Zimbabwe's vibrant informal sector could become a key driver of homeownership if banks open doors to tap into the market segment by easing mortgage requirements and offering longer loan terms, according to the latest report by Integrated Properties.
Formal mortgage options have traditionally been limited, leaving many, particularly those in the informal sector, unable to achieve their dream of homeownership.
In 2023, only 8,85 percent of total credit in Zimbabwe went towards formal mortgages, according to official statistics from the Reserve Bank of Zimbabwe (RBZ).
The figure highlights a crucial bottleneck; high interest rates averaging 12 percent per annum and short loan term facilities, making homeownership a distant dream for many.
Banks, cautious due to perceived risks, further tighten loan conditions with restrictive lending practices.
In addition, limited deposit mobilisation leaves the banks with less capital for mortgages, while a dearth of affordable housing options and stagnant property values restrict choices for potential home buyers and erode collateral value for lenders.
Zimbabwe's informal sector is estimated to significantly contribute to the gross domestic product, providing jobs to millions. Despite their economic contribution, many in this sector lack access to formal financial services, including mortgages.
"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," the report said. Removing barriers that hinder access to mortgage financing for this sector can unlock its untapped potential and expand the market.
"Banks 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. 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 report added.
Implementing the recommendations would not just address challenges in the mortgage market, but propel it towards a more efficient, and sustainable future, the report noted.
Unlocking the potential of the informal sector through more inclusive mortgage options could be a game-changer for Zimbabwe's housing market, said Julliet Rusununguko, a property expert based in South Africa. "This could empower millions to achieve their dream of homeownership and boost the overall economy," she said.
Although individuals in the informal sector have demonstrated the financial capacity to repay loans, securing formal mortgages remains challenging due to lack of traditional employment records. Tailoring mortgage products and risk assessment strategies to the sector could unlock potential for both borrowers and lenders.
"While I appreciate the local banks' need for caution," Wellington Bonda, an auto parts trader in Gazaland, an informal business complex in Harare, " I believe many could qualify for mortgages. However, current requirements often pose challenges.
"For example, banks usually ask for collateral like title deeds, which many of us lack. In addition, our income streams from informal businesses can be less predictable, making it difficult for banks to assess creditworthiness," Mr Bonda added.
Beyond recommending inclusion, the report also outlines a three-pronged strategy for banks to maximise the potential of the mortgage market.
Firstly, the banks can unlock the full potential of the country's mortgage market through pre-approved mortgages that promise to streamline the process to offer sellers faster transactions and attract buyers with ready financing. The banks can also adopt backward integration where the financial institutions develop affordable housing and offer mortgage packages to address affordability concerns and potentially increase bank profits.
"This approach offers numerous advantages, including providing more affordable housing options for borrowers and reducing their reliance on external financing sources. Additionally, it can potentially enhance profitability for banks through profits accrued from the development process and mortgage-related fees."
Banks should, however, thoroughly assess prevailing economic conditions, market demand, and associated risks. At the same time, the report recommended partnerships with registered real estate professionals with market expertise.
The report has also recommended green mortgages to tap into the growing environmentally conscious segment by offering incentives for sustainable home improvements.
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By adopting these innovative strategies, banks can increase mortgage utilisation, cater to diverse buyer needs, and contribute towards sustainability and financial inclusivity.
Overall, the 2024 landscape for Zimbabwe's property industry presents a mixed bag of challenges and opportunities. While significant infrastructure projects offer glimmers of hope, the lack of clarity on key fundamentals casts a shadow of uncertainty.
While foreign direct investment, low-interest rates, a functional mortgage framework, stable currency, consistent policies, and clear property rights traditionally drive real estate development worldwide, Zimbabwe currently faces a lack of clarity on these very fundamentals, raising concerns for investors and developers.
The national infrastructure projects offer a potential lifeline for the industry. These projects, with their long-term return on investment, significant capital needs, and high-risk sensitivity, heavily rely on the very fundamentals currently lacking.
However, if the Government prioritises local participation and ensures timely payments, the projects could provide a much-needed boost to local contractors and suppliers.
