Botswana

Overview

Botswana is a land-locked country in Southern Africa, with just over two million people, and known for its mining and natural resource base.  Home to the headquarters of the Southern African Development Community (SADC), Botswana has been one of the fastest growing economies in the region.  Following a dip in the demand for its resources, which reflected in poor GDP figures in 2008 and 2009 (-3.7%), the economy grew by 6.1% in 2011, and then by a more modest 3.7% in 2012.  The lower growth rate was due to declines in the mining sector, which registered a negative growth of 8.1% in 2012, as well as the water and electricity sector, which declined by 41.9%.

At the end of December 2012, the overall fiscal balance was a surplus of P751.2 million (US$96.6 million), recovering from the September 2012 deficit of P696.61 million (US$ 89.6 million).  The surplus reflects government’s continued efforts to cut down on spending, particularly on the wage bill, in the face of declining revenues.  This is also reflective of under-spending in development expenditure and more than anticipated revenue from the Southern

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Overview

Botswana is a land-locked country in Southern Africa, with just over two million people, and known for its mining and natural resource base.  Home to the headquarters of the Southern African Development Community (SADC), Botswana has been one of the fastest growing economies in the region.  Following a dip in the demand for its resources, which reflected in poor GDP figures in 2008 and 2009 (-3.7%), the economy grew by 6.1% in 2011, and then by a more modest 3.7% in 2012.  The lower growth rate was due to declines in the mining sector, which registered a negative growth of 8.1% in 2012, as well as the water and electricity sector, which declined by 41.9%.

At the end of December 2012, the overall fiscal balance was a surplus of P751.2 million (US$96.6 million), recovering from the September 2012 deficit of P696.61 million (US$ 89.6 million).  The surplus reflects government’s continued efforts to cut down on spending, particularly on the wage bill, in the face of declining revenues.  This is also reflective of under-spending in development expenditure and more than anticipated revenue from the Southern African Customs Union (SACU). In the 2013 World Bank Ease of Doing Business report, Botswana was ranked 59th out of 185 countries, the third highest in SADC after Mauritius at 19 and South Africa at 39, and the fourth highest in Sub-Saharan Africa after Rwanda (52). Starting a business, protection of the investor and enforcement of contracts are the weak elements of the business environment.  The Ibrahim Index of African Governance ranked Botswana third (with a 77.2% score) in terms of overall sustainable economic opportunity, an improvement on its 4th place finish in 2011.

Botswana’s urbanisation rate is becoming increasingly visible as Gaborone grows in size.  In 2012, the Minister of Lands and Housing announced government’s intention to acquire 5 520 hectares of land from Kweneng District, which will be incorporated into Gaborone.  This follows in addition to 3 100 hectares of land which had already been acquired, worth P60 million (US$7.86 million).

Access to finance

Access to finance in Botswana is relatively high by African standards, but considered low globally.  This is especially so considering the country’s relatively high levels of GDP per capita (based on purchasing price parity of US$16 800 in 2012).  There are eight commercial banks in Botswana, and according to the Global Financial Inclusion Index, just less than one-third of the adult population over 15 years have access to a formal financial institution.  The International Monetary Fund’s (IMF’s) 2011 Financial Access Survey suggests that there are 8.57 commercial bank branches and just over 27 automated teller machines (ATMs) per 100 000 adults.  According to the second FinScope survey undertaken in Botswana in 2009, 67% of the population is financially served, using either formal and/or informal products, 41% of the population is formally banked and 33% is financially excluded.  Credit to households is generally on the increase, and by the end of 2009, this was at 57.9%, up from 56.9% the previous year.

Unsecured lending dominates the retail credit sector.  The size of the mortgage market is small, with mortgage debt to GDP at only 2%.  According to the 2009 FinScope Botswana survey, only 1% of adults have a mortgage bond or a housing loan from a bank.  Just over 11% of the 130 711 households who said they took out a loan in the last year used it to renovate or extend their home, a further 4.7% said they used the loan to start a business and 0.2% said they used it to purchase land.   About 8% of adults say they invest in their homes.

Some of the eight commercial banks in Botswana provide mortgage finance, but the Botswana Building Society (BBS) is the market leader in mortgage lending.  As of 2013, BBS held 5 540 mortgage loans, up from 5 488 loans in 2012.  The society provides mortgages over five, 10 or 15 years, with a fixed rate.  In 2012, the average loan size was about P425 000 (US$54 655).  A variety of mortgage products are available.  In 2010, BBS introduced a product which incentivises new home buyers to save towards their mortgage.  It has also launched a fixed-rate mortgage for terms as high as 30 years, although borrowers can pay the loan back in advance.  Interest rates charged are currently between 11.8% for the variable rate mortgage and 10.7% for the fixed rate mortgage.

Stanbic Bank also offers mortgage loans, with a maximum term of 20 years and a loan-to-value ratio of up to 90%.  Stanbic also offers construction loans.  Standard Chartered Bank in Botswana offers a variety of mortgage loan products, including direct home purchase, equity release and top-up loans, as well as refinancing options.  Loan sizes range between P75 000 and P2.5 million (US$9 825 to US$327 500).  First National Bank Botswana also offers a variety of mortgage loans, with loan-to-value ratios of up to 100%, as well as a ‘Bond Plus’ product which allows the borrower to borrow the full purchase price value plus an additional amount to cover professional fees and other costs.   Monthly repayments are calculated to equal no more than 40% of gross income.  Barclays Botswana offers mortgage loans with terms of up to 300 months.

According to the World Bank, commercial banks’ outstanding property loans to households came to P3.928 billion (US$514.4 million) in June 2012, increasing from the 2011 level of P3.595 billion (US$470.9 million).

The financial institutions and government of Botswana have worked hard to ensure housing affordability in the development of relevant loan products.  Government assists all Botswana citizens to purchase or develop properties by guaranteeing 25% of each loan delivered through the BBS.  While financing a completed house is beyond the reach of most citizens (Standard Chartered Bank’s minimum income requirement for a mortgage, for example, is P3 000 a month (US$393), small construction or housing micro loans offered by financiers can theoretically reach more people, who can then build incrementally.  In this segment, the Ministry of Lands and Housing has introduced the Integrated Poverty Alleviation and Housing programme, which trains households to acquire productive skills in the construction industry so that they might address their own housing needs while also earning an income.  An evaluation of the programme carried out at the end of 2011 found that while training in various construction skills had been successful, this has not translated into housing delivery.

Other housing loan providers include the National Development Bank, a state entity, which has introduced a self-build loan, lending as little as P20 000 (US$2 954).

Botswana’s microfinance industry has increased the reach of finance services generally. This form of lending has also been associated with consumer spending, as well as with having money available for education and emergencies. Housing microfinance remains unchartered territory in Botswana, although some lenders are moving into this space, notably Select Africa.  The challenge is convincing the authorities of the appropriateness of this type of lending for housing purposes. The Non Banking Financial Institution Authority (NBFIRA) was recently reluctant to grant a microfinance institution accreditation to offer housing finance, given the high costs of microfinance.

Government policy offers low-moderate income households (those earning between P4 400 and P36 400) access to a house improvement loan through the Self Help Housing Agency (SHHA).  A loan amount of up to P45 000 is available, payable over 20 years at P187.50 per month, interest free.  Repayment on this loan has not been good, however.

Botswana has one of the more active credit information sharing sectors in the SADC region.  The credit bureaus in the country cover about 59.6% of the country’s adult population (World Bank 2011), scoring 4 (out of a possible 6) in the World Bank index on the depth of credit information.

Botswana’s pensions industry is large, with about 115 pension funds and total assets accounting for about 60% of the country’s GDP.  While pension-backed loans are legally permissible, the industry is rather conservative and does not provide members with housing loans or allow third party loans secured by pensions.  Some argue that the regulatory framework is not clear enough in dealing with pensions and that this has undermined the growth of this product.

Affordability

According to the 2009 FinScopeBotswana survey, 27% of adults in Botswana do not earn an income, while another third earn less than P500 (US$74) a month.  In most urban households (49%) there is only one income earner; in 28% of households there are two income earners, and in 15% there are three or more income earners.  Some 8% of urban households and 13% of rural households have no income earners.  About 14% of households across Botswana have an income of less than P500 (US$74) per month.  Access to mortgages is constrained by household income.

The Botswana Housing Corporation (BHC) is a leading housing developer.  BHC’s lowest cost housing product is a 54m2 house on a 400m² plot.  This costs about P500 976 (US$55 564).  BHC suggests that the minimum mortgage instalment for one of its houses is P4 000, which means that a household would have to earn at least P12 000 (about US$1 402) a month.  Clearly the minority of citizens in Botswana fall within this category.

Housing supply

The supply of ready-built housing units in Botswana is low in all markets, and most people self-build for occupation.  The BHC, the primary housing developer in Botswana, was established by an act of Parliament in 1971 to provide for the housing, office and other building needs of the Botswana government, local authorities and the general public.  In April 2012, the BHC’s mandate was expanded so that it might operate as government’s single housing authority.  As such, the BHC is now also responsible for the construction of housing units within the Self Help Housing Agency’s (SHHA’s) turnkey projects, as well as district housing.

The BHC has a large estate of flats and town houses, and a balanced mix of high, medium and low income houses spread throughout the country, with concentrations in Gaborone and Francistown.  Although historically focused on developing housing for rental, it has recently begun to offer houses for sale as well.  The BHC builds close to one million houses a year across the country.  In 2011, 1 424 housing units were completed and the development of another 2 400 units were initiated.  In the 2012/2013 financial year, 378 housing units were delivered for sale, and a total of 858 units, including those built in previous years that had been available for rent, were sold.  A total of 76 houses were allocated for rental during the 2012/2013 financial year, and as of end-March 2013, the BHC managed a total of 10 611 rental properties, the majority (50%) being in Gaborone. In terms of the National Development Plan 10, the construction of 29 000 houses is planned for the next seven years.

However, the 2009 FinScope Botswana survey found that 43% of households still live in inadequate accommodation – either overcrowding in formal dwellings or living in informal dwellings.  Targeting this market, the Self Help Housing Agency was established in 1973 to allocate plots and provide finance for self-build to low income Batswana.  The Agency has been offering two products – a P60 000 house available for purchase and delivered through a turnkey scheme, and a P45 000 home improvement loan.  In both cases, the cost is financed by the Agency itself, at no interest, over a 20-year term.  According to the 2009 FinScope Botswana survey, 40 588 adults occupy SHHA houses (the majority of them owners) and another 28 546 rent small houses on an SHHA plot.  However, the Agency, implemented through local councils, faces capacity constraints which undermine its success.  Since its establishment, the SHHA has been unable to meet demand, leaving a backlog of more than 15 years. It has also suffered from poor repayment rates.

To address these issues, a 2010 presidential directive called for the establishment of a Single Housing Agency (SiHA).  This was an effort to separate housing provision from policy formulation, and the SiHA was given the mandate to ensure coordination of housing delivery across the housing sector.  In his 2012 State of the Nation address, President Ian Khama announced that the BHC would act as the Single Housing Agency, and that in this capacity, the SHHA would be driven by the BHC.  The approach sees the BHC acting as developer, sub-contracting to citizen-owned companies to build SHHA houses, which is expected to take three months and still cost P60 000 (US$7 014).  Local authorities will continue to assess and approve SHHA loan applications, and monitor loan payments.

In 2013, P20 million was allocated for SHHA loans for 444 beneficiaries, adding to the 1 403 ongoing and 1 203 recently completed projects.  New SHHA turnkey projects targeting 1 000 beneficiaries have been allocated an additional P60 million, on top of 1 060 ongoing projects.  The BHC estimates, however, that these houses actually cost P90 000 (US$10 521) to build, and therefore is expecting to build 667 units with its 1 000 unit budget.  These houses should be completed in the second quarter of the next financial year (2014/2015).  In terms of the policy, beneficiaries will still be charged P60 000.  The Botswana government has also funded and constructed 651 houses for the destitute in 2013, of which 222 are located in remote area settlements.

A Presidential Housing Appeal was initiated as a government effort to encourage private sector participation.  Of 500 houses that had been pledged, 140 had been built and 60 were under construction in November 2012.

To assist public servants to access housing, especially those in remote and rural areas, government has been working on a proposal to encourage private citizens to provide housing with the support of government guaranteed loans.

There are some private developers; however, as nearly 71% of the total land area of Botswana is under tribal control, they have difficulty in finding areas to develop.  Furthermore the few private developers target medium-high market costumers.

International NGO Habitat for Humanity had an office in Botswana until the second half of 2012 when it turned this over to the Botswana Council of Churches.  While it was operating, Habitat for Humanity Botswana served 2 200 families.  The Council will carry on the work of Habitat for Humanity Botswana under the name Oiko Livelihoods.

Property markets

The outlook for the property market is generally positive.  Property prices have risen steadily over the past few years, spurred on in part by the booming tourism industry, and showing resilience even in the face of recession.  Secondary property markets are limited by the shortage of stock that can be mortgaged in primary markets.  A useful indicator is the fact that only 18% of the buildings in the country are of durable material.  This shortage is also reflected in the lack of adequate affordable rental housing stock, and the consistent reports of steep rises in rentals in urban areas.

In an effort to increase tenure security and support enhanced access to mortgage finance, the Ministry of Lands and Housing has undertaken a land registration system for properties not formally registered.  According to the World Bank it takes about 16 days to register a property in Botswana in 2013 (versus 65 days for sub-Saharan Africa), and the process costs about 5.1% of the property value.  Botswana is ranked 51st out of 185 countries globally in terms of this indicator, illustrating the relative efficiency of the country’s registration process.

The Botswana Development Corporation is currently in the process of developing a property fund, which is hoped would result in a class of investible assets for the country’s citizens and property managers. The fund will focus on various properties from the housing, commercial and industrial sectors.

Policy and regulation

The Botswana government has prioritised savings and credit for long-term investments such as housing.  One area of reform identified is the land administration system.  The lengthy process for conversion from tribal to common law land as required for mortgage lending has been cited as a problem.  Regulations about land use management such as building permits and related procedures are also considered unduly onerous and bureaucratic, and need to be reformed.

While Botswana has a number of housing programmes under way (the SHHA, the Presidential Housing Appeal, the Housing Scheme for Poverty Eradication, the Botswana Housing Corporation, etc.) there is no underlying housing policy.  In 2012/2013, a bill to revise the Town and Country Planning Act was introduced to decentralise town planning functions to the Districts.  The bill was expected to reduce delays in the processing of planning applications.  To progress towards this, it was expected that the Development Control Code would also be revised.

Opportunities

Botswana is a relatively stable, well-managed economy that has shown significant growth over the last few years. Finance for self-build housing still offers significant prospects for growth, due to this being the preferred method of building, even among the middle and higher income categories.  Housing microfinance therefore has enormous potential.  Mortgage lending has been increasing, and while there is limited demand given the country’s generally small urban areas, it also has potential for growth.  The state has recognised the need to reform in many key areas such as land administration.  If followed through, this can enhance access to, and affordability of, mortgages among the population.

Sources

Heymans, M. (unpublished 2011). Credit Bureau Activity in SADC Countries. Draft report prepared for the FinMark Trust.

Melzer, I. (2011). An Access Frontier for Housing Finance in Botswana. Presentation commissioned by FinMark Trust and prepared for the AUHF Conference and AGM, September 2011.

Rudloff, L. (2007). Access to Housing Finance in Africa: Exploring the Issues. (No. 2) Botswana. Study commissioned by FinMark Trust and Habitat for Humanity.

World Bank (2011). Doing Business Survey: Botswana

 

Websites

www.africaneconomicoutlook.org

www.allafrica.com

www.doingbusiness.org

www.finscope.co.za

www.globalpropertyguide.com

www.imf.org

www.mfw4a.org

www.mixmarket.org

www.worldbank.org

www.gov.bw/en/Ministries–Authorities/Local-Authorities/Central-District-Council1/Tools-and-Services/Services/HOUSE-IMPROVEMENT-LOAN-SHHA/

www.themidweeksun.co.bw/business/4059-bhc-declared-single-housing-authority