Building a roof: Increased financing incentives in the housing market

One of the housing sector reform’s most important changes is the establishment of the Housing Bank of Djibouti (Banque de L’Habitat de Djibouti). The new institution aims to give the state a new position in the financing mechanisms for the country’s housing sector, something that private banks, despite their increased presence in the country, have so far been unable to do. The state will channel considerable resources into the new institution. Up to DJF300m ($1.7m) will go into a feasibility study of the home financing sector as well as technical assistance. Additionally, some DJF630m ($3.5m) will be used to build the bank’s headquarters and ensure initial expenditure on equipment and human resources.

Financing Tool

Part of the new bank will be the institution of a new DJF2.6bn ($14.6m) fund for the housing sector. According to the Secretariat of State for Housing’s Action Programme for 2014-17, authorities expect to use the fund to finance measures such as credit guarantees for home loans and the partial subsidising of interest rates for low-income home buyers as a way to reduce the monthly burden of payments for Djiboutians.

The stated initial goals for the new Housing Bank is to reach 10,000 new accounts and support 5000 housing credits, according to plans by housing authorities. In a recent interview published in international media, Amina Abdi Aden, Djibouti’s secretary of state for housing, added that interest rates on housing loans provided by the Housing Bank of Djibouti would be capped at 5%. Setting up a housing-specific bank can have a deep impact in the financing of new homes in Djibouti. Establishing financial incentives for both lenders and home buyers has proven to be an effective strategy in countries with housing deficits that are considerably larger than Djibouti’s, by helping reducing the risk for lenders and the barriers for buyers.

New Homes

The housing policies under implementation are also allowing for the construction of 25,000 new housing units over the next five years by leveraging a series of public and private financial mechanisms.

In the capital, the government is implementing a rent-to-lease programme to build 540 new apartments for medium-income earners. Construction is being supported through a loan of over DJF2bn ($11.2m), provided to the government by the Bank of Africa. However, the loan covers only the construction, and the government plans to use the earnings from apartment commercialisation to pay for the DJF540m ($3m) needed to support the preparation of housing plots as well as electricity and water connections. Besides this specific programme, authorities expect to attract an additional DJF7bn ($39.2m) from private investors.

Regional Focus

New housing developments are also taking place outside the capital city, Djibouti City. In Ali Sabieh and Tadjourah, the Housing Fund is investing DJF330m ($1.8m) to build 60 apartments for low-income families. In addition to these projects, the government is also allocating regional development funds to build a further 150 apartments across the regions’ main towns, at a total cost of DJF750m ($4.2m).

Despite its ambitious reach, which can make implementation challenging, government programmes to develop affordable housing for low-and medium-income earners in the country have the potential to positively impact living standards. By leveraging public funds, and rising private interest for housing development, authorities expect that home affordability will support the fight against poverty and improve use of available land in the country’s main cities. By utilising its growing role as a regional financial centre, the country will be able to provide quality homes for its citizens.