Legislative reform and low-income housing construction initiatives in Djibouti to attract greater private investment

 

Several social housing projects have been launched in Djibouti as the country looks to accelerate construction and attract more private investment to meet rising demand. In early July 2018 President Ismaïl Omar Guelleh laid the first stone for the construction of 1000 low-income housing units in Balbala, a southern suburb of Djibouti City. The project, funded by China Merchants Holding, was developed by the IOG Foundation, a not-for-profit organisation named after the president and created in 2016 to improve housing supply. By early January 2018 the foundation had built 650 affordable homes, with a further 1500 under construction.

Zero Slums

This follows several key projects as part of the Zero Slums in Djibouti Programme ( Programme Zéro Bidonville à Djibouti), which aims to eradicate all informal housing in the capital and build at least 20,000 affordable housing units by 2035. The initiative, which will see renters pay between $85 and $230 per month for units, will require annual investment of $50m to 2028, according to Urbaplan, a Lausanne-based company working on the project.

In February 2018 work began on an 840-unit housing project, funded by a grant from the Saudi Fund for Development, while a further 504 units are in the pipeline, to be financed by the Kuwait-based Arab Fund for Economic and Social Development. Furthermore, in May 2018 the government signed a financing deal with China for the construction of 500 new apartments in the capital. The start date for the works had not been announced by October 2018.

Low-Cost Homes

The increasing demand for affordable housing comes on the back of population growth and a greater focus on boosting living conditions. Government officials have estimated that Djibouti has a housing deficit of approximately 30,000 units, which grows by some 3000 per year. These needs are most pressing in the capital and the nearby area of Riparian Balbala, which accommodates more than 500,000 of the country’s 900,000-strong population and has an average annual growth rate of around 4.5%, according to the National Investment Promotion Agency.

Furthermore, although annual economic growth has exceeded 5% in recent years and even reached 6.8% in 2017, poverty levels have remained unchanged since 2002, according to the African Development Bank. About 22% of the population is living in extreme poverty and nearly half of the working-age population is unemployed, while a government-authorised report published in 2015 estimated that 50% of the country’s population lived in provisional housing structures, further emphasising the need for more affordable housing.

Reform Efforts

The authorities have undertaken a series of reforms to incentivise the construction of affordable housing units. In his annual address to the nation in January 2018, President Guelleh designated the year as one of housing, pledging to accelerate the construction of residential units, as well as facilitate access to housing and encourage private investment in the sector.

This comes after several incentives for developers were introduced in 2013, including tax breaks on some imported construction materials, along with exemptions from value-added tax and a reduction in tax on profits resulting from social real estate projects. Despite the introduction of the measures, costs for port and border handling as well as Customs remain high, while procedures can be lengthy, resulting in delays to construction projects.

Indeed, while Djibouti jumped 55 places to rank 99th out of 190 countries for ease of doing business in the World Bank’s “Doing Business 2019” report, it fell 17 places in the dealing with construction permits category, and the average amount of time needed to obtain a construction permit went from 111 days in 2018 to 148 days in the 2019 rankings.

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The Report: Djibouti 2018

Construction & Real Estate chapter from The Report: Djibouti 2018

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