Swings and roundabouts: Financing will be key to getting more Ivoirians into homes

As with so many countries across the African continent, the most salient trends in Côte d’Ivoire real estate are defined by a lack of supply across all sectors, from residential to commercial to retail. Although the country’s constitution guarantees the right of property to all, like neighbouring Ghana or Nigeria, accessible residential housing is limited, which has prompted a jump in informal construction and led the government to embark on an ambitious building campaign in the country’s most densely populated area, Abidjan.

In a trend that many emerging market investors recognise, dedicated retail space is very limited and AAA-grade office space, while more prevalent than in many nearby countries, is still constrained, driving up prices and rents. The pent-up demand presents an opportunity for developers, who often see significant demand for off-plan sales, particularly in the heavily urbanised areas of Abidjan. “We filled 16 flats three months before the building was ready to be lived in,” Mariam Mahama, sales director at local realty agency Kalimba, told OBG. “Even the commercial centre had been fully booked.”

Roads to towns at the periphery of Abidjan, such as Grand Bassam, Jacqueville, Adzopé and Bingerville, are also fast becoming new axes of residential growth, particularly as Abidjan begins to reach saturation. There remain significant challenges, including access to land, housing finance and construction issues, but for investor with a long-term vision, the benefits are clear.

DEMAND: One of the most immediate attractions of the Ivoirian market is the sheer volume of demand. According to rough estimates from OBG interviews, the country’s housing deficit is between 400,000 and 500,000 homes. The housing shortage in Abidjan is so severe that even middle-class working professionals have found it difficult to find suitable housing for purchase or rent. In the rental market, “everyone wants to build CFA1.5m (€2250) per month houses, but we need more CFA500,000 (€750) rentals,” Mahama said.

Not all of the demand for residential development is due to first-time buyers. In fact, the crises that have engulfed Côte d’Ivoire over the past decade have eroded building quality standards. Many homes sold on the secondary market require comprehensive renovations before the new owners can move in. “In the past, we had good-quality structures in Abidjan,” Mahama said. “You can still tell them apart from the city’s newer buildings, even though they lack maintenance.”

The spread of informal settlements, particularly common in urban and suburban areas around cities like Abidjan, San Pédro and Yamoussoukro, raises demand for low-income and social housing. In Abidjan alone, up to 17% of residential settlements are considered informal or illegal for being poorly constructed, lacking basic infrastructure connections or being improperly located.

OVERSIGHT: The main government body in the sector is the Ministry of Construction, Housing, Sanitation and Urban Planning, which is responsible for granting construction permits. Since 2011 Côte d’Ivoire has also had a Cabinet-level Ministry of Housing Promotion, which focuses on encouraging home ownership by improving accessibility. The ministry’s actions range from helping low-income earners access low-interest home loans and signing agreements with real estate developers like Morocco’s Addoha group to building affordable housing and encouraging the use of local content in the contracting process.

RETURN TO FORM: The establishment of the Ministry of Housing Promotion represents something of a return to form for Côte d’Ivoire, which for over two decades steered clear of direct property development. After independence, the state played a central role in the real estate sector, particularly in terms of low-income housing. In the early 1960s, the government created Société Ivoirienne de Construction et de Gestion Immobilière (SICOGI) and Société de Gestion Financière de l' Habitat. However, the economic turbulence the country experienced in the 1980s led to their break-up, and the state largely pulled out of direct property development. In principle, that move was meant to secure privately developed housing for low-income earners, but instead speculators drove up the price of land, raising development costs. Quality fell and developers increasingly chose the most profitable housing projects, while options for the rest, especially those in informal and semi-formal sectors, dried up.

To replace the state-owned real estate developers liquidated in the 1980s, the government set up three national funds under the aegis of the Autonomous Amortisation Fund: the Housing Support Fund (Fonds de Soutien à l’Habitat, FSH), the Urban Land Account and the Housing Mobilisation Account (Compte de Mobilisation pour l’Habitat, CDMH).

The CDMH confers a number of fiscal advantages on qualified buyers and developers for certain social housing projects, including exemption from value-added tax (18%) and service taxes on construction materials (18%), and a subsidised rate of 9.09% on housing loans. Buyers are also exempt from any interest on loans received from banks beyond the threshold of 9.5%, as the CDMH pays the difference.

For developers, the conditions for qualifying are rigid, and consequently many smaller players are excluded. With a lack of sufficient CDMH-certified housing projects, many qualified buyers – who are already faced with a shortage of supply on the market – cannot benefit from this scheme. According to Mamadou Sanogo, minister of construction, housing, sanitation and urban planning, the government is presently considering mechanisms for “revitalising” these financing tools.

PERMITS: Alongside the Ministry of Construction, Housing, Sanitation and Urban Planning, the new Ministry of Housing Promotion can also issue construction permits – and so can local government authorities, such as the district of Abidjan. This creates an overlap and results in a general lack of clarity. The system has long been dominated by bureaucrats, said the president of the Order of Architects of Côte d’Ivoire, Guillaume Koffi, and as a result the proper technical checks are often not made when granting a construction permit.

Registering property in Côte d’Ivoire is a challenge for developers. According to the World Bank, the country ranks 154 out of 185 in terms of the ease of registering property. It takes around 62 days to complete the process, roughly twice as long as neighbouring Ghana, and can cost up to 13% of the property value.

Côte d’Ivoire law stipulates that vacant land – land without legal ownership titles or land that has been unoccupied for more than 10 years – belongs to the state. The 1997 Law on Development Concessions authorises the government to grant concessions to developers to provide serviced land and housing, but over the past decade there has generally been a backlog of concessions. Conversely, occupied land has been largely managed through customary law, which means it reverts to the original and first productive owner – a system that accounts for some 98% of all rural land.

ACCESS TO FUNDING: Housing loans represented just 0.7% of total loans in the first nine months of 2012. Moreover, less than 1% of real estate projects in Côte d’Ivoire receive financing from the banking sector, according to Banque de l’Habitat de Côte d’Ivoire (BHCI). While comparable to most countries in the region, the commercial mortgage rates on offer in Côte d’Ivoire are high for prospective homeowners (often over 15%). The government has, however, made progress in improving access to credit for home purchasers in a scheme designed to guarantee loans through the National Housing Collateral Fund, which derives its funding from the CDMH and the FSH. This programme has been designed to improve buyer solvency by avoiding the use of the buyer’s own resources for collateral.

For prospective homeowners, the Ministry of Housing Promotion created the Regional Mortgage Refinancing Fund, which is expected to allow prospective buyers to take long-term loans beyond the typical 15-year limit available at most banks. Funds have also been created for low-income earners, allowing them to secure cheap loans: the CDMH and the Social Housing Fund (Le Fond d’Habitat Social, FHS). Both the CDMH and the FHS are state-backed funds for which the government becomes a guarantor for mortgage loans taken out by low-income earners. The CDMH, with a mortgage interest rate of 9%, targets salary earners, while the FHS focuses on non-salary earners.

The authorities have also been active on other fronts. In 2009 the government became the major shareholder of the BHCI and began re-capitalising the institution. The government is also considering a partnership with Shelter Afrique, a pan-African real estate financier. Steps are being taken at the regional level as well. The Central Bank of West African States (Banque Centrale des Etats de l’Afrique de l’Ouest, BCEAO) has lengthened the residual duration of long-term loans admissible to its portfolio from 10 to 20 years. The BCEAO took this step to bolster long-term financing in the region, and has announced plans to create credit information bureaux and to modernise guarantee registries.

RESIDENTIAL: As often the case with Africa’s largest and fastest-growing cities, luxury accommodation is a major segment due not only to the high margins, but also to heavy demand, thanks to increased purchasing power. As multinationals come back to a post-crisis Abidjan, foreign white-collar professionals and returning foreign-trained Ivoirians are helping to drive demand. According to the 2012-15 National Development Plan (Plan National de Développement, PND), an estimated 240,900 Ivoirians lived abroad in 2008 and accounted for $165.3m worth of funds transferred into the country in 2009. These potential tenants or buyers are often returning with ready-to-invest cash and high accommodation standards, prompting real estate agents to undertake renovations on the properties on offer.

AFFORDABLE: Within the framework of the PND, the government aims to construct 10,000-30,000 housing units per year over the next three years, raising annual output to 40,000-50,000 units by 2015. According to the Ministry of Construction, Housing, Sanitation and Urban Planning, around 75,000 of these homes will be built in and around Abidjan over the three years.

Affordable housing projects via public-private partnerships include the Alassane Dramane Ouattara City in Yopougon. The 2000 units of low-cost housing are being constructed by French firm Lafarge and Italy’s ENI. Morocco’s largest developer Addoha signed an agreement with the government to build 2600 houses in Abidjan, backed by three Moroccan banks ( Attijariwafa, Banque Marocaine du Commerce Extérieur and Bank Populaire) to compensate for the lack of funding in Côte d’Ivoire. Financing from foreign banks is necessary since local banks generally lack the resources needed to finance large-scale projects.

Minister Sanogo has said that the government has already secured 2200 ha of land for the housing scheme, of which 1450 ha are held by customary landowners who will seek compensation. The remaining 750 ha already belong to the government. But developers told OBG that dissolving customary rights was a long and complex legal process that would likely stall the project. Moreover, the government has yet to come to an agreement with developers on the price at which the houses will be sold. Most of the units built will have to be “social homes” that will be sold for CFA5m-10m (€7500-15,000) and “economical homes” that will go for CFA10m-15m (€15,000-22,500), the government has said. However, builders say that the cheapest home costs around CFA10m (€15,000) to construct, raising the minimum selling price that they would be willing to accept considerably. “The government and the developers are going to have to meet each other halfway,” said Akélé Ezan, the former construction minister.

OFFICES: The market for offices is underdeveloped despite growing demand, although it is better in Abidjan than elsewhere in the country. Many offices remain converted homes used as offices, such as many along the Rue des Jardins in the Deux Plateaux neighbourhood, which was originally planned as a residential road, Koffi explained. The Plateau neighbourhood is Abidjan’s central business district, and sees the most activity from the office segment. Many firms have decided to buy the offices instead of renting. “Business owners realise that it’s more in their interest to own offices rather than to rent them,” said Mahama, “You can pay off a building in 10 years, so if you know that you’ll be here for a long time, it makes economic sense to buy.”

OUTLOOK: Following the resolution of the 2010-11 crisis, enthusiasm for resuming projects previously put on hold and beginning new ones is increasing, and this should generate a host of opportunities for developers. However, a lack of funding remains a major challenge. Financing is expected to come from various donors, but the process is taking longer than expected. Indeed, many builders and civil engineers said business had been slow in early 2013.

More broadly, reform of the financing system is necessary for growth to really take hold in the sector, with the state stepping in to help guarantee bank loans and offer favourable interest rates. The high expectations for the real estate market’s potential must be matched with efforts to address the country’s severe housing shortage, the resolution of which is key for all Ivoirians.