24 October 2017

Zimbabwe: Has Enough Been Done for Housing Affordability?

analysis

The recent revision of the terms and conditions for CABS' Budiriro high density housing projects to increase uptake is ample evidence that housing affordability remains an issue in Zimbabwe. The relaxation of terms and conditions saw home seekers wishing to purchase a two-roomed house without a slab that has a value of $25 302 paying a deposit of $2 530 instead of the $6 000 that was being charged before the revision.

While the major thrust was improving affordability of housing through a public private sector initiative, the Budiriro project, born out of an agreement signed in late 2012 between Harare City Council and CABS, to build 3 102 core houses for low income earners has not achieved its objectives.

CABS were to provide affordable mortgage finance.

There is huge demand for housing in Zimbabwe, given the national housing backlog that remains perched at a lofty 1,25 million units, however, a number of schemes by private developers and mortgage financiers remain beyond reach of many.

There are two essential elements that make it difficult for home seekers; the fact that the economy has become largely informal yet developers or funders demand proof of employment income and the low level of earnings for those on formal jobs, which disqualifies many from eligibility into many schemes.

This calls for more innovative approach to structuring mortgage in Zimbabwe, including addressing cost of mortgage funding and of urban land for housing projects, especially for the low income earners.

The majority of housing schemes available on the market make it difficult for most low income prospective home owners to subscribe to a housing scheme without over committing and in the process creating real risk of defaulting.

And CABS have confirmed the perception, which to a significant extent is true, that affordability of low income housing in Zimbabwe remains an issue, after the financial institution relaxed the terms and conditions of its Budiriro scheme.

And while the terms were seemingly relaxed, the average price at $28 000 remains pricey and beyond the income thresholds of targeted clients, especially considering the apparent thrust towards people in formal employment in a country where the majority of home seekers are informally employed.

The bank has reduced the qualifying salary from $750 per month to $500, cut the deposit threshold from 25 percent to 10 percent and reduced mortgage tenor to 20 from 25 years. Regardless of this, uptake of the houses remains low.

Generally, given the state of the economy, very few in the low income bracket can afford to consistently pay mortgage of $366 and $503 for a house purchased over 10 years or $286 to $393 for a house purchase over 20 years.

Harare City recently said that council was now willing to renegotiate with CABS for more flexible terms, as they had realised that the high mortgages were affecting uptake of the houses.

The fundamental issues affecting affordability of housing, especially the many schemes from private developers and financial institutions remain unresolved to make real difference.

As with other similar countries, housing affordability, even for the cheapest newly built house, is low. In 2015, the cheapest newly built house in Zimbabwe cost $18 000, according to a survey by Centre for Affordable Housing Finance Africa.

Calculated using key assumptions for the mortgage interest rate (15 percent), the term (20 years) and the down payment (20 percent), the average annual household income needed for the cheapest newly built house is $9 202 an annum, only slightly higher than the average annual urban household income of $8 308.

This means that only about 12,86 percent of urban households can afford the cheapest newly built house by a formal developer.

Government has made efforts to improve access to housing, including offering tax incentives for such investments and partnering private developers, but the efforts are a drop in the ocean compared to what is needed.

Part of what is required, arguably, is improving access to serviced or semi-serviced land, which is part of a huge cost to the developer, for which the cost of a unit of land becomes high.

Zimbabwe

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