As of 2023, the mortgage industry in Africa is still overcoming the impact of the 2020 pandemic. The housing market is still unstable. Even though the number of homes for sale is increasing, affordability is still a significant challenge. Inflation continues to skyrocket, impacting interest rates on home loans.
Many countries on the continent are taking steps to develop the infrastructure for a more robust mortgage industry. However, much progress still needs to be made.
The mortgage industry in Africa is growing. This article will provide an overview of its current state. It will cover both the challenges and opportunities it faces.
Overview of the Mortgage Industry in Africa
The African mortgage industry is still in its infancy, and several factors have contributed to its slow growth.
A significant challenge exists. The lack of formalised property registration systems. This makes it difficult for lenders to verify property ownership and guarantee the legitimacy of the property used as collateral.
This has resulted in a limited number of mortgage products being offered, with high-interest rates, short terms, and limited loan amounts.
However, as African economies develop and become more stable, more lenders are entering the market to provide housing finance.
This is driving competition, leading to the introduction of new products with more favourable terms and conditions.
In addition, emerging digital technologies are making it easier for lenders to reach potential borrowers and streamline the application process, driving even more growth in the coming years.
Challenges Facing the Mortgage Industry in Africa
While there are opportunities for long-term growth in the African mortgage industry, several challenges must be addressed to facilitate its development.
High-interest rates
African mortgage rates are among the highest globally, reaching 50%. As a result, those who can have long opted to build their homes from scratch. Unfortunately, this also takes time due to the increasing costs of construction.
Lack of affordable housing
One of the main challenges most African nations face is a housing shortage of affordable homes. According to Habitat for Humanity, the continent has a shortfall of 51 million units.
In many African countries, buying or renting a home is quite expensive. This is because most of the population is unemployed or has low income.
This makes it difficult for people to secure the financing they need to purchase a property. This, in turn, has led to a lack of demand for mortgage products.
Unqualified borrowers
Another challenge is the limited number of qualified borrowers.
Many people in Africa lack a steady source of income or formal employment. The majority are also unbanked and have no credit score, even though some can afford a mortgage. This makes it difficult for lenders to evaluate their creditworthiness.
This lack of good credit rating systems results in high delinquencies and defaults, making lenders more cautious about lending to individuals with less-than-perfect credit.
Lack of specialised mortgage lenders
The other issue facing housing in Africa is the need for more mortgage lenders that can cater to most of the population.
Many lenders only target middle to high-income clients. This leaves out a more considerable percentage of those categorised as unqualified borrowers because of their low-income status.
Opportunities for Growth in the Mortgage Industry in Africa
Despite the challenges facing the African mortgage industry, there are several opportunities for growth in the coming years.
High demand for affordable housing
One of the main opportunities is the growing demand for affordable housing.
As African economies continue to develop, the demand for housing is likely to increase, creating a larger pool of potential borrowers for mortgage lenders.
In addition, governments are increasingly implementing favourable housing policies for investors, developers and home buyers.
Additionally, the influx of private investors developing affordable housing projects will likely drive demand for mortgage products.
The emergence of new technologies
Another opportunity for growth is the development of digital technologies.
As more people gain access to mobile phones and the internet, lenders are beginning to leverage these technologies to reach potential borrowers in new and innovative ways. This includes mobile banking, online lending platforms, credit scoring tools and other digital tools that make it easier for borrowers to apply for and receive financing.
Positive Government policies
African governments have been implementing various policies to support the housing sector. Some key policies include;
Affordable housing programs: Governments in African countries are implementing affordable housing programs to provide low-cost housing options to their citizens. For example, the Kenyan government has implemented the “Big Four Agenda” program to provide affordable housing to low and middle-income earners.
The Centre for Affordable Housing Finance in Africa (CAHF) and African Union Housing Finance (AUHF) are independent entities advocating for affordable housing across the continent.
The World Bank approved a credit line to increase access to affordable housing in Djibouti, one of the poorest nations in the world.
Mortgage finance: Governments are also working to improve access to mortgage finance for homebuyers. This includes providing subsidies and guarantees for home loans and working with financial markets and institutions to develop mortgage products accessible to a broader range of homebuyers.
Infrastructure development: Many African countries invest in infrastructure development to support the housing market. This includes the development of road networks, water and sanitation systems, and electricity grids. These improvements can make it easier and more affordable for developers to build housing projects and for homebuyers to access services.
South Africa is among the most developed countries on the continent regarding infrastructure. It also has one of the biggest mortgage markets in Africa.
Land use reform: Governments are also implementing land use reforms to make it easier and more affordable for developers to acquire land for housing projects. This includes streamlining the land acquisition process and making it easier to register land titles.
In recent years, Uganda has developed a National land Information System (NLIS) supported by the World Bank. This system has enabled all old land title records to be digitised, creating an efficient, quick and transparent process regarding land registration, administration and management.
Public-private partnerships: Governments are partnering with private-sector developers to increase the supply of affordable housing. This includes incentivising private developers to invest in affordable housing projects and working with developers to ensure they meet government standards and regulations.
A key challenge for policymakers is thus to improve housing delivery value chains – specifically, in a way that broadens access to finance for housing developers and, in doing so, expands access to adequate housing for individuals.
Alternative Market Products
Many products have been introduced to the market to make home ownership and investment accessible.
Rent-to-buy: This model is achieved in 2 ways, rent with an option to buy after a given period or pay rental/lease instalments to buy where a home is transferred to you after a specified period, after the increments.
Housing microfinance: Consists of small, non-mortgage-backed loans that can be offered to low-income populations in support of incremental building practices.
Employer-supported housing: This program involves employers and willing individuals wholly or partly financing the building of houses for low-income earners under their employment. Assistance may be provided through down payment grants or loans, rental subsidies and direct investment in home construction.
Chamas: These are informal cooperative societies used to pool resources and invest in profitable ventures, including real estate. They are most predominant in Kenya.
Conclusion
In conclusion, the Africa mortgage industry is still in its early stages of development, but there are many opportunities for growth in the coming years.
While challenges must be addressed, such as the lack of affordable housing and a limited pool of qualified borrowers, the advent of digital technologies and the growing demand for housing are likely to drive significant growth in the mortgage industry in Africa.
The industry will be able to benefit from the current macroeconomic trends. Specifically, the financial sector is expected to grow, with many countries making substantial investments. The emergence of FinTech companies and financial technology startups in the region will provide further access to mortgage loans and financial services. This will positively impact the African mortgage industry, as more people will have the opportunity to access finance and buy homes.
The African banking sector is also expected to expand, providing increased support for the mortgage industry to access the significantly sizeable unbanked population.
Finally, in 2023 the Africa mortgage industry will be in a solid position to benefit from the increasing global demand for African real estate. As more investors look to tap into this real estate market offering attractive ROI, the African mortgage industry will be able to provide easier access to finance.
Frequently Asked Questions
There are several reasons for this;
– Inflation rates are significantly higher than in developed countries. This drives up interest rates.
– Many households are unbanked and not credit-worthy. Banks charge high loan rates to cater for this risk.
Interest rates range from as lower as 6% to as high as 50%.
Yes, there are several ways that one can buy a home;
– Rent to Buy: This model is becoming popular in many African cities. Buy Small Small is a West African real estate firm that offers attractive and affordable schemes under this model.
– Build from personal savings: Most African homeowners built their homes from personal funds.
– Chamas: These are informal cooperative societies used to pool resources and invest in profitable ventures, including real estate. They are most predominant in Kenya.
