Ethiopia: Can Mortgage Banking Help Address Ethiopia's Rapidly Growing Demand for Housing?

The demand for residential houses in Ethiopia is estimated in millions as it increases with an average of additional 150 thousand houses every year. But since house construction is too expensive and access to bank credit for housing is tough especially to individuals, there is a need for a new intervention to fill the gap, relevant experts said.

The critical problem in the sector, in addition to scarcity of land is access to finance mainly for low and middle income households. The experts argued that mortgage banking is vital in filling the financial gap in the sector.

The government has a plan to build 4.4 million houses in its ten year perspective development master plan out of which the private sector is expected to execute 80 percent. According to the experts, to meet the target plan, government should create suitable environment by widening the opportunities of financial sources and other supports to the private sector and individuals.

In Ethiopia there is a huge gap of credit service by the banking sector to build, repair and improve residential houses especially to individuals, approached by The Ethiopian Herald Kefeni Gurmu, General Manager of Goh-Betoch Bank project, a private mortgage bank currently on its final stage of joining Ethiopian banking sector, said.

According to Kefeni the share of credit service to the housing development by all available banks is less than four percent of the total, including the loan supplied for the government run condominium housing project.

Kefeni said, citing UN Habitat data, the share of housing credit service by the banking sector in Africa is less than one percent of the total loans, which is almost unavailable compared to other part of the world.

Kefeni stated that currently there is a demand for millions of houses in Ethiopia and to meet each year's additional demand, Ethiopia needs to build about 150 thousand houses every year. Not only that, Kefeni added, 70 percent of the available houses in cities do not fulfill the minimum standard for a decent housing that they either need improvement or additional utilities.

As cited earlier, the potential to get loan from banks to build or improve residential houses especially for individuals is very difficult, Kefeni stated adding that, to fill this gap additional alternatives like mortgage banking are vital.

Eshetu Fantaye, consultant in the sector, on his part told The Ethiopian Herald that to build residential houses in Ethiopia for a middle income household consumes its 40 to 50 percent total monthly income. This shows us, building a house for low and middle income society is unthinkable.

According to Eshetu, a study conducted in 1997, which is the latest of its kind in the sector indicated that in Ethiopian urban centers, there were one million additional house demands with 100 thousand additional demand every year.

"This is all about demand and if we see the needs," Eshetu said, "Since most houses do not fulfill the World Habitat's residential house minimum standards, the decent housing gap in the country is too worse". The available problem with population growth and urbanization, "in my expectation currently there may be a demand for up to 15 million house in Ethiopia," Eshetu said.

Unfortunately, Eshetu noted, access to financial credit to build, repair or improve residential houses to individuals is backward and the real estate investment is fledgling. As to him, for example during the past 25 years, the credit service provided by the private banks to the housing is below one billion Birr and the priority of private banks loan is for those who pay with foreign currency. Compared to Ethiopia's banks credit provision to other sectors, the credit service to this sector is insignificant, he noted.

The looming deficit of housing in the country makes the government's plan of building 4.4 million houses in 10 years a timely one, Eshetu reiterated. But, to achieve the target, government should first evaluate the past performance and should establish new strategy to create opportunities to individuals, private investors and other participants in the sector.

According to Eshetu, evaluating the financial constraints of the sector, Ethiopian government launched the Integrated Housing Development Program (IHDP) in 2004 to build 580 thousand houses in five years across 56 towns. But, up to 2020, government has built around 400 thousand condominiums including the partially completed ones. Compared to the plan and its completion period, the performance shows a significant gap, to the opposite, the housing demand grows at high rate.

Similarly, Brazil launched the same program in 2005 and was able to build around seven million houses during the past 15 years, Eshetu noted. Although there is huge economic gap between Ethiopia and Brazil, Ethiopia should learn from Brazil's experience by deeply identifying the limitations of the former housing performance.

For Eshetu since housing includes land provision, land development and additional infrastructures, financial provision is not the only solution to solve housing problem, but it is vital one. For him, to address financial problem of the sector especially to individual house builders, mortgage banking is an alternative solution. But, since the repayment of the credit takes long time, this banking sector needs additional support, intervention and subsidies to minimize the interest for borrowers.

For the proper functioning of mortgage banks, Eshetu noted, there should be amendment of the bank's law and proclamation since the law and proclamation are commercial laws focus on commercial loan. Due to this reason one criterion to get loan access is trade license. He added mortgage, agricultural, micro and small enterprise banks are also necessary.

Both experts noted that widening financial access and identifying the major bottlenecks of past project performance of government housing are key solutions to attain the 10 year plan in the sector. Plus government's housing investment should focus for low income society.

More From: Ethiopian Herald

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