Lesotho Offers New Housing Project and Loan Sanctions – A Game-changer for the Property Sector
RBS Construction revealed last Thursday that it had launched a construction project, in collaboration with the Standard Lesotho Bank which aimed to provide housing facilities to people who formerly could not afford to build their own house. The project intends to build 90,000 affordable homes in the coming 15 to 20 years, which will be constructed using environmentally friendly and weather and fire-resistant technology.
According to Azaele Makara, Head of Home Loans at the Standard Lesotho Bank, the project will serve as a game-changer in the property avenue, shifting focus from the conventional use of bricks and water to build houses.
The 2018 National Housing Policy
Approximately 70% of households can afford housing at the cost of M48, 000. The National Housing Policy of 2018 highlights strategies required to make housing more affordable and achievable in the country. It emphasizes how to use land more efficiently and encourages the densification of urban areas to reduce the cost of infrastructure and basic services.
According to Lethunya, the policy also encourages the adoption of effective construction methods and innovative technology, which can help improve housing costs by 30% and delivery time by 40 to 50%.
Benefits of the Project
This project has come at a time when the rural population is frequently migrating towards cities in the hopes of better job opportunities. However, these migrants often end up being stranded, since good opportunities are extremely hard to find.
With a national unemployment rate of 28%, most migrants become street merchants, maids, or end up working in the textile sector, earning a meager salary that is not enough to afford decent accommodation. As a result, many resorts to living in mud houses, or renting untidy rooms without electricity, water, or even sufficient living space.
Gustav Serfontein, CEO of RBS Construction, stated that the housing project will facilitate thousands of people who could not afford to build their own homes, or could not access home loans and owned houses via mortgages.
“For instance, an individual earning M3,000 or less will easily be able to pay M500 every month for a one-bedroom house with running water, a sewage system and solar electricity”, he explained.
Serfontein also highlighted another incredible aspect of the project – construction of the houses will be completed in under a month. This is because all the material used is easy-fit, allowing families to move into the house within a week.
Kabelo Lethunya also stated on behalf of the Minister of Local Government, stating that the project will allow accommodation challenges to be decreased, highlighting that the country needed to build 98,711 houses or 169,706 rooms by 2025 – that is 5,195 houses or 8, 932 rooms to every year – to eliminate the problem of homelessness and unaffordability.
She said that providing reasonable and affordable housing is a budding challenge in Lesotho, where 70% of families make less than M1, 000 per month, disqualifying them from obtaining loans from commercial banks. “These households generally acquire plots via savings or by taking loans from friends or family”, she said.
Lethunya also specified how the government aims to fulfill this need by accommodating new housing development and providing a cooperative environment: “Government aims to partake directly in the construction process via Lesotho Housing and Land Development Corporation, non-governmental sectors, and joint ventures.”
Details on Home Loans
The Centre for Affordable Housing Finance in Africa Lesotho profile (CAHF) states that the minimum cost of a newly constructed house by a contractor or formal developer in an urban area is M165, 000m. In contrast, the minimum rental price is M2, 500 per month. According to CAHF, Basotho still depends on inheritance and social networks to acquire a property with a minor 23% living in houses financed via bank loans; some build houses themselves, whereas others have inherited their current homes.
Financial institutions like the Standard Lesotho Bank provide home loans from M 100 000 up to M10 million, with an interest rate of 12.5% that is payable over 20 years.
The First National Bank (FNB) Lesotho operates in only five districts and provides home loans at interest rates at the lower and upper bound of 11.25% and 13.25%, respectively. Between 2004 and 2019, FNB Lesotho sanctioned 191 loans for housing construction:
- 19 building loans (over M13 million)
- 63 purchase loans (over M63 million)
- 82 equity release loans (M29.2 million)
- 27 switch finance loans (over M21.2 million)
Moreover, the number of mortgages categorized as non-performing are logged at 10, and the amount of residential mortgages outstanding is M10 million.
Nedbank Lesotho provides home loans for purchasing readily available housing stock on sectional title and freehold title. From January 2018 to December 2018, Nedbank Lesotho sanctioned 37 construction loans for housing, with the value of these loans standing at M21.7 million. The typical mortgage term is 20 years, with a 10% down payment.
Even though STANLIB Lesotho does not offer mortgages, it still supports housing-related loans. It facilitates clients to invest their savings as security for obtaining mortgages/housing loans from other banks.
Out of the 16 registered microfinance institutions in Lesotho, only two provide housing-related loans in a designated portfolio – Letshego Financial Services and Lesana Lesotho (Pty) Limited.
The typical loan size sanctioned by Lesana Financial Services is M33, 359. These loans are payable at a rate of 21.5% for housing loans, and 45% for other loans per year, over 60 months.