Namibia

Excerpt from Africa Housing Finance Yearbook 2014

Overview

Namibia is a middle income country in Southern Africa, with the GDP per capita forecast to be US$5 156 in 2014. Namibia is one of Sub-Saharan Africa’s most stable countries, as well as one of its most attractive investment destinations.

Real GDP growth is forecast to strengthen over the short to medium term and will pick up to five percent in 2014 and 5.1 percent in 2015. This improvement in the economic outlook is due to a number of factors that include: 1) Global economic uncertainty receding (which has in recent years depressed the mining, tourism and manufacturing sectors); 2) The agriculture sector is also expected recover (on the assumption that the drought does not continue in the medium term); 3) The initialling of the renewed Economic Partnership Agreement with the EU on 15 July 2014 which secures Namibia’s duty-free, quota-free access to European markets for its livestock and agricultural products, is a promising boost for the economy; and 4) Gross fixed capital formation will be a key contributor to headline growth over the coming years

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Excerpt from Africa Housing Finance Yearbook 2014

Overview

Namibia is a middle income country in Southern Africa, with the GDP per capita forecast to be US$5 156 in 2014. Namibia is one of Sub-Saharan Africa’s most stable countries, as well as one of its most attractive investment destinations.

Real GDP growth is forecast to strengthen over the short to medium term and will pick up to five percent in 2014 and 5.1 percent in 2015. This improvement in the economic outlook is due to a number of factors that include: 1) Global economic uncertainty receding (which has in recent years depressed the mining, tourism and manufacturing sectors); 2) The agriculture sector is also expected recover (on the assumption that the drought does not continue in the medium term); 3) The initialling of the renewed Economic Partnership Agreement with the EU on 15 July 2014 which secures Namibia’s duty-free, quota-free access to European markets for its livestock and agricultural products, is a promising boost for the economy; and 4) Gross fixed capital formation will be a key contributor to headline growth over the coming years driven by rising investment into major infrastructure and mining projects.

The bulk of Namibia’s imports, including most food products, are sourced from South Africa. As a result, domestic inflation will remain heavily influenced by inflationary trends in South Africa. Furthermore, in October 2013, the Namibia Statistical Agency rebased, reweighted, and revised the inflation statistics, which helped to pull the average rate down to 5.8 percent for the first ten months of 2013.

Namibia suffers from relatively high rates of unemployment, and while this has been improving over the past few years, it still stands at around 30 percent. Furthermore, Namibia has a Gini coefficient of 74.3 making it the most unequal society in the world. In Namibia, the richest 10 percent earn 107 times the income of poorest 10 percent (compared to 16 times in the US). The ratio highlights the fact that Namibia is effectively two economies – one modern with a skilled workforce of around 200 000, and the other based on subsistence farming, employing the majority of the populace who live below the poverty line.

 

Access to finance

Namibia’s financial banking system, with strong links to South African financial institutions, is mature and efficient. There are 7.10 commercial bank branches per 100 000 adults and 0.84 ATMs per 1 000 km2 in Namibia. Namibia scores high in terms of ‘ease of getting credit’, in 50th place out of 189 countries, although down three places from 2013.

There are four large commercial banks in Namibia, all privately owned. Three of the banks (Nedbank, Standard Bank and FNB Namibia) are subsidiaries of South African banks; the fourth (Bank Windhoek) is Namibian-owned. FIDES Bank Namibia, a micro-credit bank, and SME Bank, complete the commercial sector’s picture. These latter two, which are majority state-owned, started operations in November 2012, focusing on small and medium-sized enterprises. Furthermore, there is one savings bank (Nampost), 10 insurance companies and 348 microlenders. Namibia’s banks are regulated by the Bank of Namibia (BoN or Central Bank).

Banks account for 40 percent of the financial market share. Traditionally, lending to households and corporations has been a significant part of bank credit and has been increasing, with about 31 percent of the banks’ total assets being in the form of mortgages in 2013. This means Namibia’s mortgage market is relatively large by continental standards and second only to South Africa’s. That being said, according to the Namibia Labour Force Survey (released in 2010), nearly 70 percent of all households live in dwellings that are owner occupied without a mortgage, and only 12 percent of households have mortgages.

Banks are well capitalised and highly profitable. According to the EIU (2014), the ratio of Tier 1 capital to risk weighted assets increased to 11.5 percent at end 2013, from 10.9 percent at end 2012, comfortably exceeding both the minimum requirement set by the BoN of six percent and the Basel III requirement of seven percent (which is to be introduced globally by 2019). Nonetheless and despite a low level of non-performing loans (NPLs) – 1.3 percent of gross loans at end 2013, unchanged from a year earlier- the high ratio of household debt to disposable income (87 percent at end 2013, compared with 83 percent in June that year) is a source of vulnerability. As much of this debt consists of mortgage loans at variable interest rates, loan quality would be undermined by a rise in interest rates. The concentration of lending in mortgages heightens the banking sector’s vulnerability to shocks in the property market. That being said, mortgage NPLs fell from 55.7 percent of total NPLs in June 2013 to 53.7 percent of total NPLs in December 2013, suggesting the risks stemming from housing markets are under control, for now.

Furthermore, the infrastructure to facilitate mortgage lending is fairly well developed. In terms of the World Bank’s 2014 Doing Business Report, Namibia scores four out of a possible six on the ‘depth of credit information’ index, as the country has three private credit bureaus that include data on about 66.2 percent of the adult population. Government has issued a bill on the Supervision of Financial Institutions, which includes the licensing and regulations of the credit bureau sector. What is lacking is a collateral registry system unified geographically and by asset type.

Some microlending for housing purposes is starting to take place, for example by the Shack Dwellers Federation of Namibia (SDFN). The SDFN provides its members with loans ranging from a minimum of N$8 000 (US$727) to N$26 000 (about US$2 364), with the main determining factor of the loan value being the ability to repay the loan. The loans are repayable within a period of 11 years at an interest rate of 0.5 percent per month. The government’s Financial Sector Strategy also includes improved consumer literacy and protection, and local ownership in commercial banks. Pension-based lending for housing is allowed, although concerns have been raised that part of the money is diverted for consumer rather than long-term housing spending. Better enforcement for correct use is needed.

To promote enhanced access to financial services, Namibia launched a Financial Sector Charter (FSC) in May 2009, which will be in effect until 31 December 2019. The FSC is a voluntary code of conduct for the transformation of the Namibian financial industry. Among its objectives are creating greater access to and affordability of financial products and services. There are specific targets regarding lending to formerly disadvantaged members of the population, which should encourage even greater lending by the financial sector. The FSC was followed by a Financial Sector Strategy 2011-2021.

FinScope Namibia 2011 reports that the number of people who are unbanked has decreased from 50 percent in 2007 to 31 percent in 2012, with usage of insurance doubling over the period. Transaction banking and savings also increased by about 30 percent. Use of credit and loans went up by five percent, from 15 percent in 2007 to 20 percent in 2011. The FSC targets anticipate that 74 percent of Namibians will have access to financial service by 2019. In 2012, the FSC developed new legislation to establish a regulatory framework for tier II banks, which will serve as microfinance oriented banks with a special focus on serving the low income segment of society.

Furthermore, in order to ensure that the government can deliver on its affordable housing delivery targets (described in the Housing Supply section below), the Presidency has proposed that the funding model for the Mass Housing Development Initiative it launched in 2013 be a mix of financing modalities tailor-made to resource the sub-programmes. It is anticipated that these measures would greatly improve poor households’ access to financing. The model consists of four major sources of funding, namely:

 

Government grants and subsidies: The Government will provide, within its resource capacity, annual grants. To start with, Government subsidies will mainly go towards land development, building input cost mitigation, rural sanitation and programme management. Current Government grants provided under 2013/2016 MTEF for housing projects will be diverted to the mass housing development programme and will serve as a start-up capital to kick start the programme.

Public Private Partnerships Significant financial resources will be mobilised through public private partnerships to be entered into between the National Housing Enterprise (NHE) and private sector entities. The partnership model, which is already being pursued by the NHE in its current capital financing operations, entails the mobilisation of funding through turnkey solutions, bridging finance and co-end user financing. Turnkey funding solutions are provided by companies that bring in finances and have the technical capacity to construct, whereas bridging financiers are those that provide funding to enable the roll out of projects and immediately recoup their investment at the completion of such projects. End-user financing is provided by commercial banks that have entered into partnerships with NHE to finance part of the clients, while NHE finances the remainder of the clients. It is intended that a Special Purpose Vehicle will be created through which the Government Institutions Pension Fund (GIPF) and other private investors can invest their money in the housing programme.

Debt financing by local and foreign financial institutions. The option of debt financing through conventional way of borrowing will also be pursued in financing part of the programme. In certain instances, borrowing by NHE will require Government support through the provision of a guarantee or other facilitative support.

Savings of households involved in SDFN housing schemes: The utilisation of savings of households involved in the Shack Dwellers Federation of Namibia (SDFN) housing saving schemes will also be used to partly fund land servicing and people housing processes component of the programme. An annual budgetary allocation of N$50 million (US$4.5 million) will be made to the Twahangana Fund operating under the auspices of SDFN assisted by Namibian Housing Action Group (NHAG).

 

Affordability

According to the May 2014 First National Bank (FNB) Housing Index, a small housing unit costs N$500 000 (about US$45 482), down from N$537 000 (US$48 847) in May 2013, while a medium-sized property costs N$1 229 000 (US$111 798) down from N$1 255 000 (US$114 154) in May 2013. In terms of affordability at the current interest rate, households need to earn N$13 500 (US$ 1 228) to afford a small house and N$33 200 (US$3 020) for a medium house. The average price of a house financed by FNB costs NS$720 000 (about US$65 498). As 93 percent of the population earn less that N$7 000 (US$637) a month, mortgaged housing is therefore not available to the vast majority of people.

A significant component of this cost – over half – is land and services. The average price per square metre for construction of a house by a government appointed contractor is approximately N$5 000 (US$455). In June of this year, the Ministry of Works and Transport compiled a new mass housing price guideline that proposes lower charges per square metre to curb the exorbitant charges made by many companies and middlemen who won tenders. Part of the recommendations is that companies should reduce their prices by between 15-30 percent to get the charge to around N$5 000 (US$455) per square metre as originally requested. The Works Ministry proposed that a two-bedroom house with a kitchen, toilet and bathroom measuring 42m² be priced at N$220 000 (US$20 016) and that the rate be less than N$5 119 (US$466).

There are further efforts to address housing affordability. In 2013, a mobile, low cost housing brick plant was opened in Otjomuise, producing a brick that minimised the use of cement. It was estimated that houses built with such bricks would cost between N$130 000 (US$11 837) and N$150 000 (US$13 662) and take 12 days to construct. For its part, the Namibian government has reduced stamp duties and transfer cost thresholds, also to further improve housing affordability.

According to the Institute for Public Policy Research (2010), expenses on housing, including utilities, account for 21 percent of total consumption in Namibian households, making it the second largest expenditure after food and beverages. Therefore, increasing house and rental prices has a significant impact on the spending power of the population.

 

Housing supply

To date, the national housing backlog is estimated at 100 000 housing units, which is growing at an annual rate of about 3 700 units. According to FinScope Namibia 2011, the majority of Namibians claim they own their housing, although the majority cannot prove this with a title deed. Only 24.3 percent say they bought their home; the majority (62.4 percent) say they built it themselves. A further 11.8 percent inherited their homes. Some 38 percent funded the ownership (purchase or construction) of their housing themselves. An additional 36 percent said that their housing did not cost anything, as they had used found materials to construct the dwelling. This suggests a high level of informal housing, which is supported by data on servicing levels: while 80 percent have access to water within their yard, only 52 percent of Namibians have access to some form of toilet. Only nine percent said they had used bank financing to acquire their housing. Some 10 percent owe money on their housing.

According to the Presidency (2013), the largest backlog of housing is in the lowest income sectors, with monthly incomes of N$0 to N$1 500 (US$137) (estimated at 45 000), and incomes between N$1 501 (US$137) and N$4 600 (US$419) (estimated at 30 000). While the Build Together programme focuses on people with incomes under N$3 000 (US$273) per month, the National Housing Enterprise only provides products to people whose incomes are over N$5 000 (US$455) a month. This constitutes less than 13 percent of the population.

The main goal of the government’s Mass Housing Development Initiative launched last year is to construct 185 000 units by 2030. On average, 10 278 houses are expected to be constructed on a yearly basis, resulting in the creation of 25 695 jobs (based on the formulae that the construction of one new house creates approximately 2.5 jobs).

According to FNB (2014), in May a further 97 200m² was mortgaged by developers with a maximum potential of 230 free standing houses. This brings the cumulative house delivery potential to 7 030 freestanding homes for 2014. However, developer activity has not yet filtered into the new housing supply numbers fast enough to have a meaningful impact on delivery.

Since 2003, the National Housing Enterprise (NHE) has built about 450 houses per year for its target market: households earning between N$5 000 (US$455) and N$20 000 (US$1,821) per month. Apart from constructing houses, the NHE has also been involved in servicing land in a number of local authority areas, resulting in a total investment in service infrastructure of about N$145 million (about US$13.2 million). Houses cost on average N$275 000 (about US$25 045), inclusive of land. NHE loans are offered at a maximum of prime minus one percent.

The private sector is beginning to engage with the demand for affordable housing. In September 2012, FNB announced that it was looking for partnerships with low income housing providers in Namibia. This led to a partnership with the NHE, with FNB providing the NHE with the necessary liquidity to develop housing more quickly. In March 2013, Eco Beam construction CC and Keystone Development Solutions were approved to construct demonstration houses for the City of Windhoek’s affordable housing project to promote further delivery of low cost housing. In 2014, Walvis ship repair company Elgin, Brown & Hamer (EBH) announced it will assist its employees by procuring 10 000ha of undeveloped land and developing affordable housing on it. The idea is that employees will be able to purchase homes directly from the developer via bank-approved loans. Furthermore, JSE-listed residential property developer, Calgro M3, has committed R812 million (US$74 million) to supply 1 000 low cost houses in Namibia.

In the NGO sector, SDFN and its service NGO, NHAG, are active in 84 cities across Namibia and has secured 1 621 hectares, providing 5 591 families with secure tenure and 1 576 of these with toilets, water and electricity. A total of 3 403 houses have been completed and 185 are currently under construction. The Federation is also undertaking a local mapping initiative in which 235 settlements have been profiled and 73 have been enumerated.

 

Property markets

According to the World Bank’s 2014 Doing Business Report, Namibia ranks 178th out of 189 countries for ease of registering a property, a drop of six places from 2013’s ranking of 172nd. On average the eight procedures involved in registering a property take 54 days and cost 13.8 percent of the property value. In 2013 Namibia made transferring property more difficult by requiring a building compliance certificate before conveyancing can go ahead. The limited availability of serviced land is mainly due to a lengthy and outdated approval process for proclamation, surveying, subdivision and registration of land. According to the Presidency (2013), the various cumbersome procedures applicable in the process of acquiring a property in Namibia do have a bearing on escalating property prices of the limited housing stock available.

The scarcity of available serviced land is both slowing down the process of housing delivery and pushing up the prices of serviced land, and is the key challenge facing the housing sector. Land prices saw an increase of 109 percent month-on-month in May this year and averaged N$122 000 (US$11 112) for a 300m² serviced stand and is therefore likely to add inflationary price pressure to new housing delivery further down the line. Furthermore, land auctioning, the main technique used by local authorities to dispose of land until recently, is yet another contributing factor to the rising property prices.

That being said, the volumes of available houses are starting to increase again (13 percent year-on-year). Volume growth has mainly been driven by properties in the middle price segment.

 

Policy and regulation

According to the Presidency (2013) the Vision of the Namibian Government is to provide affordable housing to all Namibians by the year 2030 through increased investment in the housing portfolio and in the process eliminate all shacks that are prevalent in various regions and local authority areas in Namibia.

Within the context of the 4th National Development Plan (NDP4), Government undertakes to have a “robust and effective housing delivery programme where affordability is the key feature of the programme”. Accordingly, by the end of the NDP4 (2016/2017), 60 percent of households in Namibia will be living in modern houses from about 41 percent in 2009/2010.

The government’s main implementing agent is the National Housing Enterprise, which targets low income formal housing. Established in 1993 by an Act of Parliament, the NHE acts as developer, provides loans for the purchase of its own developments and lets out units that have not been sold.

In 2013, a National Housing Technical Committee was also established to develop a mass housing development strategy. Spanning a number of government departments, the committee submitted its proposal to the Ministry of Regional and Local Government, Housing and Rural Development in March 2013. A member of the group, the NHE highlighted limited access to affordable, serviced land, the inflexibility in the current land tenure system, legislative and policy constraints that slow delivery, and a rapidly appreciating property market as some of the challenges. The proposed plan sets out a differentiated funding model to cater for different economic and social segments of the Namibian population, drawing on government, private sector and household financial resources. A N$1.9 billion (US$173 million) budget was allocated to the Ministry of Regional, Local Government, Housing and Rural Development to cater for the servicing of land and improved sanitary standards in urban, peri-urban and rural areas. The programme will also be funded through pension funds, other institutional investors and funds from community savings schemes.

In addition to the above, the Targeted Intervention Programme on Employment and Economic Growth (TIPEEG) identified housing as one of its four strategic intervention areas, besides agriculture, transport and tourism. Furthermore, the Flexible Tenure Act has also been cited as a pioneering piece of land legislation in its recognition of incremental forms of tenure and building methodology.

A white paper on housing which was approved by Cabinet in 2009 contains a number of strategies, relating to the provision of housing such as 1) positioning housing as an important agent of economic growth, 2) promoting capital investment in local and regional infrastructure to speed up the process of land delivery, 3) mobilisation of domestic savings and affordable credit to provide and finance housing, 4) provision of subsidies and grants by government and development partners to support social housing, 5) creating sustainable human settlements through an integrated housing development approaches, 6) promoting the use of appropriate and alternative building materials and techniques in order to provide affordable housing solutions, 7) strengthening the housing regulatory environment, and 8) supporting people housing processes.

 

Opportunities

Affordable housing presents the highest potential of an untapped housing market. It not only includes people for whom there are no mortgage products, but also that section of the population who may qualify for loans but are unable to access suitably priced housing. As mentioned, commercial banks are overexposed to mortgages, which remains an ongoing concern in the economy. Therefore, there have been calls to provide greater opportunities for fundraising through securitisation, for example. This could increase the number of investment instruments and deepen the financial sector, as well as enable local authorities to raise the funds necessary for urban infrastructure development and thus increase the housing provision.

The recognised successes of the Shack Dwellers Federation of Namibia through its group savings and lending methods, incremental approaches to housing and use of land laws such as the Flexible Land Tenure System suggest a high potential for housing microfinance.

Furthermore, the use of alternative technologies (such as solar power) and materials is a key area of opportunity and has the potential to bring down the long-term costs and reduce costs associated with servicing land.

Finally, in addition to the current proposed PPP programme, further incentives should be provided to the private sector developers to get involved in the lower-income section of the market. For example, invite the private sector to provide proposals under the TIPEEG or a system similar to the South African subsidy scheme, where developers can apply for a subsidy if they provide houses for low-income groups. Also, insisting that a percentage of all housing developments are dedicated to affordable housing (as in Malaysia, the UK, the Philippines etc.), will help promote improved supply and better integration between the different income groups.

 

Sources

Bank of Namibia (2012). Annual Report.

Economist (2014). EBH employees to get affordable housing, 22 August 2014.

EIU (2014). Country Risk Service: Namibia, June 2014.

FNB (2014). Housing Index: Shift in Housing Mix towards Middle Price Segment, May 2014.

How We Made it in Africa: Insight into Business in Africa. www.howwemadeitinafrica.com.

Immanuel, S. (2014). New Mass Housing Prices, 27 June 2014. Namibian Institute for Public Policy Research (2010). Housing Policy and Delivery in Namibia.

Kalili, N., Adongo, J. and Larson, T. (2008). Access to Housing Finance in Africa: Exploring the Issues (No. 5) Namibia. Namibia Policy Research Unit. Paper commissioned by the FinMark Trust with support from Habitat for Humanity.

Mahlaka, R. (2014). Calgro eyes R812m Namibian foray, 13 May 2014.

National Planning Commission (2014). Special Programmes: Housing Sector. Retrieved from http://www.npc.gov.na/?page_id=424

The Presidency (2013). Summary of the Blueprint on Mass Housing Development Initiative in Namibia, October 2013.

The Presidency (2013). Final Draft Blueprint on Mass Housing Development Initiative in Namibia, 10 June 2013.

World Bank (2013). Doing Business Report 2014: Namibia

 

Websites

www.africaneconomicoutlook.org

www.allafrica.com

www.bon.com.na

www.dbn.com.na

www.doingbusiness.org

www.economist.com.na

www.fnbnamibia.com.na

www.hofinet.org

www.howwemadeitinafrica.com

www.mfw4a.org

www.moneyweb.co.za

www.nhe.com.na

www.npc.gov.na

www.sdinet.org/country/namibia

www.unhabitat.org

 

*Assumed Exchange rate of US$: N$ is 1:10.99

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