Housing affordability still a challenge

Published: 16 December 2013

According to the FinMark Trust 2013 Housing Affordability Study, lending rates are still high in Zimbabwe due to the high cost of funds for financial institutions.

The study showed that while the authorities have made efforts to contain lending rates and bank charges, interest rates charged by Building Societies remain at an average of 15 percent. The study concluded that there is high default risk due to the increasing retrenchments and the anticipated company closures.

The low levels of income, coupled with high levels of illiquidity have also negatively affected housing affordability in the country. As at June, 6,86 percent of CABS' loans in high density areas were in arrears, the study showed. While building societies and commercial banks are beginning to introduce medium term facilities, most lending is on a short-term basis.

Financial institutions have limited access to offshore lines of credit and there is reluctance by the public to commit funds for long periods.

Maximum repayment periods of 10 years currently apply on loans.

Further, those home builders who access consumer bank loans for purposes of buying a residential stand or constructing a house pay higher interest rates of as much as 20 percent, depending on the institution which are exorbitant in comparison to our neighboring country South Africa which offers mortgage loans at rates as low as 2 to 4 percent.

Despite the high cost of funds, financial institutions have developed innovations to reduce the cost of borrowing for low income clients.

The study revealed that CABS offers a low priced mortgage product for borrowers in high density areas on which an interest rate of 12 percent is charged as opposed to 15 percent that applies to borrowers in low density areas.

Further, in an effort to enable low income earners to access housing finance, building societies collaborate with employers to provide loans at subsidised rates.

CBZ introduced a product called ‘the Cash-Plus Housing Savings Product' targeted at the informal sector. It involves the potential borrower saving with the institution for 12 months after which the client then qualifies for a loan equivalent to his/her savings.

These initiatives are to be applauded as they will assist in making housing affordable and improve not only the welfare of the people but also the health of the economy as infrastructure is of paramount importance.

It is important that banks continue to formulate initiatives that counter the challenges that the economy is facing than to continue to focus on the old ways of doing business.

By implementing such strategies banks will grow, while simultaneously reducing risk of failing.
- bh24

Tags: Housing,