As the Djiboutian economy continues to post high headline growth rates, the lion’s share of attention is going towards the large volumes of capital funding for a spate of new infrastructure projects. However, the government is also working to devote an increasing amount of public resources and attention to the development of adequate housing solutions. Not only is this being done to help with the expansion of housing options for the 850,000-person country’s middle-class, large-scale efforts are being directed towards the elimination of slums in major cities, and the substitution of temporary housing for adequate long-term construction.
The challenges are considerable. Despite the expanding GDP, registering a 5.9% growth in 2014, housing policy has had to face off against difficult conditions on the ground. The high relative poverty rate, which has been estimated at 40.8% in 2013, according to figures by the African Development Bank (AfDB), has meant that inadequate housing conditions are the norm for a large proportion of the Djiboutian population, with just under a third of current residential units considered to be durable by the government. However, policy changes both in terms of the allocation of budgetary resources, as well as stronger encouragement for the private sector to participate in the housing industry, are expected to accelerate the construction of new homes across the country over the coming years.
Funding
A significant amount of government expenditure has been going into the real estate sector. Since 2003 authorities have been pouring an average of $15m, or the equivalent of 2-3% of the state budget annually, into housing programmes, according to estimates by Centre for Affordable Housing Finance in Africa (CAHFA).
Expenditure was further raised to $20.3m in 2015, and financial resources were allocated mostly towards the establishment of urban development and renewal projects and the structuring of land plots in about 100 hectares. According to the Secretariat of State for Housing’s Action Programme for 2014-17, the government expects to channel a total of DJF52bn ($291.2m) into the sector during that period. The resources will be used to improve the financing environment for housing development, the preparation of new urban land plots, renovation of temporary housing units, and the building of new homes.
Authorities expect that 25,000 new homes will be built between 2014 and 2019. Development of new housing will also benefit from international financing from Gulf countries. The Saudi Fund for Development has allocated DJF5.3bn (29.7m) to build 1300 new homes in the capital, while the Arab Fund for Economic and Social Development will allocate DJF6.2b ($34.7m) for the construction of 1000 units.
Housing Deficit
Planned expenditure will impact the sector significantly. According to Abdourahman Ali Ahmed, head of the administrative and financial department at Djibouti’s Housing Fund, the estimated housing deficit in the country currently stands at around 2500 to 3000 homes annually. This is in addition to a structural housing deficit of around 30,000 homes that has accumulated over the last decade.
Improving living conditions has become a priority for housing policymakers. The government estimates that up to 50% of the country’s population lives in provisional housing structures, according to figures included in the Strategy for Accelerated Growth and Employment Promotion (Stratégie de Croissance Accélérée et de la Promotion de L’Emploi, SCAPE) published by authorities in 2015 – in part an indication of the scope of unregulated building.
According to CAHFA, ensuring formal building practices has been hampered by existing regulation, including the time-consuming and costly procedures needed to obtain building permits, which can cost up to 7.4% of the total property value, as well as take 117 days and 18 bureaucratic procedures. As a result, the CAHFA has estimated that only 200 building licenses or about 10% of estimated construction, are processed annually. A large-scale scheme targeting slums is expected to have an impact in reducing informal housing. The Zero Slum in Djibouti Programme (Programme Zéro Bidonville à Djibouti) will mobilise over DJF4.1bn ($23m) over the 2015-19 period.
Added Pressure
Dealing with the expansion of unsuitable housing units has become harder in recent years because of the high number of refugees that Djibouti has had to accommodate. “Housing needs are mainly driven by population growth and the rapid urbanisation experienced by many African countries and Djibouti as well. Besides, due to the drought and regional instability, many people came to Djibouti and this situation, along with the housing deficit accumulated over the past years, is creating inflation of real estate prices,” Ahmed told OBG.
The impact that the flow of refugees from across the Strait of Aden has had on Djibouti is considerable. In November 2015 international media reported that of the 120,000 civilians that had fled Yemen, 30,000 of those had crossed over to Djibouti. The population at the Obock refugee camp, which was set up to deal with the arrival of refugees, quadrupled in number to an estimated 2600 people. Unable to predict how long the regional crisis will keep driving the refugee flow into Djibouti, authorities are faced with having to deal with the added pressure on housing as well as associated services such as water, sewage and electricity, all of which are expected to impact the way Djibouti develops its urban centres.
Costly
A combination of high unemployment and a large informal sector, compounded by a dependence on imported goods for basic household items, has meant that housing costs tend to outstrip the means of a majority of Djiboutians, according to CAHFA. Housing development efforts have also been hindered by the specific conditions of the Djiboutian market, which generally make construction expensive. The need to import a significant number of construction materials, as well as difficulty in accessing the necessary permits, amounts to high costs. According to figures by CAHFA, the cost of a permanent home is estimated to be six times the annual average income of a household in Djibouti. For temporary housing units the cost is estimated at 2.5 times the annual average income.
On the other hand, renting a home generally accounts for 40% to 50% of an employee’s salary in Djibouti, according to Ahmed. “In some of the housing projects, we also allocate housing to people in the informal sector, but in that case, a family member that does work formally will act as a guarantor. Djibouti’s Housing Policy is to make sure that everyone in Djibouti can benefit from a decent home,” Ahmed told OBG. Estimates by CAHFA put the average monthly rent for a three-bedroom house or villa in Djibouti City at around $840 to $1270, which makes these housing units unaffordable for the average worker living in the capital city.
Reform
To help put roofs over the heads of its citizens, and reduce barriers to housing, the authorities started a reform process in 2013. Most of the housing policy implementation measures taking place at the moment are laid out in the Secretariat of State for Housing’s Action Programme for 2014-17, which involves plans to mobilise a total of DJF52bn ($291.2m) to go into housing development. Authorities are also working with international institutions such as the World Bank and UN Habitat to put together a comprehensive profile of Djibouti’s housing sector, and in turn improve coordination among government agencies and between the public and private sectors.
Sector policy is currently promulgated via two main public entities: the Housing Fund (Fonds de l’Habitat, FH) and the Djibouti Real Estate Company (Société Immobilière de Djibouti, SID), both of which fall under the purview of the Ministry for Housing, Urbanism and Environment (Ministre de l’Habitat, de l’ Urbanisme et de l’Environnement, MHUE).
Although the MHUE was created in 2011, the majority of laws revamping the housing and real estate sector began to be passed in 2013, where clear legal rules were established regarding accreditation of real estate developers, clear standards for housing quality, as well as the rules regulating the development of low-income housing for government programmes. These decrees were complemented by an improvement of urban management laws, under the National Strategy for Urban Development (Stratégie Nationale de Développement Urbain) and the Code for Urbanism and Land Administration (Code de L’Urbanisme et de L’Aménagement Foncier).
A critical step brought about by the new regulation was the improvement of the financial incentives to pull the private sector into housing expansion programmes, especially those aimed at social housing. Law No. 13/AN/13/7th sets out several benefits awarded to low-income housing developers, such as tax breaks on specific imported construction materials, as well as breaks on interior consumption tax, value-added tax as well as reduction on taxes from profits resulting from social real estate projects. “Currently, private developers only focus on the high-end housing segment, however, this is likely to change with the new law introduced by the secretariat of state, for housing which seeks to promote real estate activity,” Ahmed, told OBG.
The current slate of reforms will switch the priorities of the existing Housing Fund, set to become the Agency for Urban Rehabilitation and Social Housing (Agence de Réhabilitation Urbaine et du Logement Social, ARULoS), which is set to focus exclusively on social housing programmes. The SID will be mainly responsible for preparing the necessary land plots by ensuring that basic services such as water and electricity are linked up, and land plots are divided and licensed. The government has also been fine-tuning housing purchase programmes, and most access currently is done through rent-to lease schemes.
For social housing, beneficiaries are not required to contribute with a downpayment, and beneficiaries start monthly payments from the moment they move in. Through a government scheme for medium-income housing, buyers are required to commit a downpayment of 5-10% of the total cost of the unit, in addition to monthly payments. In both cases, certain criteria must be met, such as having formal employment and not owning a home or a plot of land.
This puts informal workers, which constitute a considerable part of the country’s workforce, in an unfavourable position, although certain mechanisms do allow informal workers to access government housing programmes. Access to improved housing for informal workers will also be made easier through a government programme that will give credit in the form of building materials. Furthermore, to improve the environment for housing finance, authorities are establishing the new Housing Bank of Djibouti ( Banque de L’Habitat de Djibouti). As of December 2015, the necessary legal procedures were ready for the establishment of the bank in 2016.
Initially the new housing institution will be 100% government-owned, but the government expects that private capital will eventually come into the bank’s shareholder structure.
Mortgages
Accessing credit in Djibouti can be challenging. According to the “Doing Business” report, published by the World Bank, Djibouti was ranked 181st out of 189 countries in 2016 for its credit access. Due to lack of well documented and reliable credit information, housing loan requests can take several months before they are processed. Long-term mortgages lasting for up to 15 years have become more common; however, perhaps the most significant shift in the market comes from Bank of Africa, who have started offering 20-year loans.
Land Availability
The majority of land in Djibouti remains state property. In recent years authorities have increased the amount of land plots made appropriate for housing developments and have been transferring them to the private sector, either through direct sale of finished housing units to home-buyers, or by making land plots available for urban development projects.
CAHFA has estimated that only about 30% of urban housing owners in the capital have an adequate property title, and that up to 25% of the city’s inhabitants have a permit for provisional occupation, which ensures a person can live in government land temporarily. This has generally encouraged the rise in informal housing on state property, although the ongoing reform is set to gradually change this.
Housing authorities have estimated that Djibouti City currently needs the development of 200 ha of new serviced land plots to accommodate urban expansion and resettlement, and a total of DJF4.5bn ($25.2m) are set aside under the 2014-17 programme to establish new urban areas around the capital city.
The programme is also taking place across some of the country’s secondary cities. A total of 100 ha of new plots in Arta, Ali Sabieh, Tadjourah, Dikhil and Obock will be revamped and made suitable for new housing development. The current spending plan for 2014-17 has allocated DJF2.2bn ($12.3m), with each of the five cities receiving 20 ha.
A reduction of red tape is also set to expedite land access. The government wants to ease the procedural time and costs for “cession amiable”, which allows people with a temporary occupation permit of a government plot to become the legal owners. The cumbersome procedures and high costs had acted as a barrier for acquisition of government land. Authorities estimate that the measure could result in 10,000 new property titles per year.
High End
With an increase in foreign expatriates – drawn by the new large-scale infrastructure projects as well as the existing military bases – housing authorities are also promoting the expansion of high-end real estate, in part to help increase the country’s profile as a regional trade centre. The Héron Marina project in Djibouti City will be developed on 45 ha of seafront land. The area will allow for the establishment of around 306 plots measuring 800 sq metres to 1200 sq metres, as well as amenities such as a restaurant, public gardens, a mosque, a hotel and shopping mall, according to the Secretariat of State for Housing’s Action Programme for 2014-17. However, the plan does not give any time frame for the development. Housing authorities expect to use the earnings from this development to help set up the housing fund within the new Housing Bank of Djibouti.
Office Space
Beyond the existing free trade zone in the capital city, which will soon be part of a larger 3500-ha development, A-class office space or better is limited. As a result, many foreign companies have adopted large villas as ad hoc offices – a relatively common sight through out North and East Africa – in neighbourhoods such as Haramous.
This is likely to change however, with 2016 expected to see the inauguration of a new 17-storey business tower, developed by construction company Cosmezz. Expected to eventually cater to a regional clientele, the building will have a total of 6000 sq metres of leasable area, and 8000 sq metres in total. The new business tower is expected to be operational by April 2016, and depending on demand, areas around the main business tower will also be developed, with restaurants and additional facilities.
“Today there is a lack of state-of-the-art facilities that can cater to companies with international standards. There are expectations that the need for quality real estate might increase if international institutions and multinational investors set-up offices in the country,” Marcello Mezzedimi, director-general of construction firm Cosmezz, told OBG.
Commercial Real Estate
Given the large informal sector in Djibouti, modern retail is fairly limited and commercial property is largely non-existent – a trend that mirrors much of the rest of the African continent. However, Djibouti is set to see a profound change in its commercial real estate offer in the coming years. Two shopping malls are currently being developed, which are expected to increase the number of entertainment options.
Close to completion is the construction of the $135m Bawadi shopping Mall, under construction by Dubai-based Nael & Bin Harmal Investment. A second mall is being developed by Djibouti-based Halt Group International, in partnership with Chinese firms Touchroad International Holdings Group and Shanghai Electric. “With the arrival of many expats and foreign military Djibouti has the potential to reach out to a segment that has higher purchasing power and currently lacks facilities,” Jobi Sam, business development manager at Nael Bin Harmal, told OBG.
Commercial and office real estate are also set to be galvanised by a government plan to transform the area where the Port of Djibouti is currently located into a new central business district. The project is set to cost as much as $3.5bn, according to figures by Djibouti Ports and Free Zones Authority.
Outlook
The real estate sector in Djibouti remains, to a certain extent, in its infancy. The inflow of foreign direct investment and governmental efforts to diversify the economy are set to bring more opportunities for residential development, in the short term, and for commercial and office space over the medium term. Ensuring that an increasingly larger number of Djiboutians have access to suitable housing has become a clear priority of policymakers, and will likely be accelerated with the ongoing reform that began in 2014. Revamped housing sector administrative bodies, a rising volume of financial resources and clearer regulations for private real estate developers will be key in giving a stronger impetus to housing programmes. A heightened level of sophistication in the country’s banking sector will likely significantly improve the environment for private mortgages.
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