Scoping study: Overview of the housing finance sector in Zambia Study commissioned by FINMARK TRUST May 2013, Lusaka
Section I - Introduction Section II – Context Section III – Housing Finance Value Chain Section IV – Conclusions and Recommendations 2 2
Section I - Introduction Commissioned by FinMark ark Trust t and Centr ntre for Affordab able le • Housin ing g Finance nce in Africa (CAHF) Aims to provide a comprehe ehens nsive ve overview view of the housin ing g • finance nce sect ctor or in Zambia; updating earlier research commissioned by FinMark Trust in 2007 and 2009 Part of a series of studies commissioned by FinMark Trust on • the state of housing finance across Africa. 3 3
SECTIO Scope, objectives and methodology ION N I Scope • Review housing finance mechanisms used, including in informal sector • Show how housing finance operates within wider financial market • Define the housing finance value chain Objecti ctives ves • Assess market potential • Reveal the gaps and niches available to providers • Make recommendations on how to extend the value chain across all socio-economic groups Metho thodolo logy gy • Research conducted in April-May 2012 • Interviews held in Lusaka, Mpongwe and Solwezi • Semi-structured interviews, focus group discussions and quantitative data from secondary sources 4 4
Section I - Introduction Section II – Context Section III – Housing Finance Value Chain Section IV – Conclusions and Recommendations 5 5
Section II – Context Market growth, risk and regulatory environment • Housing market demand and supply • 6 6
SECTIO Market growth, risk, environment ION N II Marke ket t growth wth - Macro-eco cono nomy my and demogr graphic aphics • Has been significant market expansion • Prolonged economic growth, and population expansion • Economy still dominated by informal sector Marke ket t risk - Count ntry ry, credit it availab ability lity/ / cost, other r lendin ing g options • Country risk has reduced and credit conditions have improved, (although credit costs are still high, and availability of credit limited • Domestic secondary markets immature and provide only limited source of long term credit Regula gulato tory ry envi viron onment ment • Platform has been created for encouraging greater intermediation • Uncertainty after recent regulatory changes 7 7
SECTIO Housing market ION N II 1 Home owner 1 nership has expanded anded, although limited supply of suitable housing product and affordability constraints present asset and market risk 2 2 Lend ndin ing g risk limits the potential of achieving lower lending rates 3 Self-buil uild dominates tes the e new w build market et, providing a sustainable option to reduce housing (finance) costs 4 Geogra graph phical cal variance nces, suitable products and market limited to the main urban areas 5 5 Rural al and informal al areas as are gene neral ally y not provided, excluding majority of the population 6 6 Financial institutions are cautio tious us about t lendin ing g on se self-bui uild 8 8
SECTIO Housing market demand and supply ION N II Demand and • Different studies project housing nee eed at betwe ween n 1.3 to 2 million taking into account existing stock, new construction and demographic change • Total households increased from 1,844,741 in 2000 to 2,635,590 in the 2010 census (representing a 33.4 per cent increase). This is a new w household hold formatio ion n of 62,000 00 per annum over the same period. Supply • Housing sing su supply y has s tradition onal ally y been en below w the rate of new ew househo hold d formation, on, (11,100 ,100 per annum um betwe ween n 1990 90 and 2000 00 cens nsus uses); 2010 census data is not available • Most housing construction is incremental ‘self - build’ in urban and peri-urban. The latest Urban Development Plan for Lusaka indicated the urban area increased by around 50% between 2000 and 2007. This would equate to around 1,200 ha / 9,000 plots per annum, (based on 800 sq.m plot size and 60% coverage) 9 9
SECTIO Housing market demand and supply ION N II Afforda dabili ility ty • This disjoint between demand and supply is due to a lack of affordability between housing costs and real incomes • In Avondale, a medium cost area in Lusaka, average house prices are above ZMW 500,000 ($100,000). This would require re a monthly hly repaym yment ent of ZMW W 6,300 00 ($1,26 260) 0) based on the most competitive mortgage rates, (15% interest, 90% LTV, 15 year term) • This is not affordable based on a median n monthl hly y income me for t the medium um cost secto ctor of around nd ZMW 2,000 00 ($400 400). ). This results in most people undertaking self-build construction 10 10 10
Section I - Introduction Section II – Context Section III – Housing Finance Value Chain Section IV – Conclusions and Recommendations 11 11
Section III – Housing Finance Value Chain Housing finance sector analysed through the Housing Finance Value Chain, (HFVC); Considers the supply-side actors, and the linkages that exist between wholesale financiers, retail financiers, and end-users. Considers the extent of existing access to the market. 12 12
SECTIO The Value chain ION N III 13 13
SECTIO Supply side actors ION N III 1 1 Flow of c capital al between wholesale financiers and retail financiers is limited; 2 2 A nu number ber of po potentia ntial providers rs, (banks / building societies / MFI) – competition ought to contribute to lower interest costs; 3 Traditiona tional provider ers tend nd to compete ete for the same space, (Served Zone); 4 The HFVC expand ands down to m middle and lower income me groups ps through MFIs and intermediary micro-lenders, although access is restricted; 5 5 These providers have a better ter unders rsta tand nding ng of t the market t segme gment nt, reducing risk through group lending and cooperatives. 14 14 14
SECTIO Main actors wholesale and retail ION N III Categor tegory Type e of FI Prod oduc ucts Main in actors tors - Wholes olesal ale Public Finance Local government, DBZ, NATSAVE, ZNBS, ZLCHF • Wholesale finance Development banks (DBZ, Shelter Afrique) • (Private markets) Capital markets (LuSE, Badex) • Main in acto tors rs - Reta tail Residential mortgages • Residential mortgage Building societies • Home improvement • providers Commercial banks • loans Formal housing Home improvement • Microfinance institutions • microfinance loans Consumer and micro- Consumer loans • Microfinance institutions • enterprise lenders Individual micro loans • Other microfinance Networks of Savings and Micro loans • • micro-lenders Credit Associations (SACCOS) (group loans) ROSCAS Individual savings groups Micro loans • • Individual micro- Micro loans • Kaloba • lenders (secured) 15 15
SECTIO Finance products/ costs ION N III • Most borrowing for housing finance is based on consumer finance rather than secured lending; • Borrowing rates commercial banks (2011) average around 21% ; MFIs upwards of 35% • Most competitive mortgage terms 15%, 90% LTV, 20 yr tenor • Rates between secured and unsecured lending is not always that significant, suggesting that financial institutions do not differentiate between risk • Rates offered between secured and unsecured, and payroll and non-payroll based lending is significant 16
SECTIO Affordability & Access matrix ION N III Acces ccess barri rriers ers tes Avera erage ge Provi ovider der Produ oduct cts Inter teres est t rate Security Income level term rm 19% Mortgages Title, terminal ZMW6,000+ (banks) 21% 5 years benefits, pension (building Residential societies) mortgage providers Home Terminal benefits, 35% (2.5% Improvement < ZMW6,000 2 years pension per month) Loans, (HILs) • Home • Payroll deduction, ZMW2,000 to 2 years improvement capital pledge, 3rd ZMW10,000 35% - 80% loans (HILs), party guarantee, group pressure • Payroll deduction, Payroll/ capital pledge, 3rd 50% to 100% 0.5 consumer loans <ZMW6,000 MFIs party guarantee, years group pressure Capital pledge, 3rd Micro- party guarantee, ZMW2,000 to 50% to 100% 0.5 enterprise group pressure ZMW5,000 years loans Household goods 17 17
SECTIO Affordability matrix ION N III Acces ccess barri rriers ers Avera erage ge Provi ovider der Produ oduct cts Inter teres est t rate tes Security Income level term rm 8 years • Housing 10 – 13 % pa (housi • Intermedi microloans, (housing ng) ary money None - group lenders - microloans, Any microloans), up 1 pressure SACCOS rotating to 30% regular month ROSCAS savings microloans regular loan Individual Collateral (real informal Emergency estate, motor From 1 money Any 100%+ loans vehicles and week lenders - household goods). Shylocks 18 18
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