Botswana

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, Botswana has been one of the fastest growing economies in the region.  Following a dip in demand for its resources which reflected in its poor GDP figures in 2008 and 2009 (-3.7 percent), Botswana is experiencing renewed interest in its diamond resources. By 2011, the economy rebounded and grew by an estimated 6.9 percent.  GDP growth of 7 percent is expected for 2012.  Healthy customs revenue from SACU will boost the fiscal surplus to 1.5 percent of GDP in 2012/13 (April-March) and 2.7 percent of GDP in 2013/14. Thereafter, higher government spending will cause it to fall to 2.4 percent of GDP in 2016/17.  Gross savings represent 26 percent of GDP.  In the World Bank’s 2012 Ease of Doing Business report Botswana was ranked 54 out of 183 countries, the third highest in Africa after Mauritius at 17 and South Africa at 34. Botswana ranks fourth, after Rwanda with South Africa coming in second and Mauritius retaining the first position.  The 2011 Ibrahim Index of African Governance ranks Botswana 4^th in Africa in terms of overall sustainable economic opportunity, with a score 68 percent.

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 (US$7 403 in 2010).  There are eight commercial banks in Botswana and according to the Global Financial Inclusion Index, 30.3 percent of the adult population over 15 years have access to a formal financial institution. The IMF’s Financial Access Survey (2010) suggests that there are 9,15 commercial bank branches and just over 30 ATMs per 100 000 adults.  According to the second FinScope survey undertaken in Botswana (2009), 67 percent of the population is financially served, using either formal and/or informal products; 41 percent of the population is formally banked, and 33 percent is financially excluded. Nevertheless credit to households is generally on the increase and by the end of 2009, this was 57.9 percent, up from 56.9 percent 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 percent. According to FinScope Botswana (2009), only one percent of adults have a mortgage bond or housing loan from a bank.  Of the 11,1 percent 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 percent said they used the loan to start a business, and 0,2 percent said they used it to purchase land.  About eight percent of adults say they invest in their homes.

There are eight commercial banks in Botswana.  Mortgage finance is provided by some of these, as well as Botswana Building Society (BBS), which is the market leader in mortgage lending.  As of 2012, BBS held 5 488 mortgage loans, up from 5 206 loans in 2011. The society provides mortgages over 5, 10 or 15 years with a fixed rate. In 2011, the average loan size was about P550 000 (US$80 465). According to the World Bank, commercial banks’ outstanding property loans to households was P3 927.6 million (US$ 514 437.16 ) in June 2012, an increase from last year’s P3 594.9 million (US$ 470 932.05).

A variety of mortgage products are available.  The BBS has a mortgage product, introduced in 2010, which incentivises new home buyers to save towards their mortgage. It has also launched a fixed-rate mortgage for terms as high 30 years, although borrowers can also pay in advance.  Interest rates charged are currently between 11.8 percent for the Variable Rate Mortgage, and 10.7 percent for the Fixed Rate Mortgage.  Stanbic Bank offers mortgage loans with a maximum tenor of 20 years and a loan to value ratio of up to 90 percent.  Stanbic also offers a construction loan.  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 – P2.5 million (US$ 9 825.00 to 327 500.10).  First National Bank Botswana also offers a variety of mortgage loans with loan to value ratios of up to 100 percent 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 involve no more than 40 percent of gross income.  Barclays Botswana offers mortgage loans with tenors of up to 300 months.

The financial institutions and government in Botswana have worked hard to ensure housing affordability the development of relevant loan products. Government assists all Botswana citizens to purchase or develop properties by guaranteeing 25 percent of all loans secured through the BBS. While financing a completed house is beyond most Botswana’s citizens (Standard Chartered Bank’s minimum income requirement for a mortgage, for example, is P3000 (US$ 393.00), small construction or housing micro loans offered by financiers can theoretically reach more people, who can then build incrementally. The state-funded Self-Help Housing Agency (SHHA) provides loans of as little as US$1,000 and up to a maximum of P60,000 (about US$7 500) at no interest repayable over 20 years. The SHHA loans are accessible to both urban and rural households earning annual incomes of between P4,400 (US$650) and P36,400 (US$5 376). Beneficiaries can use the loan for extension or renovation of an existing house and/or completion of a house. This bridges the affordability gap considerably, because it lowers the qualification threshold and allows workers earning very low salaries to access finance (at the lower limit of the criteria, US$53 a month, which is within the poverty line). However, this does not completely solve the problem of access to housing finance for all. This is because even at this very low wage threshold some people are still excluded – only 32 percent of urban adults and 34 percent of rural adults earn their income from salaries or wages. 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 hadn’t 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). NGOs such as Habitat for Humanity help cater for the excluded, considering the income thresholds of the SSHA as well as the considerable backlogs in the system. With their highly subsidised interest rate mortgages of between three to six years and use of the sweat equity of the beneficiary, a loan for a two-roomed house requires as little as US$23 a month to service.

Botswana’s microfinance industry has increased reach of finance services generally. This form of lending has also been associated with consumer spending, as well as with education and emergencies. Housing microfinance remains uncharted territory in Botswana, although some lenders are moving into this space, notably Select Africa.

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 percent of the country’s adult population (World Bank, 2011), scoring a 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 its total assets accounting for about 60 percent 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 insufficiently clear in dealing with pensions and this has undermined the growth of this product.

Affordability

According to FinScope Botswana 2009, 27 percent 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 percent) there is only one income earner; in 28 percent there are two income earners, and in 15 percent there are three or more income earners.  Eight percent of urban households and 13 percent of rural households have no income earners.  Fourteen percent 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 is a leading housing developer.  BHC’s low income housing product is a 58m² house on a 400m² plot.  This costs about P 460 000 (US$ 57 575).

Housing supply

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 an existing 3 100 hectares of land which had already been acquired, worth P60 million (US$ 7 860 002.48).

The supply of ready-built housing units in Botswana is low – both in the low and high end markets – and most people self-build for occupation.  FinScope Botswana 2009 finds that 43 percent of households live in inadequate accommodation – either overcrowding in formal dwellings, or living in informal dwellings.  Targeting this market, the SHHA allocates plots and provides finance for self-build. Introduced in 1973, the SSHA has enhanced the accessibility of housing by providing serviced starter plots, low loan amounts and very concessionary interest rates. The rate of delivery by the SHHA has been unable to meet the demand for plots, and there is a backlog of more than 15 years. It also suffers from poor repayment rates. Through the SHHA, the government introduced a Turnkey Scheme, in which the can purchase completed houses at a cost of P60,000 (US$8,760), financed by the SHHA at no interest over 20 years (interest is raised to 10 percent for those who default). According to FinScope Botswana 2009, 40 588 adults occupy SHHA houses (the majority of them owners) and another 28 546 rent small houses on an SHHA plot.

Striving to be the best property developer and estate manager in the country, the Botswana Housing Corporation (BHC) was established by an act of Parliament in 1970, to provide housing, office and other building needs of the Botswana Government, local authorities and the general public. The BHC has a large estate of flats, 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 1 000 houses a year across the country.  In 2010, they completed 1 400 units in four projects. These included 545 houses in Gerald Estates in Francistown, 107 in Serowe, 111 in Maun and 720 units in Block 7 in Gaborone. In 2011,a further 1 424 housing units completed and another 2 400 were initiated. In terms of the National Development Plan 10, construction of 29 000 houses is planned for the next seven years.

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 mortgageable stock in primary markets. A useful indicator is the fact that only 18 percent 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 doing business report (2012, it takes on average 16 days to register a property in the country, and the process costs about 5 percent of the property value. Thus, this is indicative of the relative efficiency of the country’s registration process.

The Botswana Development Corporation (BDC) is currently in the process of developing a property fund which is hoped will result in a class of investible assets for the country’s citizens and property managers. The property 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.

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. HMF 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.

Source: Housing Finance Yearbook 2012

Sources:

1. Heymans, M (unpublished 2011), Credit Bureau activity in SADC countries.  Draft report prepared for the FinMark Trust.
2. 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.
3. Rudloff, L (2007). Access to housing finance in Africa: Exploring the issues. (No. 2) Botswana. Study Commissioned by FinMark Trust and Habitat for Humanity
4. World Bank (2011) Doing Business Survey: Botswana

Websites Consulted

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