Affordable housing remains a critical component of Djibouti's development plans

In an effort to utilise sustained economic growth to improve the living conditions its population, the authorities have sought to overhaul the country’s real estate sector. Over recent years the lion’s share of investment has flowed into critical infrastructure development. These projects are necessary for the consolidation of the country’s position as a international logistics centre. However, investment in new housing, as well as the upgrade of existing housing stock, is also vital for long-term development.

In order to meet these objectives the country has been updating and improving its regulatory framework, while securing domestic and international funding for real estate construction. Foreign investors and international financing partners have been responding well to these initiatives, though there is still room for improvement in a number of important areas.

In tandem with raising the availability of accommodation for different segments of society, public sector measures have also focused heavily on the redevelopment of areas of informal housing around the country’s major cities. Urban renovation is increasingly seen not only as a way to provide sustainable housing solutions, but also as a means to improve economic opportunities.

Increased Demand

With rising urbanisation and fast-paced development, the improvement of the housing stock has become a key priority. The country faces a major housing deficit, which is estimated by the government to be close to 30,000 units, with demand growing at an annual rate of 3000 homes per year. In addition to this existing backlog, the population is growing at an average annual rate of 2.8%, while the urbanisation rate stood at 85% in 2017, according to the Housing Fund (Fonds de l’Habitat, FH). The same source reports that the sector is producing an average of 700 homes per year, a level insufficient to meet demand.

Nevertheless, the government is aiming to significantly improve the rate of real estate development, particularly for lower-income segments of the population, through improved access to credit and state funding. Additionally, the government is pursuing several cooperation agreements with foreign organisations aimed at expanding housing supply. Moreover, the issues faced by the sector are not only quantitative but also qualitative, with 60% of the urban housing stock being considered informal in 2017, according to the FH.

Furthermore, increasing pressures have been placed on the sector by the inflow of refugees fleeing regional crisis zones, placing pressure on the local housing market. “Besides other factors, immigration and growth in the number of refugees are impacting home availability in the local market,” Abdourahman Ali Ahmed, director of the FH, told OBG. “The high number of people fleeing from Yemen, for example, has pushed average rent prices up. Therefore, local residents find it difficult to find housing that matches their budget, with this contributing to an increased number of households living in poorer neighbourhoods.”

Policy 

In order to address these issues the government has set about making new land available to private developers. It has also set about increasing the provision of social housing for the poorest, and establishing a proper financing system for home acquisition. Public housing policy falls under the purview of the Delegate Ministry at the Ministry of Habitat, Urban Planning and Environment in charge of Housing (Ministère Délégué auprès du Ministère de l’Habitat, de l’Urbanisme et de l’Environnement chargé du Logement, MDMHUEL), which was created in 2011. The MDMHUEL implements most of its key directives through two main bodies: the FH and the Djibouti Real Estate Company (Société Immobilière de Djibouti, SID). The FH has traditionally focused on the building of homes for lower-income segments of the population, as well as the preparation of land plots on which to develop low-income housing. The SID, meanwhile, has focused on middle- to high-income citizens, preparing basic infrastructure on government-owned land and selling the plots to private real estate developers. However, changes to government strategy are set to alter the manner in which these two public agencies operate. The FH is being relaunched as the Agency for Urban Rehabilitation and Social Housing, which will focus on social housing and the elimination of informal housing. The SID’s sole remit, following the implementation of these reforms, will be to connect basic services to land plots and ensure licensing procedures are carried through.

Additionally, the government has also implemented new tax cuts to encourage private developers to expand their investment beyond the luxury segment. “Before private sector developers would only focus on highend housing,” Ali Ahmed told OBG. “Now, thanks to the reforms introduced by the MDMHUEL, we observe many private real estate developers implementing housing projects oriented towards the middle-income segment, with a financing scheme supported by local banks.”

Support Programmes

A key element of the government’s strategy to expand home ownership among broader segments of the population is a rent-to-lease scheme for government-built homes. Additionally, the authorities have set about providing subsidies to ease access to the traditional mortgage market for home buyers. According to the IMF, total spending on this scheme is scheduled to increase from an annual DJF3.1bn ($17.4m) in 2014 to DJF4.8bn ($27m) by 2021.

Support can vary depending on the specific economic level of recipients. Low-income beneficiaries of social housing require no down payment for a new home and begin their monthly payments when they move in. Medium-income beneficiaries of housing programmes are required to pay an initial 5% to 10% of the total price of the unit and continue with monthly payments afterwards. In both instances, however, the housing programme requires recipients to both have regular employment and not own a plot of land or a home.

Additionally, in 2016 the FH initiated a loan programme to finance the purchase of building materials to support self-construction. The programme is designed to cater for Djiboutians who cannot access the traditional banking sector. It allocates loans of roughly DJF1m ($5630) to buy building materials, with repayments payable over 20 years, with an interest rate of 1%.

Progress Made

The state has also been providing increased access to housing through a number of specialised construction projects. Over the 2011-17 period the government oversaw the building of 1326 new housing units across several areas of the country, at a total cost of around DJF5.4bn ($30.4m). These developments included 540 units for low-income households built close to Djibouti City, with financing provided by local financial institution Bank of Africa-Mer Rouge. Construction took place between 2012 and 2017, with the government allocating 30% of these units to teachers as part of a policy of improving the living standards of education sector professionals.

Between 2012 and 2014 the FH oversaw the construction of 206 homes for members of the country’s National Guard. Construction was partly financed through a DJF1.3bn ($7.3m) loan from the International Commercial Bank of Djibouti, a subsidiary of Malaysia’s International Commercial Bank Group. During the same period the FH directed the construction of 30 units for low-income families in Ali Sabieh, at a total cost of DJF137m ($771,000). Furthermore, as part of a larger $50m assistance package from the Kuwaiti Fund for Arab Economic Development, the state was also able to build 104 new apartment units for lower-income citizens at a total cost of DJF860m ($4.8m). Moving forward, the government plans to deliver an additional 1654 new units over the 2018-21 period, at a total cost of around DJF7bn ($39.4m), according to the FH.

Upgrades to existing stock have also been undertaken. Over the 2011-17 period the FH allocated DJF185m ($1m) for the reconstruction of 416 homes damaged by fire across the country.

The authorities have also been active in channelling international development support towards the sector, particularly for the provision of affordable housing. For example, in 2016 the government secured DJF1.3bn ($7.3m) of financing from the Saudi Fund for Development for a 120-unit housing project on the outskirts of Djibouti City – the project is expected to be completed in 2018. Also earmarked for completion in 2018 is a 160-unit development in Doraleh, which is being financed by the Djibouti Ports and Free Zones Authority at a cost of DJF569m ($3.2m), and a 30-unit development located in Tadjourah, financed by the FH at a total cost of DJF117m ($658,000).

Many of these projects are focusing on the outskirts of Djibouti City, where many residents live in low-quality informal housing with poor infrastructure, such as Balbala. The redevelopment of such neighbourhoods is central to the Zero Slums in Djibouti Programme, which was initiated by President Ismaïl Omar Guelleh with the support of the World Bank in 2013. For example, in February 2018 construction began on a housing project expected to add 840 new homes in an area of informal housing on the outskirts of Djibouti City. The project is being financed through the Saudi Fund for Development at a total cost of DJF4.9bn ($27.6m), with construction set to be finalised by 2021. Significantly, the project also includes infrastructure such as access roads, street lighting, and electricity and water connections to the buildings. Also scheduled to be launched during 2018 is the construction of 504 new apartments in the same neighbourhood under a financing arrangement agreed with the Arab Fund for Economic and Social Development. Construction costs are DJF3.7bn ($20.8m), according to the FH.

Moreover, a series of larger-scale projects are under consideration. In 2016 the government issued an operating licence to Chinese firm Zhong Yang Construction. The firm had expressed interest in investing $600m in a development with 10,000 new housing units. The development would be built in an area covering 100 ha and include commercial areas, a mosque and sporting facilities. Other housing initiatives are also being planned. For example, the Ismaïl Omar Guelleh Right to Housing Foundation, an initiative of the president, is planning to build 1476 new homes, including 1000 in partnership with the Chinese contractor China Merchant Group.

Mortgage Access

Over the longer term expanding home acquisition will ultimately depend on the development of a mature banking sector. While the country’s financial services have been improving, and despite efforts by the government to improve mortgage access, this has not yet translated into a diversified product offering for potential home buyers in the country.

Overall credit allocation has not expanded as quickly as expected, with only about a third of deposits transferred into loans (see Financial Services chapter). Most households still finance home purchases through savings, and the mortgage penetration rate remains much lower than it could be. Yet, despite there being further progress to be made, the overall volume of housing credit has grown in recent years, rising from DJF14bn ($78.8m) in 2013 to DJF23bn ($129m) by 2015, according to the Central Bank of Djibouti. However, average interest rates remain high for the sector, standing at between 6.7% and 10% in the final quarter of 2017.

Challenges

Nevertheless, challenges remain for the sector, notably the low availability of locally produced building materials and skilled domestic labour, both of which contribute to higher building costs. Furthermore, these costs weigh also on the expansion of the country’s water and electricity network, making it harder for the government to make new land available for development or redevelop low-income areas. This issue is compounded by the fact that current demand is focused on the middle- and lower-income segments of the population, while supply is still concentrated in the luxury market. Critically, the country’s unemployment rate stood at 39% in 2017, according to the IMF, with 41% of the population living in poverty and 23% in extreme poverty. This situation makes it difficult to design mortgage schemes that can meet the expectations and possibilities of lower-income citizens.

Outlook

Through a combined strategy of regulatory reform, foreign financing initiatives and a range of financial support programmes, Djibouti has made considerable progress in expanding housing provision. Despite budgetary constraints brought about by the country’s focus on large-scale infrastructure-driven development, housing authorities have been able to adapt to these constraints and provide innovative solutions, including credit for house building materials.

However, the country still faces a major shortfall in housing supply, particularly for poorer segments of the population. The extension of international partnerships for the creation of mass housing projects offers a potential way forward. Furthermore, increased revenue from the country’s logistics infrastructure investments can be expected to lessen budgetary constraints, providing fiscal space for public investment in the sector. Increased demand for commercial and business spaces in the country, meanwhile, provides opportunities for the construction of multi-purpose ventures that combine housing with offices, thereby diversifying risk and opening up new sources of finance.