By Staff Writer | for Moakanyi Magazine
Housing is on every family’s agenda in Botswana, especially those starting families, and the dynamics of construction, real estate and financing are all things the home owner needs to navigate.
In 2014, Othata Batsetswe, in his paper on Academia.edu, begun a good argument on Housing Affordability in Botswana. The following are some of the extracts from the paper;
Of late there has been a public debate about affordable housing with several newspapers running with the idea of housing purchases, all inspired by the local housing corporation, the whole concept was even made more exciting by the argument that those purchasing houses will be extended a 10% discount and they called this ‘making property ownership affordable’. First and foremost, we need to have an understanding of what affordable housing is and move away from marketing gimmicks. Affordable housing refers to; a reasonably adequate in standard and location property for a specific income group, the property should not cost so much that a household is unlikely to be able to meet other basic needs on a sustainable basis. This then implies that affordability in housing is relative to income, not price and availability. The fact that BHC has built houses in Serowe, Phakalane, Mahalapye and Molepolole that no one is interested in purchasing is due to that one aspect, Income.
This therefore calls for all those involved in estates development to develop and affordable housing index that will be location specific, rural, urban, peri-urban etc. The index computation will factor three key variables; home prices, borrowing rates and average incomes. Affordable housing looked at in the short term will almost likely prove to be costly in the long run.
The current call for acquisition of property is misleading because as soon as interest rates start rising again, affordability is going to decline at a considerably faster rate and we know that in the past our bank rate has gone all the way to rates higher than 14% and if history is a predictor of the future especially in the financial sector, then we are most likely to experience failing mortgages and rich financial institutions. Our market does not operate in isolation, the current slow growth on the global economy will have an impact on the future bank rate. Instability (though diplomatically controlled) in the EU/USA as they react to annexing of Crimea, can lead to challenges in energy provision which can change prices and therefore affecting administered prices. A slowing Asian growth (India & China) can have a bad impact on financial markets in the long run and we will not be immune.
Affordable housing looked at in the short term is myopic. It requires more than a sale of a house. Government has to move in deliberately to amend polices that promote exclusion to affordable housing. These polices border on the land tenure and the access to affordable finance. By affordable finance we refer to finance that a median income family can afford and still not compromise on consumption and affordability of other basic needs. Housing as a basic need simply means housing should be looked at as a right since it borders on dignity. Affordable credit can come about in so many basic ways, one of them is for government together with the pension funds to set up a risk mitigation pool of funds where, say an amount is injected to offset the risk amount that banks charge to consumers/borrowers. This can lower mortgages rates by about 300 points basis. Pension contribution can also be structured such that first term years provide a savings mechanism that can be used as leverage to borrowing and facilitate asset financing. The second phase can be aggressive on medical and high risk investment portfolios, while the third stage can focus on preservation of value and medication because after retirement old age has its own medical challenges which may require specialised treatment.
Affordable housing also has an element of affordable rent. It should be clear that people don’t rent houses because they are lazy to buy but rather due to prohibitive cost both from acquisition to monthly loan maintenance. A low cost BHC house valued at P0.4milliom will cost P600/m rental and a loan repayment will cost P5000/m. At the end of the day it makes more sense for BHC to provide accommodation to low income tiers in the form of rent to buy rather than straight away purchase, contrary to the thinking by Real Estates Institute of Botswana (REIB) Chairperson, which rather makes the view a REIB position. When you make money off inflated prices it tends to get you divorced from the reality and therefore ignorance grows on plight of the other people that need the service the most.
Affordable housing provision cannot be done in isolation from a housing authority whose function will be to monitor and track the cost, management and standards in housing. A closer look/ rather a visit to the different websites will show that the prices of housing is predatory from the estate agents. I’ve had dealings with about four valuation companies and the prices I got on one property were quite interesting. They ranged from P0.535 million to P0.95 million. This lack of standardisation and analytical tools by the REIB in property valuation has if anything escalated the cost of property and in the process making it unaffordable to most Batswana earning average incomes. If one property can have such a wide range in value, then there is something totally wrong and therefore may require a customised valuation property for the Botswana market. Since most Batswana nowadays have discovered the East for finishing’s then there is also reason for the properties to be even more affordable since the materials are east costly than those acquired locally or in the region.
To further demonstrate the lack of consistency in valuation, I would urge the reader to visit a few sites and look at the price offerings for the Louiville Estates in Gaborone and appreciate the inconsistency in pricing.
Is property ownership an investment or an illusion? the answer depends on where you are seated. My boy Kops will tell you that setting up a small SMME company that generates income and then using the proceeds to buy your property cash and then insuring it is the way to go, from a bank perspective, getting a loan for P0.7m will result in a total payment of P3.5m over 25 years on current rates. From the two scenarios you wait 25 years to own equity while the other one is job creating and immediate equity upon purchase. Getting a mortgage doesn’t make you a property owner but a renter of debt. If property appreciated the rate at which you pay interest then it will be a worthy investment but that’s not the case because property appreciates at around 1-2 %annually and this is not forever as locality lose value as more people move in. The 2008 economic meltdown has proved that property is not such a huge investment.
