Zimbabwe

Excerpt from Africa Housing Finance Yearbook 2015

Overview

Zimbabwe’s GDP dropped from 3.5 percent in 2014 to 1.5 percent in 2015[i].  Factors responsible for slow economic growth include; limited sources of capital, policy uncertainty, and high cost of doing business the high debt burden of about US$8.4 billion and arrears of about US$1.73 billionas well as the unsustainable current account deficit (projected at US$3.1 billion). It is financed mainly through private sector borrowing. This deficit averaged 22 percent of GDP for the period 2009-2015. This deficit is above the SADC macroeconomic convergence criteria thresholds of nine percent[ii].

The prevailing double digit lending rates are preventing the recovery of the economy.  According to the July Fiscal Policy Review, the construction industry is to grow by 3.9 percent in 2015. Zimbabwe is experiencing a structural regression, with the acceleration of de-industrialisation and informalisation of the economy.  It is facing a number of difficult economic problems including infrastructure and regulatory deficiencies, policy uncertainty, a large external debt burden and insufficient formal employment. Year on year inflation has remained subdued and pushing

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Excerpt from Africa Housing Finance Yearbook 2015

Overview

Zimbabwe’s GDP dropped from 3.5 percent in 2014 to 1.5 percent in 2015[i].  Factors responsible for slow economic growth include; limited sources of capital, policy uncertainty, and high cost of doing business the high debt burden of about US$8.4 billion and arrears of about US$1.73 billionas well as the unsustainable current account deficit (projected at US$3.1 billion). It is financed mainly through private sector borrowing. This deficit averaged 22 percent of GDP for the period 2009-2015. This deficit is above the SADC macroeconomic convergence criteria thresholds of nine percent[ii].

The prevailing double digit lending rates are preventing the recovery of the economy.  According to the July Fiscal Policy Review, the construction industry is to grow by 3.9 percent in 2015. Zimbabwe is experiencing a structural regression, with the acceleration of de-industrialisation and informalisation of the economy.  It is facing a number of difficult economic problems including infrastructure and regulatory deficiencies, policy uncertainty, a large external debt burden and insufficient formal employment. Year on year inflation has remained subdued and pushing down to deflation trends. Inflation for the first half of the year remained negative reaching -2.8 percent by end of June 2015[iii]. The projections are that price declines are expected to prevail throughout the year, with average annual inflation for 2015 now projected at -2 percent[iv].  This reflects in part the correction of domestic price structures which had trended past hyper-inflationary pricing practices, relatively high labour costs, utilities, cost of borrowed capital, as well as other costs of ‘doing business’[v].

Zimbabwe has had limited access to concessional lines of credit required for infrastructural development and retooling the manufacturing sector.  Most of the facilities availed carry a significant risk premium and have largely been short term in tenure.

Access to finance

Despite the challenges in the operating environment, the Zimbabwean financial sector remains well developed and quite stable. There are 19 operating banking institutions (comprising of a central bank, thirteen commercial banks, one merchant bank, three building societies and one savings bank), 16 asset management companies and 147 microfinance institutions[vi].  Credit risk has remained a key component of the profile of banking institutions, with the ratio of NPLs to total loans ratio high at 14.52 percent as at end of June 2015. Zimbabwe scores 104th out of 189 countries on the ‘ease of getting credit’ indicator, according to the World Bank’s 2015 Doing Business Report.  The latest 2015 Doing Business Rankings show that Zimbabwe’s competitiveness remains low at a rank of 171 out of 189, moving by only one point from 172 of 2014.

As at 30 June 2015, total credit provided by the financial sector amounted to US$4 billion translating into a loans to deposit ratio of 71.4 percent, an increase from US$3.8 billion as at 30 June 2014. According to RBZ statistics, of the credit provided, mortgages advanced by building societies were 11.92 percent in May 2015 and grew to 12.42 percent in June 2015 registering a 0.5 percent growth.    Mortgage lending is largely undertaken by the Central African Building Society (CABS), CBZ Bank, FBC Bank and ZB Building Society. The mortgage lending rates range from 15 -20 percent depending on the institution. Given that NPLs are a threat to the banking sector in Zimbabwe, to improve on the NPLs, the government established the Zimbabwe Asset Management Corporation (ZAMCO), and created a Credit Reference System. ZAMCO was created to militate against NPLs from dragging down the economy. As at 31 July 2015, ZAMCO has acquired and restructured US$157 million of the NPLs. This is expected to reduce the cost of funding, concomitantly translating into reduced lending rates[vii]. The borrowing cost is a major factor of costs and competitiveness of the housing sector.

Despite registering growth of 18 percent in financial inclusion since 2011, Zimbabwe continues to experience a high level of financial exclusion as well as usage of informal financial products and services[viii].  Many Zimbabweans aged 18 years and above are still financially excluded, or not using either formal or informal financial products. This 18 percent improvement in financial inclusion was driven mainly by mobile money and other electronic payment systems, such as card based payments[ix].  The survey established that 45 percent of adult Zimbabweans use mobile money services and the majority reside in rural areas.

In efforts to promote financial inclusion, the Reserve Bank of Zimbabwe established an additional banking class (deposit taking microfinance institution) dedicated to support low income and micro, small and medium enterprises[x]. In this regard, the Reserve Bank has so far issued two deposit taking microfinance licences to African Century Limited which is finalising the infrastructural and operational requirements before commencement of business, and to Getbucks Financial Services (Pvt) Ltd. which has been operating as a credit only microfinance institution. Also, to incentivise provision of new additional mortgage financing, government waived stamp duty on cession of mortgage bonds with effect from January 2015. This was meant to enhance availability of resources towards financing the national housing programme. Improvement in financial inclusion results in increased housing development.

Despite the banking sector having deposits increased by 14.2 percent from US$4.9 billion in June 2014 to US$5.6 billion as at end June 2015, these deposits continue to be dominated by demand deposits, which account for 55.49 percent of total deposits[xi]. On this note, lending has continued to be largely for the short-term requirements of working capital and consumer durables. The proportion of lending in 2015 to the construction sector continues to be low (2.59 percent). The depressed lending to capital intensive sectors such as construction, communication, mining and the manufacturing sector is reflective of the limited capacity of banking institutions to provide long-term funding due to the short term nature of deposits. This is so because financial institutions have limited access to offshore lines of credit and the reluctance by the public to commit funds for long periods.

Limited availability of affordable long-term finance impacts negatively on the ability of the mortgage lenders to provide affordable mortgages and as such lenders pass the high cost of borrowing to their customers. Mobile money is also spreading quickly, linked to the rapid spread of mobile phone penetration.    Other efforts by the RBZ to streamline costs of doing business and stimulate economic activity through affordable credit facilities in the domestic banking system include a downward review of lending rates. For housing finance it has been pegged to be between 8 – 16 percent per annum, prime borrowers with low credit risk at 6 – 10 percent per annum, borrowers with moderate credit risk 10 – 12 percent per annum, borrowers with high credit risk 12 – 18 percent per annum, and on consumptive lending 10 – 18 percent per annum; these rates were to be effected in October 2015[xii].  The default rate of 3 – 8 percent to be charged above the interest rate charged to the borrower. This is expected to increase access and affordability of housing finance in the country and hence boost affordable housing investment.

Despite the high cost of funds, financial institutions have developed innovations to reduce the cost of borrowing for low income clients. CABS offers a low priced mortgage product for borrowers in high density areas for which an interest rate of 12 percent is charged as opposed to 15 percent that applies to borrowers in low density areas. In an effort to enable low income earners to access housing finance, building societies collaborate with employers to provide loans at subsidised rates. CBZ has 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.

Affordability

Zimbabwe’s fragile economy is headed for a contraction that could trigger an unprecedented humanitarian and economic crisis following a slowdown in recovery and deteriorating liquidity situation witnessed for the past three years[xiii]. The economic contraction results in increased job losses and further erode disposable incomes – rapid increase in poverty; this has affected affordability of housing finance as well as the housing itself.

The affordability of houses remains a typical question since the facilities meant for low income earners are still beyond their reach. In late 2012, Harare City Council signed an agreement with CABS to build 3 102 core houses for low income earners in Budiriro, Harare. Beneficiaries were to pay an initial deposit and CABS will provide mortgage finance which would be repaid over 15 years. Up to February 2015 only 500 houses were bought since completion of the 3 102 houses. Due to this low uptake by the prospective home seekers, the bank revised the mortgage terms; the upfront deposit of 10 percent is now required upon application, down from the initial 25 percent and extending the mortgage tenure to 20 years  but this is still beyond the reach of many[xiv].  This is expected to boost uptake of the housing units.

In loan finance, there is a high default risk due to low economic performance marked by retrenchments; the rate of NPLs stood at 14.52 percent as at 30 June 2015. In most banks, low income earners (earning $750 per month) qualify for mortgages that are between US$15 000 and US$20 000 depending on the institution. CABS defines low income as a monthly income of at least US$750 which is significantly  above what most workers in industry and commerce, let alone in government service, take home[xv]. The cheapest newly built house costs US$18 000 on average which makes it houses beyond the reach of many since for one to buy this has to get an income of $750 and above. While it is laudable to prioritise first-time buyers for these houses, the reality is the economy is no longer creating new decent jobs, and even those that have been in formal employment for a decade or more can no longer afford these most basic houses.

The major affordability concerns include high interest rates, prevailing interest rates of up to 20 percent are considered not only prohibitive, but also punitive. In addition, because interest rates denote the cost of money, it means this factor is widely seen as the most important element in determining affordability of housing loans. Also a 25 percent deposit/own contribution, the own contribution requirement has been the main cause of slow uptake of mortgages because it is a cash flow item whose impact is immediate. One needs to be able to raise the cash deposit in an environment plagued by low levels of disposable income thus in Zimbabwe this makes housing unaffordable.

Housing supply

The major housing objective of Zimbabwe’s national strategy, the Medium Term Plan (2011-2015), is to eliminate the housing backlog and halve the housing dependency ratio at the household level by 2015. In the same spirit, the government’s economic blueprint – Zimbabwe Agenda for Sustainable Socio-Economic transformation (ZIMASSET) also stipulates the government’s plans to construct 125 000 housing units by 2018[xvi].  This would be attained through the provision of housing stands, strengthening of public-private sector partnerships and re-capitalisation of the National Housing and National Guarantee Fund, among other measures.   This is a daunting challenge considering that the current national housing waiting list is estimated to be 1.5 million.

Government plays a pivotal role in housing development through the direct provision of houses, legislation as well as land. Recently, the government signed a US$1.9billion housing   China-Africa Construction company expected to avail housing stock in phases[xvii]. Through legislation, the government’s 2012 National Housing Policy seeks to address the challenge of the huge housing backlog through a partnering and facilitating approach to housing development and management so as to leverage community and private sector initiatives. In this regard, the policy strengthened the role of local authorities as well as encouraged the participation of civil society and the private sector in housing development.

Financial institutions are also promoting housing development projects. The financial institutions support housing development through offering mortgage loans or by construction of the housing stock as was done by CABS (in partnership with City of Harare) in Budiriro; a project which started in 2012. ZB Bank and FBC Bank, in addition to mortgage lending for buying and building houses, they had each contributed by servicing stands or building houses for sale. ZB Bank had serviced stands in Springvale which range from US$11 000 to US$26 000 (300 – 600 m2), 10 garden flats in Hatfield which range from US$109 000 to US$130 000 and some in Beitbridge. CBZ developed the Nehosho housing project in Gweru which consist of 1 095 undeveloped low cost-residential stands with prices ranging from US$15 000 to $23000. A minimum of 25 percent deposit is required and monthly repayments on the mortgage range from US$200 up to US$300.

Fidelity Life Assurance is expected to complete the servicing of stands of its housing project in Southview, Harare before the end of 2015, buoyed by the US$12.7 million raised through mortgage bonds[xviii]. A total of 5 304 stands would be availed to the market, adding that 4 000 units had already been sold. Fidelity first embarked on housing development projects in 2011 and developed 317 stands in phase one of Manresa Fidelity Park in Arcturus. National Social Security Authority (NSSA) came on board to provide housing stock as efforts to implement Zim-Asset, currently it is working on 680 low cost housing stands in Masvingo. Plans are that after Masvingo it moves to Bulawayo to construct between 800 and 1 000 housing stands[xix].

According to the Zimbabwe National Association of Housing Cooperatives (ZINAHCO), an apex body that represents housing co-operatives, since the year 2000 through its membership, it had serviced more than 20 000 stands and had built more than 10 000 houses[xx]. This apex body occasionally receives financial support from developmental partners. The cooperatives acquire land from private owners, government or local authorities and then service it using subscriptions from members.  Many housing cooperatives are being registered and delivering housing developments in line with the goals of Zim-Asset. The biggest threat from such institutions is the issue of bogus land allocation and distribution which lead to extortion and losses from seekers.

Bulawayo City Council in March 2015 commissioned a new suburb by unveiling 391 medium density residential housing stands in Emhlangeni[xxi]. The project – Emhlangeni Phase One is the third in a series of pre sale housing projects that the Bulawayo City Council is implementing. Emhlangeni contract was implemented at a cost of US$2. 9 million and was started in September 2013.

Property markets

A strong property market usually denotes a growing economy and a weak one, the opposite. Zimbabwe’s housing market, despite the need being high, due to the depressed demand, it is in doldrums[xxii]. The demand for residential property remains high, though activity has been hampered by low disposable incomes and the deterioration in liquidity conditions, particularly during the first half of 2015.  The market is still active, albeit at subdued levels, particularly for medium density houses, flats and cluster units. Prices for units in this category up to a value of US$150 000 have witnessed an increase due to the high demand. More expensive homes are taking much longer to sell and have witnessed price stagnation.

In light of the prevailing economic situation, rentals have declined; rental per m2 went down to an average of US$7.57 compared to US$8.28 in 2014 mainly as a result of lower rates on industrial space, decline in central business district office and non-rental reviews[xxiii]. There has been a marked increase in the number of tenants moving out of residential properties as they could no longer sustain current rentals. The increasing number of tenants failing to pay rentals due to the worsening liquidity crunch and joblessness has pushed some in re-negotiating existing contracts for downward rental reviews.

Zimbabwe ranks 94th out of 189 countries according to the World Bank’s 2015 Doing Business Report for the indicator ‘ease of registering property’.  The five procedures take 36 days and cost 7.6 percent of the property value.

Policy and regulation

Housing in Zimbabwe has a vivid institutional and regulatory framework that shapes the sector. The Acts that include Regional, Town and Country Planning Act [Chapter 29:12], Urban Councils Act [Chapter 29:15], Land Survey Act[Chapter 27:06], Deeds Registry Act [Chapter 20: 05], Consolidated Land Acquisition Act [Chapter 20:10] and Rural Land Occupiers Act of 2002 and instruments like National Housing Policy of 2012 and Model Building By-laws all have an impact in urban housing.   The intention is to stimulate and regulate the housing delivery for example the Housing policy of 2012 addresses the need for more housing designs and development models, and an increased range of permissible building materials and construction models. With the introduction of the new constitution in 2013, this will involve a relook at legislation and by-laws that are no longer relevant.

The country requires long-term funding to address infrastructure bottlenecks needed for effective housing delivery including more capacity to avail loans for both land and housing development. The Deed Registries Act [Chapter 20: 05] targets the issue of loan security and provides for the registration of mortgage bonds, and notarial bonds.   This provides security in the housing finance sector.

The RBZ’s efforts to cut on the interest rates and promotion of financial inclusion are direct policy interventions to reduce the cost of capital and also the cost of doing business in Zimbabwe. This has a positive effect on housing finance by making the cost of borrowing lucrative for home builders.

Opportunities

Zimbabwe has several opportunities for investment in affordable housing. The housing backlog of 1.5 million people signifies a huge demand for housing thus presents a readily available market for affordable housing units.  The country has abundant natural resources for affordable construction like wood. These resources present an opportunity in affordable housing construction as they cut the cost of building. Housing has been stipulated by government as a priority, this is an opportunity, given the urgency by the state to avail housing to the homeless populace.

Despite the liquidity challenges, the country has a stable macroeconomic environment. Zimbabwe continues to enjoy low inflation and has implemented prudent fiscal policy characterised by a cash budgeting system which is an opportunity[xxiv].  However, the country faces challenges on the external account. It is hoped that the promising process of normalisation of relations with Multilateral Financial Institutions will pave the way for a solution to the debt and arrears challenge[xxv]. Such a development would lead to significant inflows which are required to address the current liquidity problems. It would also spur the performance of the economy, leading to increased household incomes.

The peaceful environment that is safe for investment presents an opportunity for investors to invest in affordable housing or construction industry at large. It is hoped that the establishment of a PPC cement production plant in northern Zimbabwe, and one in Masvingo, will support further growth in housing supply as the cement capacity of the country increases. Also, there are other plans to open a US$400 million cement plant in Zimbabwe which is going to positively contribute to the price of cement.  The government’s stance in various development policies articulates what is required in order to improve housing delivery; these now need to be implemented.

 

Sources

African Economic Outlook, Zimbabwe 2014. http://www.afdb.org/en/countries/southern-africa/zimbabwe/zimbabwe-economic-outlook/. Accessed 10/08/15.

African Economic Outlook, Zimbabwe 2015. http://www.africaneconomicoutlook.org/en/outlook/forecast/. Accessed 13/08/15.

FinScope Survey 2012.

FinScope Survey 2014. http://www.finmark.org.za/publication/finscope-zimbabwe-consumer-survey-2014. Accessed 13/08/15

Government of Zimbabwe (2011). Zimbabwe Medium Term Plan 2011-2015. Harare: Government Printers.

Government of Zimbabwe (2012). National Housing Policy 2012.Harare: Government Printers.

Government of Zimbabwe (2013). ZimAsset. Harare: Government Printers

Harare City Council (2015). www.hararecity.co.zw/index.php/departments/l. Accessed 08/08/15

http://constructionreviewonline.com/2015/05/zimbabwe-signs-us1-9bn-housing-project/, accessed on 03/09/15

Ministry of Finance (2015). Zimbabwe Mid-Term Fiscal Policy – July 2015. Harare: Government Printers

Newsday (02/04/2015). 127m Boost for Fidelity Life Housing Project. Harare: Alpha Media Holdings

Reserve Bank of Zimbabwe (2015). Zimbabwe Monetary Policy – July 31 2015. Harare: Government Printers

The Herald (27 February 2015). CABS slashes deposits for Budiriro scheme. Harare: Zimpapers.

The Sunday Mail (14 June 2015). Mortgage Lenders Remodel Facilities…ZB Target Informal Market. Harare: Zimpapers.

World Bank, Doing Business 2015. http://data.worldbank.org/news/release-of-world-development-indicators-2015. Accessed 09/08/15.

Zimbabwe Bankers Association. http://baz.org.zw/resources/database. Accessed 10/08/25.

Zimbabwe National Statistical Agency (2013). Poverty Income Consumption and Expenditure Survey 2011/12 Report.

ZINAHCO (2015). http://cooperativehousingafrica.com/zimbabawe-national-association-of-housing-cooperatives-zinacho/. Accessed 08/08/15.

 

[i] MoF (July 2015). Zimbabwe Mid Term Fiscal Policy

[ii] MoF (2015) Zimbabwe Mid-Term Fiscal Policy – July 2015

[iii] RBZ (2015), Zimbabwe Mid-Term Monetary Policy – July 2015

[iv] Zimbabwe National Statistical Agency (2013)

[v] MoF (2015), Zimbabwe Mid-Term Fiscal Policy – July 2015

[vi] RBZ (2015), Zimbabwe Mid-Term Monetary Policy – July 2015

[vii] RBZ (2015)

[viii] 2014 FinScope Consumer Survey

[ix] MoF (2015)

[x] RBZ (2015)

[xi] MoF (2015

[xii] RBZ (2015)

[xiii] NewsDay (29 July 2015). Stop co-operatives from further destroying housing market

[xiv] The Herald (27 February 2015). CABS slashes deposits for Budiriro Scheme

[xv] NewsDay (25 June 2015).Mortgage loans affordability under spotlight

[xvi] GoZ (2013), ZIMASSET

[xvii] Construction Review Online (accessed 02/09/15). Zimbabwe signs US$1.9bn housing project

[xviii] NewsDay (5 April 2015). $12,7m boost for Fidelity Life housing project

[xix] The Chronicle (15 may 2015). NSSA to develop 1000 residential stands in Bulawayo.

[xx] Parliament of Zimbabwe (7 May 2015). The first report of the Portfolio Committee on Small and Medium Enterprises and Cooperative Development and impact of housing cooperatives on the delivery of national housing in Zimbabwe

[xxi] The Harare Times (7 March 2015). Bulawayo commissioned a new suburb – Emhlangeni

[xxii] NewsDay (29 July 2015). Stop co-operatives from further destroying housing market

[xxiii] Financial Gazette, (23 April 2015). Rental defaults distress property market

[xxiv] African Economic Outlook, Zimbabwe 2015

[xxv] RBZ (2015). Zimbabwe Mid-Term Policy- July 2015