The property market in Zimbabwe is not spared from the liquidity challenges affecting the economy.
Prospective property buyers presently do not have adequate financial resources to purchase houses and upmarket properties for cash. Traditionally, people used to access funds through mortgage loans for them to buy houses or build for themselves. Nowadays, where available options for mortgages are very expensive and beyond the reach of several millions of Zimbabweans who require houses as a basic necessity for which given the chance would love to buy one or many if their incomes permit. One would be left wondering that why, with this sizeable number of would-be customers investors are still reluctant to make huge investments in that sector.
Innovation remains the answer to Zimbabwe's liquidity crisis. New products to support mortgage product suppliers such as building societies, banks and property developers are urgently required to encourage further property development which will deepen and broaden Zimbabwean financial markets.
However, little is happening on the property market as some institutions reluctant to provide mortgage loans in these hard times for the sector. Very few of the institutions that are managing to provide mortgage funds are heavily reducing the mortgage period from the traditional 25 to 30 years to between five and 10 years.
The low incomes that people are currently getting are not able to sustain and service the stringent terms, conditions and requirements attached to these loans.
Poor performance in the property sector in Zimbabwe is thereby highly attributed to lack of insurance that Zimbabweans with their low incomes can be able to repay their dues if they take up mortgage loans leaving the market with very few players.
It goes without saying that with the current volatile economic conditions investors would also need insurance that a mortgage loan applicant will survive layoffs, redundancy and involuntary job losses. This makes up the employment front or else one could lose his job and no longer be able to manage his debt leading to default. Hitherto, some form of mortgage protection is needed to restore confidence in the property market.
Generally, to help improve the status quo and make the property market lucrative to available investors there is need for smart financial innovations that can help guarantee investors that their funds are in good custody under such investments. One of such innovations is credit insurance in form of job loss mortgage protection.
Credit insurance offers coverage that pays off or makes payments on a specific debt such as a mortgage or loan or specific credit card balance in the event of the policyholder's death or disability or involuntary job loss. In other words, the contract insures the debtor for the benefit of a specific creditor. The principal types of credit insurance include:
Credit life insurance pays off all or some of a loan or mortgage if you die. Although most credit life policies pay off the whole outstanding balance, some policies may have cap limits.
Mortgage disability and credit disability insurance makes your mortgage or loan payments if you become ill or injured and can't work.
Job loss or involuntary unemployment insurance pays your minimum loan or mortgage payment for a specified period of time if you lose your job. You must be laid off or fired from your job (unless misconduct was the cause for firing) to make a claim. "How job loss insurance can bring confidence to the property sector?"
No one should take it that things are good with the economy -- they certainly aren't. But the actual change, in real terms, is minor. A lot still needs to be done to ensure a bright future for everyone, as for now no one would ever tell what the future may be holding for Zimbabwe.
So in times like this having a safety umbrella add-on to your homeowners insurance, that covers job loss can be reassuring. Job loss insurance can help answer so many questions pertaining to the prospective mortgage loan holders which are on table for investors such as: Are there any chances of losing their jobs? Should their cost of living spiral up? What will happen? Are they going to be able to make their mortgage payments? What if there is going to be a recession? What will happen during their unemployment period?
Job loss insurance helps build a pool of funds that can be used to cater for the worst that can happen if something bad happens to the property sector. It is one solution to the problem of uncertainty during an economically turbulent time.
It generally helps borrowers in the after years after signing a mortgage loan agreement. It also assures investors that if the ship sinks, their funds will not do likewise thus they will be able to retain part of their investments if not all.
Francis Chinjekure is a Financial Engineering student at Harare Institute of Technology and a Member of Financial Engineering Society (FES). He is currently attached at GMRI Capital.
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