Is There a Mortgage Boom in Sub-Saharan Africa?

As the banks continue to saturate the African commercial sector, they are turning towards retail clients for new sources of revenue. In addition to simple checking and savings, banks are introducing life and health insurance, education savings, and more and more often, mortgages.

Until recently, home ownership has been limited to the upper class. The expense of buying land, keeping the land in case of disputes, and building a home was spread over several years. Houses are built piecemeal depending on a family’s disposable income that year. Most houses are bought and sold for cash, with no forms of financing involved.

In their search for new retail products, banks are targeting Africans’ dreams of homeownership, introducing mortgages in hopes that the desire to own their own home will be larger than the desire to avoid the stigma of personal debt. African economies are growing, and many sectors remain largely untouched by the financial crisis. The middle class is rising, and banks are hungry to create products that appeal to these working professionals.

Friedemann Roy, director of the International Finance Corporation’s Africa Housing Programme, points to the broader potential of mortgage lending. “When you have a borrower, he stays with you for a couple of years. That allows you to not just give a housing loan but to sell life insurance, a current account and other savings products.”

This is Africa reports that, despite the booming market, there are still market and regulatory hurdles to be cleared.

• There are no regulatory structures in place to prevent someone from going to several different banks and taking out loans against the same collateral.
• A lack of transparency regarding land titles means that banks may be left holding useless pieces of paper after borrowers default, or that borrowers may take out a mortgage for a piece of land they later lose in court. Land reform measures have begun, in many countries, but the implementation is slow and difficult. The American Mellenium Challenge Account has had some success, but still has far to go for landowners to have confidence in their rights to their land.
• Mortgage products are largely available to the upper class. While the middle is growing, membership varies from hairdressers with their own shops, to government technocrats, to teachers. Monthly salaries vary accordingly as well. Banks cater to those with regular incomes, often requiring borrowers to use automatic deposit of their salaries at the branch where they’ve taken out a mortgage.

Despite the lack of regulation and coherence, the market is growing and looks to be quite lucrative. Banks throughout the continent have discovered a need for financial services at all income levels and are scrambling to create lucrative products that satisfy these needs. Special loans to finance education, cars, and houses are among the many possibilities now being offered by African banks.