Zambia

Zambia is a mineral-rich country and the largest producer of copper on the continent.  With an average GDP growth rate of 5.6 percent over the past decade, Zambia has achieved relative macroeconomic stability, and in 2011 was reclassified by the World Bank as a middle-income country, with a GNI of between US$1 006 and US$3 975 a year.  Inflation has come down considerably, to an all time low of six percent in February 2012 (from 7.2 percent in 2011).  The country is increasingly a destination for foreign investment due to its positive economic indicators, and its burgeoning mining industry. The mining sector grew by 7.4 percent in 2010. Its dependence on copper, however, makes it vulnerable to global demand fluctuations.  The agricultural sector is the largest contributor to GDP, growing by an estimated 7.6 percent in 2010, in part due to a bumper maize crop.  The agriculture sector is estimated to drop in the next couple of years – still, more than a third of Zambians earn their livelihoods in this sector. The forecasted annual GDP growth between 2011 and 2015 is 6.9 percent, making Zambia one of the world’s fastest growing economies.

In September, Zambia successfully launched its first US$750 million, 10-year Eurobond – the most successful bond launch in Sub-Saharan Africa, with bids more than 15 times the amount on offer. The proceeds from the bond will be used to fund infrastructure especially in the road and energy sectors.

Zambia’s population is very young: 54 percent are under the age of 18, partly a consequence of the high prevalence (14 percent) of HIV/AIDS. Most of the population is rural; 39 percent live in urban areas. With only 11percent of the working population estimated to be in formal employment, the small tax base impedes government’s fiscal capacity.

Access to finance

General access to financial services remains low.  In 2012, the World Bank launched the Global Financial Inclusion (Global Findex) Database, exploring levels of financial inclusion around the world.  According to Findex, only 22 percent of rural, and 14 percent of urban, Zambians over 15 years of age have an account with a formal financial institution.  Credit is widely used, with 52.6 percent of adults over 25 years of age saying they had a loan in the past year to 2011.  Most of these loans were from family or friends.  Only six percent of adults had a loan from a financial institution and only 5.5 percent had a loan from a private lender.  Very few Zambians have an outstanding loan to purchase a home: 1.1 percent of the top 60 percent of income earners and 1.4 percent of the bottom 40 percent of income earners.  According to FinScope 2009, 86 percent of adults are unbanked, and 63 percent of adults use no financial products at all to manage their financial lives.  Seventeen percent use products from non-bank financial service providers and 22 percent use informal products.  FinScope found that more people save informally (17 percent) compared to those who save through formal channels (10 percent).  The extent and use of housing finance is even more limited.

Zambia has a diversified financial sector with 19 commercial banks licensed to operate.  The sector has been growing rapidly: seven of these are foreign banks and only started operating in the past five years.  The Lusaka Stock Exchange lists 22 companies, of which three are commercial banks.  The Bonds and Derivatives Exchange (BaDEx) has been licensed and promises to be central in developing the bond markets in Zambia.

Zambia’s mortgage market is small, however.  Only a few of the commercial banks offer mortgage finance, and commercial mortgages seem to dominate.  The sector is growing rapidly, however.  The total mortgage loan portfolio stood at ZMK1.2 trillion (about US$239.3 million) at the end of May 2012, of which 88 percent was held by commercial banks and 12 percent by the building societies.  This is up by more than  50 percent on the December 2011 figure.  Assuming an average loan size of about US$30 000 (loans range in size from US$20 000 to US$600 000), this could suggest a total of almost 8 000 mortgages.  As of May 2012, the three building societies (Finance Building Society, Pan African Building Society and Zambia National Building Society), held a mortgage portfolio of around ZMK140 billion, or US$32 million, combined.  Again, assuming an average loan size of about US$30 000, this would suggest a book size of about 1 066 mortgage loans. Zambia National Building Society is the largest, with 64 percent of the building societies’ mortgage book. Interest rates offered by mortgage lenders – whether commercial banks or the building societies – are high.  The average interest rate offered by the commercial banks in 2011 was 18.8 percent for a 24-year loan.  Building societies’ interest rates appear to be higher – hovering at 20 percent and above.  A key challenge for residential mortgage lenders is access to funding, as the wholesale finance sector and capital market remains underdeveloped. This, and other risk factors including the potential of loss given default and high transaction costs, contributes to the high interest rate.  As a result, only the highest income earners can access mortgages.

Zambia’s microfinance sector comprises 25 licensed MFIs.  Of these, the vast majority are payroll based consumer lenders, accounting for 92 percent of the microfinance sector’s total assets.  Only four MFIs are microenterprise lenders, and six are registered as deposit-taking financial institutions in terms of the 2006 Banking and Financial Services Act.  Housing loan products appear to be increasingly popular – many MFIs already have products and others are in the product development stage.  Home improvement loans available range from ZMK3 million to ZMK200 million (about US$600 to US$40 000) with maximum loan terms of 60 months and charged at about 2.5 percent a month.  Building materials company Lafarge has launched a housing microfinance programme for affordable housing in Zambia – one of two pilot countries in Africa (the other being Nigeria).  The pilot is in partnership with CHF International and will deliver housing microfinance loans of about US$2 500 with two to three year terms, together with technical assistance throughout the various stages of the construction project. In 2011, three MFIs reported to the MixMarket – these three MFIs had a gross loan portfolio of US$3.2 million with 9 083 active borrowers.

Pension-backed lending is permissible by Zambian law, but not common, and the role of pension funds in housing financing is limited.  This may be changing.  Netsave, a non-bank financial institution, is in discussion with pension funds to provide mortgages to pension fund members and employees.  In terms of the arrangement, the pension funds will provide the long-term funding. This follows the National Housing Bond Trust’s 2008 issue of the first housing bond on the Lusaka Stock Exchange, with the intent of harnessing capital from pension funds to channel into affordable housing development.

The first credit bureau was formed by the Bankers Association of Zambia in 2006. In 2008, the Bank of Zambia made it mandatory for banks and other financial service providers in Zambia to go through the Credit Reference Bureau before granting a loan.  The system has limited coverage, however.  According to the World Bank’s Doing Business report, it provides only limited coverage – three percent of the population as at 2011.

Affordability

Affordability levels for conventional housing finance are low and a recent study suggests that the housing needs of only one percent of the population, or 20 000 – 30 000 households, are adequately served. These households, with an average monthly income of ZMK16.7 million (US$3 300), typically afford a three bedroom, single storey unit on a 1 500m² plot of land.  In urban areas, this costs about US$150 000.  In the low-moderate income market, housing is generally offered about US$70 000 for a three bedroom house on a 600m² plot.  At these rates, a household would have to be formally employed and earn about ZMK11.5 million (US$2 300) a month to afford this housing.  Only 11 percent of employed adults earn a formal salary or wage from a company or business, undermining access to mortgage finance even further.  Stringent terms such as high deposit requirements (as high as 20 percent) and relatively short loan terms, (for example four years offered by the Zambia National Building Society) make it difficult to afford mortgage finance.  Due to the general unavailability of mortgages, many buyers purchase finished units with cash.

Even in informal areas, housing is expensive.  Prices range between ZMK100 million (about US$20 000) for a house constructed with basic materials to ZMK500 million (US$100 000) for a quality constructed house.  The National Housing Authority (NHA) reports that a serviced stand can cost as much as ZMK60 000 (about US$12 000).

The government has made efforts to improve access and affordability but its capacity to make a difference is limited by fiscal constraints.  In the 2012 National Budget, housing development has been allocated ZMK20 billion (US$4 million), which represents six percent of the ZMK304 billion (about US$608 million) budget for infrastructure and support services.  Of this, ZMK5.2 billion (about US$1 million) is for the construction of low cost housing and ZMK1 billion (about US$200 000) for low cost housing funding.

Housing supply

There is a definite shortage of housing supply in many urban centres, but particularly in rapidly growing towns in the Copperbelt and North Western province where mining activities have resurged.  Employers in the mining areas report difficulty in retaining staff in areas where a housing shortage exists.  A UN-Habitat estimate suggests a backlog of 1.3 million units across the country, and recommends an annual delivery rate of 46 000 units.  Between 2001 and 2011, however, the delivery rate was only 11 000 units per annum.

Most urban growth in Zambia is informal.  UN-Habitat has determined that 70 percent of housing in Lusaka is informal.  This stock accommodates about 90 percent of the city’s population but occupies only 20 percent of the residential land. In rural areas, almost 90 percent of stock is traditional or improved traditional housing; traditional housing in urban areas comprises 20 percent of all stock.

A few recent public policy interventions are aimed at improving access to land and providing social housing for low income and vulnerable groups.  The main interventions, other than plot allocations, have been housing projects for public sector employees (such as the police, Zambia National Service and the Zambia Development Agency).  These projects have struggled because of the limitations in the mortgage market and external constraints on government in being able to underwrite them.

More frequently, attention has been on middle-upper income earners, even by state sponsored organisations.  Both the National Pension Scheme Authority and the NHA have promoted housing delivery (some in partnership with the private sector) for higher income earners. However, in August 2012, the Minister of Local Government and Housing signed a statutory order to dissolve the NHA board of directors after discovering that the institution had been misapplying resources and not pursuing its mandate to build affordable and low cost housing.

Middle and high-income housing is also getting attention from the private sector.  A growing number of developers are interested in supplying housing in the US$40 000 to US$80 000 range, and focusing on Lusaka.  This is putting pressure on the mortgage system to grow in parallel.  There is also pressure on the land governance system.  In June, the government decided to curb all construction activities because of a concern with illegal allocation of land, and to further curb construction of structures that have not been approved by councils.

NGO players such as Homeless International are involved in helping to fund the housing efforts of the very poor. The People’s Process on Housing and Poverty in Zambia and UK-based Homeless International have worked with the Zambia Homeless and Poor People’s Federation to mobilise 39 000 urban poor families into the federation, to secure land in six towns, and to sign a Memorandum of Understanding with the NHA to commit land to federation members.  With support from Lafarge, which donated 1 008 bags of cement, Habitat for Humanity Zambia has built 2 150 houses.  While important, these efforts are  small compared to the need.

Property markets

There is enormous potential for residential housing in Zambia and sentiment is positive. For example, a large cement manufacturer recently identified Zambia as a prime untapped market. The shortage of quality housing at the higher end of the market is also driving several developments of modern cluster-style homes particularly in the south and east of Lusaka. According to real estate agent Knight Frank, this delivery is expected to plateau by mid 2011, as a result of oversupply.

Resale housing stock in Zambia is limited, especially given that 80 percent of Zambia’s total housing stock is classified as informal. Lower income groups have a greater problem in obtaining affordable housing as this end of the market has little formal development.

Policy and regulation

While the National Housing Policy of 1996 continues to be in force, its commitment to government spending 15 percent of the national budget on housing is felt to be too ambitious, and has consequently not been achieved.  A new housing policy is being drafted – this, however, is a lengthy process.

The limitations on mortgage finance are apparent in this country where more than 60 percent of the population hold only informal title. The country’s title registration system is improving.  According to the Doing Business report, it takes on average 40 days to register a property in the country and the cost of the registration process is about 6.6 percent of the property’s value.

Zambia has targeted its land administration system with some success. Acknowledging informality, the Housing (Statutory & Improvement Areas) Act is progressive land tenure legislation that allows for incremental and flexible housing development.  The Act limits tenure security to an occupancy licence, with collective title held by the local authority.  This is especially suitable for building methods financed through housing microfinance. In fact, progressive land laws and the low reach of conventional forms of housing finance create enormous potential for housing microfinance. The planning legislation in Zambia’s urban centres is also undergoing substantial revision and an Urban and Regional Planning Bill was presented to the Ministry of Local Government and Housing in late 2009 for final approval. This is especially important given the limiting effect of urban management legislation in allowing for sufficient supply of well-serviced land. The Zambian judiciary is undergoing substantial reform to ensure that it is faster, more secure and transparent. Significant challenges remain in reforming laws in other areas, however – in particular, the need to improve legislation around collateral and credit recovery.

Opportunities

Zambia’s relative political stability, recent economic growth spurred by a rise in mineral prices, and growing middle class means that housing demand should continue to grow in major urban areas around the country. Progressive legislative reform around the land sector suggests that mortgage markets should have a supporting land administration system to sustain their growth. Developments such as Roma Park in Lusaka illustrate continued interest in property investment opportunities.  Roma Park is a 217 acre project being built by Renaissance Capital and is similar to its flagship property development in Nairobi, Tatu City.  It comprises residential and commercial property – an entire, new, mixed-use suburb.  The development at present is concentrating mostly on plot sales, rather than completed units.  Increased investments from China and South Africa, together with growth in the mining and agriculture sectors, are driving residential and commercial property demand.  Demand is especially unmet in the affordable housing segment, which presents good opportunities. Zambia has a relatively undeveloped microfinance sector by regional standards. Housing microfinance lending in the country needs specialised and dedicated institutions rather than merely using traditional microfinance institutions as a platform for this type of lending.

Source: Housing Finance Yearbook 2012

Sources

1. Demirguc-Kunt, Asli and Klapper, Leora (2012). Measuring Financial Inclusion: The Global Findex. World Bank Policy Research WP 6025.
2. Gardner, David (2007). Access to Housing Finance in Africa: Exploring the issue (No. 1) Zambia. Paper commissioned by FinMark Trust.
3. Drummond, R (draft). Access to Housing Finance in Africa: Exploring the issues in Zambia. Due for publication at end 2012.
4. World Bank (2011). Doing Business 2012.

Websites

www.allafrica.com

www.africaneconomicoutlook.org

www.boz.zm

www.finscope.co.za

www.lafarge.com

www.mfw4a.org

www.mixmarket.org

www.unhabitat.org

www.worldbank.org

www.zamstats.gov.zm

www.znbs.co.zm