companies
• Decreasing rental income tax from 15% to 10%
• Exempting withholding interest tax from the debenture part of a property linked unit
• Increasing Pay As You Earn tax by 36%

Overall, the Budget speech provided a general optimism especially relating to infrastructure and economic growth. However, access to affordable housing will be further impeded upon as some of the constraints were the high property associated costs. The increased property tax rate and the launch of the ZILMIS will put further pressure on low income owners who could not afford the previous prices. Perhaps at a later stage provisions will be made to incentivise low income earners by reducing some of the property associated costs.