We examine how African nations are using the mortgage system to make finance for housing available and accessible for their citizens.
Prioritizing the housing needs of a country’s growing population contributes to economic development. Consequently, ensuring access to housing financing becomes crucial, as it encompasses both demand and supply facets of the housing spectrum, by playing a key role in effectively meeting these needs.
Prospective homeowners and housing markets are therefore the primary stakeholders concerned with housing finance-related matters, as they bear the direct impact of the availability and affordability of housing financing. Mortgaging provides an avenue for homeowners to secure housing through the facilitating of specialized loans for this process. In Africa however, a varied mortgage landscape exists, presenting both prospects and obstacles for industry stakeholders to navigate.
State-owned housing banks (SOHBs), private commercial banks, housing co-operatives, microfinance institutions (MFIs), and savings and credit cooperatives (SACCOs) have cultivated the diverse mortgage landscape in Africa. SOHBs, as the name suggests, are owned by the government and are in the service of offering long-term mortgage loans, subsidies or guarantees.
These serve to reduce interest rates and ease the burden of down-payment requirements for prospective homeowners. The SOHB structure has been adopted by countries like Cameroon, Ethiopia, Tunisia, Gabon, Algeria, Rwanda, Lesotho, Burkina Faso, Namibia and Senegal. Such a model relies heavily on funding from public budgets but runs the risk of being easily compromised in times of widespread financial crisis.
Commercial banks belonging to the private sector also offer mortgage services to prospective homeowners, thereby contributing to the growth of the housing market. They do this by partaking in government-backed mortgage guarantee programs and partnering with housing market developers to create mortgage finance products for affordable housing projects. Generally, they are more capable of extending their services to a broader customer base due to investments made in technology and digital banking solutions that help streamline mortgage application processes.
Housing cooperatives also have a role to play in house financing. In the context of the African mortgage industry, these are member-driven organizations operating on democratic leadership and a strong sense of community. Such cooperatives can pool together financial resources for their members and also have the power to negotiate favourable mortgage terms and conditions. They collaborate with financial institutions to put together affordable mortgage products with flexible repayment terms and their overall credibility is backed by the collective pooling of financial resources and shared responsibility among members.
MFIs in the landscape of African mortgage are a maturing industry, providing access to housing financial services, especially for individuals who cannot access traditional banking services. They greatly help low-income households, small business owners and individuals in the informal sector.
SACCOs are another type of community-driven entity offering valuable financial assistance, especially in the informal sector. They can leverage their deep understanding and close relationship at the local level to provide personalized mortgage solutions for their members. SACCOs are strong in countries like Mali (Kafo Jiginew credit union), Rwanda (Banques Populaires) and Kenya ( Kenya Union of Savings and Credit Cooperatives).
Supply and demand needs of affordable housing are met with various challenges due to factors such as climate-influenced natural disasters, energy-related issues, economic fluctuations, national debt, gender inequalities, poverty levels, infrastructural changes, and urbanization. The multifaceted nature of these challenges directly impacts demand needs in terms of accessibility, availability, and affordability of housing options. Regarding the supply aspect of the housing market, there are also issues of inadequate financing for housing development projects and poor scaling and targeting processes that create a mismatch between the housing supply and the specific requirements of a population.
The effects of climate change on mortgage markets exacerbate the challenges faced in meeting the supply and demand needs of affordable housing. Since the 1980s, flooding, droughts, and storms have frequently been recorded in Africa. Other natural disasters occurring less frequently include extreme temperatures, wildfires and landslides. Countries like South Africa, Ethiopia, Mozambique and Kenya record some of the highest frequencies of total reported natural disasters. In almost all the available country data, the occurrence of floods records the highest frequency.
Countries like Ghana, the Democratic Republic of Congo, Benin, and Togo seem to be more susceptible to flooding compared to the potential occurrence of other natural disasters within their respective regions. Sao Tomé, Libya, Seychelles and Gabon saw some of the lowest frequencies of total reported natural disasters in their respective locations. The impact of natural disasters on housing is felt in terms of homelessness, repairs to damages, housing design, related construction costs, and increased sale prices.
Defaulting on mortgage loans is more likely, as homeowners have to deal with financial strain as a result of reconstruction works following natural disasters. Property devaluation post natural disasters can also affect mortgage refinancing plans or the possibility of selling property.
Construction costs in the housing markets also affect mortgage financing. High costs of building materials such as cement will increase the cost of affordable housing, as this plays a role in determining loan amounts for home purchases or construction. Consequently, higher monthly mortgage payments would be unavoidable and would cause homeowners to experience financial burdens.
An example of this would be in Egypt, where an underperforming foreign exchange rate coupled with supply constraints saw the price of cement increase by 54.4% between June 2021 and 2022. This inevitably led to higher pricing of housing units and an unsurprising decrease in sales by 20% in quarter 1 of 2022. Zimbabwe and Seychelles saw significant increases in the prices of a standard 50 kg bag of cement from 2021 to 2022. In the case of Zimbabwe, it is possible this arose due to inflation, which peaked at 280 per cent in December of 2022.
High Inflation is unfortunately a common issue in most parts of Africa. House loans tend to be extremely high due to rising inflation and currency depreciation, resulting in the underdevelopment of mortgage systems on the continent. The inflation rate on consumer prices for Sudan in 2021 was 382.8 per cent, up by 232.49 per cent when compared to 2020. When such circumstances arise, borrowers are under intense pressure, leading to the allocation of increasingly fewer funds towards mortgage payments.
Data were collated for several African countries comparing the cheapest housing affordability based on the salaries of an urban teacher and policeman. It revealed that prices of the cheapest newly constructed houses were affordable to teachers in eight of the countries. For a policeman, this was affordable in only five countries. In Guinea-Bissau, the price of the cheapest newly built house was more than six times the salary of a teacher. In Angola, it was more than three times the salaries of both the teacher and policeman. Even if an Angolan household had two income earners, both as teachers or as policemen, they still would not be able to afford a cheap newly built house, spelling the necessity for secondary sources of income to meet housing needs.
An analysis of mortgage terms for African countries provides valuable insight into their mortgage industries. The countries with the highest mortgage providers included Burkina Faso, Nigeria, Tanzania and Kenya with 60, 58, 33, and 32 respectively. Some countries with the lowest number of providers included the Gambia, Central African Republic, Sao Tomé and Principe, Eritrea and Liberia with 2, 2, 2, 1, and 1 respectively. A low number of mortgage providers limits mortgage product diversity.
With fewer providers, access to mortgage financing may impose various restrictions on low-income earners and households or individuals in unique employment situations, as certain criteria may have to be met to access house loans. Average deposits, if applicable in the respective countries, were found to fall in the range of 10 - 70 per cent. Chad held the highest required average deposit of 70 per cent, with only 3 providers and an average mortgage rate of 14 per cent.
High mortgage deposits put pressure on the housing market, leading to reduced demand for housing units, especially within the category of first-time buyers. Although there is a favourable outcome of an increase in property equity, challenges of longer listings and price adjustments arise. This can lead to market stagnation and market risk among prospective buyers and sellers.
In light of all these challenges, there are great opportunities to be found in African mortgage markets, only if efforts are made to promote affordability. Urbanization for example may pose mortgage challenges but can also be thought of as an opportunity, in the sense that investment can be made towards infrastructural development in the housing sector. Collaboration between primary stakeholders is encouraged and as a result, this paves the way for the development of urban housing projects.
MFIs have been described as a nascent industry in Africa, but they present some good opportunities in Africa’s mortgage industry. Most have a strong community presence enabling them to competently understand the needs of locals. As a result, relationships with prospective homeowners or borrowers are personalized and can often meet the most unique of situations. There is also an innovation aspect related to MFIs, as they can come up with progressive and pioneering products and services, such as mobile banking, allowing them to extend their services to a larger clientele.
Africa must urgently address its mortgage challenges to capitalize on underlying opportunities which promote the three ‘A’s in the housing finance sector: accessibility, availability, and affordability. Decisive action should be taken to address the needs of the rapidly growing and diverse populations across the continent.