14 November 2017

Zimbabwe: Mortgage Loan Repayment Costs U.S.$99 Per Month

With housing affordability a major issue in Zimbabwe, research shows that it costs about $99 per month to repay a housing mortgage loan for the least cost newly built urban house. The study by the Centre for Affordable Housing Finance Africa, says a newly built low-cost urban house would average $18 000 in Zimbabwe.

It means a prospective home seeker needs about $99 per month to service a mortgage loan for the least cost house in Zimbabwe, which many cannot afford. According to the research, Morocco has the cheapest mortgage loan rates at $46 per month while Democratic Republic of Congo has the highest at about $281.

The research shows that more than half of Zimbabwe's urban dwellers may not be able to afford to repay mortgage loans at current terms and conditions of lenders. Zimbabwe has a national housing backlog of 1,25 million units, for urban residents.

"The gap between what "affordable" housing would cost to finance, and what the average household can afford to pay, is simply too large. In most countries, even $10 000 is too much for the average household," according to Kecia Rust, executive director and founder of the Centre for Affordable Housing Finance Africa.

CAHF says investors need access to scale, while household affordability needs costs to be broken down in three approaches towards aggregation of the opportunity. These include real investment trusts (REITs), which aggregate investments and investors into realisable deals, cooperate; savings vehicles, which aggregate household affordability into viable proposition and rental, which aggregates supply and ownership management.

REITs aggregate diverse sources of funding and target them into real estate portfolios that extend beyond the limitations of individual projects. REIT regulations and legislation provide for preferential tax treatment and require high rates of profit distribution. Together, CAHF says, these unique factors enable REITs to raise finance from investors who otherwise might lack access to - or be reticent to engage in - real estate markets.

In Zimbabwe, even those in formal employment for a decade or more cannot afford basic houses, partly due to savings depletion after successive currency regimes leading to the dollarisation in 2009. In addition, the 25 percent deposit/own contribution (the only contribution requirement) has remained the main cause of slow uptake of mortgages: as a cash flow item, its impact is immediate.

With the 2016 cash shortages, Zimbabwe's fragile economy spiraled down and contracted significantly, worsening the economic situation, following the four-year long continuously deteriorating liquidity situation. The economic contraction resulted in increased job losses and further eroded disposable incomes, resulting in a rapid increase in poverty; this continues to affect affordability of housing finance as well as the housing itself.

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