Households sidelined from mortgage financing
Brian Benza | Friday July 31, 2015 18:00
This has secluded a majority of households from owning residential properties, analysts reckon. In a quarterly economic report, analysts at consultancy firm, Econsult say although Botswana has a relatively high Gross Domestic Product (GDP) per capita, income levels are low for many households due in part to high inequalities and also to the low proportion of GDP that goes towards wages.
This, set against high prices of houses, has seen the majority of Batswana unable to access mortgage financing, which is the most suitable funding method to build a house.
As a result, only about three percent of houses built in Botswana are financed by mortgages.From the 340,000 people that are formally employed in Botswana, only 15,000 hold mortgage accounts representing less than five percent of the working population.
“A household would have to be earning P10,000 or more a month in order to qualify for a mortgage to buy the cheapest low cost house, and P25,000 or more to afford a P1 million house. “Very few households in Botswana earn this much. Based on recent household surveys, we estimate that half of Botswana households have a monthly income of P2,000 or less, and a quarter are in the range of P2,000 to P4,000. None of these households would qualify for a mortgage loan large enough for the purchase of a completed modern house.
“Even at the upper end of this range, an income of P4,000 would only qualify for a mortgage of around P150,000. It is therefore apparent that the size of affordable housing mortgage loans for most households is totally out of line with the price of housing in the market,” reads the report. As the conventional modern housing has proved to be unaffordable for the majority of households, the analysts believe that it is possible to build much more cheaply – as has been shown by the Turnkey Scheme, which delivers a ‘two and a half’, with electricity, but excluding the cost of land, for P90,000.
The Self-Help Housing Agency (SHHA) loan scheme entails the provision of urban or urban village plots to low-income households by local authorities, on which people will self-build.
Recipients must have a monthly income from P367 to P4,333 per month. Interest-free loans of up to P60,000 for building materials are provided, repayable over 20 years.
As most households can only afford a low cost house built for P150,000, which is unlikely to be attractive collateral for a bank, the analysts suggest that there is need for housing loans built around microfinance principles.
“Perhaps what is required are small loans, unsecured or with alternative collateral, relatively short-term, with mandatory prior savings, where the successful servicing and repayment of one loan unlocks access to another, larger loan. Such financing is well suited to the construction of small-scale housing, or incremental construction, room by room. Currently, such housing microfinance is not available in Botswana,” suggested the analysts.
Compared to her peers, Botswana has a relatively low ratio of mortgage finance to GDP sitting at just six percent.
Mauritius has double Botswana’s ratio at 13 percent while Namibia is at 18 percent and South Africa has ratio prints at 22 percent.
Contributing to the high prices in Botswana, particularly in Gaborone and Francistown is an acute shortage of land and high cost of servicing it.
According to the analysts, the reasons for residential land shortages are many including relatively low density construction in urban areas (few blocks of flats or other multi-residential developments), the rapid growth of urban areas, constraints to the conversion of agricultural land to urban land and inefficient administrative systems for land allocation.