A LEADING real estate firm said this week mortgage lending had been dealt a blow by high levels of uncertainty triggered by Zimbabwe’s multiple currency regime.
In a report analysing property market trends in 2023, Harare headquartered Integrated Properties (IP) said multiple currencies were affecting long-term financial planning.
It said significant setbacks had been encountered in Zimbabwe dollar indexed mortgages, which banks were now cautious to offer.
The report said US dollar indexed mortgages had been affected by higher interest rates.
Zimbabwe re-introduced the multi-currency system in 2020 to tame inflation, which reached 838% that July.
Last year, the government gazetted a law maintaining the multi-currency system until 2030.
“The 2024 Zimbabwean mortgage market is expected to remain challenging, characterised by limited access, high costs, and uncertainty,” the report reads in part.
“However, it is essential to note that Zimbabwe's mortgage market's prospects present challenges and opportunities.
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“The presence of multiple currencies in circulation creates uncertainty and hampers long-term financial planning, making banks reluctant to offer long-term mortgage loans, and close to none in local currency, moreover, the USD lending rates ranging from 12% per annum on a short tenure (three to five years) and a high initial deposit framework (50% of property value) renders mortgages prohibitive to borrowers.”
“Banks exercise caution due to elevated lending risks and low deposit mobilisation, resulting in restricted availability of mortgages, particularly for low - and middle-income earners,” IP said in its report.
It noted that the housing sector was offering expensive options, which were hindering potential buyers from the diaspora from buying.
Experts have always said the diaspora market could easily be used to stimulate demand for mortgages.
“Encouraging pre-approved mortgages can significantly reduce the gestation period for mortgage applications. Sellers would have already obtained mortgage approval for their properties, facilitating faster transactions and increasing mortgage utilisation in the property market,” the report read.
The report called for the adoption of backward integration in the market where banks invest in residential stands, particularly in high-density areas, and offer them for sale through mortgage financing.
“Banks should strongly consider implementing a backward integration strategy by venturing into the development of residential stands, particularly in high-density areas, and offering them for sale through mortgage financing,” it reads in part.
“This approach offers numerous advantages, including providing more affordable housing options for borrowers, and reducing their reliance on external financing sources.”
IP urged banks to carefully assess prevailing economic conditions, market demand, and associated risks by partnering with registered real estate professionals possessing valuable market expertise to avoid losses.
“Additionally, it can potentially enhance profitability for banks through profits accrued from the development process and mortgage-related fees. Banks should thoroughly assess prevailing economic conditions, market demand, and associated risks. Partnering with registered real estate professionals possessing valuable market expertise is recommended for this initiative's smooth and successful implementation.”
The firm urged banks to adopt green mortgages which can help banks in fostering customer loyalty and expanding their market share.
Integrated Properties also urged banks to lengthen mortgage terms to increase affordability for borrowers making homeownership accessible to a broader population segment.
“Banks in Zimbabwe should consider extending the mortgage term to increase affordability for borrowers. Longer mortgage terms can result in lower monthly repayments, making homeownership accessible to a broader population segment, particularly considering high interest rates,” it said.
“This measure can stimulate the real estate market, attract more borrowers, and increase economic growth. However, careful consideration of the impact on risk and profitability is necessary.”
The firm suggested inclusive requirements for the informal sector.
“Given the significant contribution of the informal sector to Zimbabwe's economy, banks should adjust mortgage requirements to be more inclusive of informal sector participants. Removing barriers that hinder access to mortgage financing for this sector can unlock its untapped potential and expand the market.”
