Zimbabwe

Excerpt from Africa Housing Finance Yearbook 2016

Overview

Zimbabwe’s GDP growth was projected at 2.7 percent in 2016. However, Zimbabwe’s economy has suffered a rapid and contraction. Former Minister of Finance, Mr Tendai Biti, ascribes this to several key factors, including a shrinking revenue base and food insecurity brought on by effects of El Niño on the agrarian-driven economy. Suggestions are that the country will not meet the revised modest projected growth of 1.4 percent, down from 1.5 in 2015. The largest contributor to this accelerated economic downturn is the Reserve Bank of Zimbabwe (RBZ)’s announcement to introduce bond notes into the economy to address liquidity challenges and plug externalisation of the now scarce US dollar. While the RBZ will introduce the bond note at perfect par-convertibility to the US$ (that is, it will trade at 1:1), bond notes cannot be used to settle external payments. This factor exacerbates pre-existing economic crises, including sources of capital; policy uncertainty; high cost of doing business; the high debt burden at US$8.4 billion with arrears of about US$1.73 billion as well as the unsustainable

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Excerpt from Africa Housing Finance Yearbook 2016

Overview

Zimbabwe’s GDP growth was projected at 2.7 percent in 2016. However, Zimbabwe’s economy has suffered a rapid and contraction. Former Minister of Finance, Mr Tendai Biti, ascribes this to several key factors, including a shrinking revenue base and food insecurity brought on by effects of El Niño on the agrarian-driven economy. Suggestions are that the country will not meet the revised modest projected growth of 1.4 percent, down from 1.5 in 2015. The largest contributor to this accelerated economic downturn is the Reserve Bank of Zimbabwe (RBZ)’s announcement to introduce bond notes into the economy to address liquidity challenges and plug externalisation of the now scarce US dollar. While the RBZ will introduce the bond note at perfect par-convertibility to the US$ (that is, it will trade at 1:1), bond notes cannot be used to settle external payments. This factor exacerbates pre-existing economic crises, including sources of capital; policy uncertainty; high cost of doing business; the high debt burden at US$8.4 billion with arrears of about US$1.73 billion as well as the unsustainable current account deficit (projected at US$3.1 billion). It is financed mainly through private sector borrowing. This deficit remained at an average of 22 percent of GDP for 2009-2016 and is above the Southern African Development Community (SADC) macroeconomic convergence criteria thresholds of nine percent[i].

The lingering double-digit lending rates constrain economic recovery. In 2016, Zimbabwe still experiences a structural regression, with acceleration of de-industrialisation and economic informalisation.  These challenges are caused by 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 is pushing down to deflation trends. According to the RBZ, the inflation rate up to May 2016 remained negative, reaching 1.69 percent.  The gains achieved through domestic price structures correction which had progressed past hyper-inflationary pricing practices and other costs of doing business, are projected to be eroded through escalated policy manipulation. The impositions of quotas on basic commodities are perceived as an untenable protectionist strategy that will only raise domestic prices, unless economic fundamentals are realigned.

Access to finance

 Despite challenges in the operating environment, the Zimbabwean financial sector remains well developed and sophisticated. As at 31 March 2016, it had 20 operating banking institutions (a central bank, thirteen commercial banks, one merchant bank, four building societies ˗ the country’s major source of housing finance, and one savings bank), 16 asset management companies and 163 microfinance institutions. National Building Society (NBS) is Zimbabwe’s newest building society, operational since May 2016 with an initial capital of US$25 million. It is an early market leader with the lowest mortgage lending rate of 9.5 percent and the longest tenure of up to 25 years[ii]. The NBS’s traditional mortgage requires the property as surety and its building loan is only offered for serviced stands to build a habitable structure. Credit risk has been a key component of the profile of banking institutions; however, the ratio of non-performing loans to total loans declined markedly from a peak of 20.45 percent as at 30 September 2014 to 10.87 percent at the beginning of January 2016. Government’s Zimbabwe Asset Management Corporation (ZAMCO) developed a Credit Reference System against threats by non-performing loans (NPLs) to the banking sector and the economy. The RBZ attributes the improvement in NPLs to disposal of qualifying loans to ZAMCO, and to more effective risk and credit management strategies by local banks. Austere collections and workout plans also helped alleviate the rate of NPLs in the banking sector. ZAMCO’s positive effect is expected to lower funding cost which, in tandem, translates into reduced lending rates. The borrowing cost is a major factor in the housing sector’s costs and competitiveness. The 2016 World Bank Doing Business Report notes that Zimbabwe’s effective reforms facilitate access to credit, and resulted in the country rising 11 positions up to 71 out of 189 countries.  Zimbabwe has made significant strides on the 2016 World Bank Ease of Doing Business index, moving 16 points in the positive from 171 in 2015, to 155 out of 189 countries, in 2016.

As of 31 December 2015, total credit provided by the financial sector grew by 11.2 percent to US$5.6 billion translating loans of US$3.9 billion into a deposit ratio of 68.8 percent, a decline from 71.4 as of 31 December in 2014. Mortgage lending is largely undertaken by the Central African Building Society (CABS), CBZ Bank, FBC Bank and ZB Building Society. New mortgage lenders include more traditional institutions: People’s Own Savings Bank (POSB); Stanbic Bank and Barclays Bank. Overall mortgage lending rates are unchanged and still range from 15-20 percent. However, NBS has introduced welcome flexibility in the mortgage lending thresholds. As the traditional leader, CABS requires 10 percent of the property value as deposit, in addition to 10 percent of the value paid towards property transfer fees. Stanbic Bank requires exclusive banking for a minimum of 12 months, 5 percent of the property value and 5 percent for property transfer fees.

Although Finscope reported in 2014 that 99 percent of Zimbabwe’s adult population (18 years and above) were financially excluded, a 17 percent growth in financial inclusion was recorded in 2015 by the International Monetary Fund (IMF). Against this backdrop, the RBZ introduced a 2016-2020 financial inclusion strategy. Zimbabwe registered as one of the highest countries on Sub-Saharan Africa’s financial inclusion rate at 77 percent in 2014; however, that figure is propped up by mobile money services, particularly among the rural population

The RBZ 2016-2020 financial inclusion strategy hinges on targeting priority areas and specific strategic measures. In addition to establishing an additional banking class (deposit-taking microfinance institutions dedicated to supporting Micro, Small and Medium Enterprises [SMME]), the RBZ will increase flexibility in bank lending. Banks will be encouraged to fine-tune their risk assessment frameworks, by adjusting to the significantly changed macroeconomic environment.

To incentivise provision of additional mortgage financing, the government still waives stamp duty on cession of mortgage bonds, effective since January 2015. This was intended to enhance availability of resources towards financing the national housing programme; however, no current data are available to assess progress.

The possibility of bond notes has raised the rate of demand deposits to unsustainable levels; the re-emergence of long queues outside banking halls and automated teller machines (ATMs) is noted.  Demand deposits are 52.9 percent of total deposits in the banking sector, which increased from US$4.09 billion in April 2014 to US$4.6 billion as at end of April 2016. Lending is still for short-term working capital and consumer durable requirements.

Limited availability of affordable long-term finance impacts negatively on the ability of mortgage lenders to provide affordable mortgages; as such, lenders pass high borrowing cost to customers. Mobile money is also spreading quickly as persistent cash shortages have spurred the growth of mobile money services. Along with mobile money, plastic money transactions have increased by 400 percent as of May 2016 in just under a month,  to counter liquidity shortages and to move Zimbabwe towards a cashless society. To incentivise this initiative, the RBZ slashed fees on all electronic transfers.  Unfortunately mobile money transactions remain largely cash based and are not valid as a platform for savings and credit. Mobile money does not provide historical data needed to acquire loans or other banking opportunities, a limitation that impedes an individual’s access to housing finance.

Housing finance remains between 8-16 percent per annum for regular borrowers, 6-0 percent per annum for prime borrowers with low credit risk, and 10-18 percent per annum for borrowers with high credit risk. New economic factors, including new players, coupled with the 3.8 percent charged above the interest rate of borrowers, are expected to increase access and affordability of housing finance.

Despite high cost of funds, financial institutions have developed innovations to reduce borrowing cost for low-income clients. Until 2016 CABS offered the lowest priced mortgage product for borrowers in high-density areas: an interest rate of 12 percent, as opposed to 15 percent for borrowers in low-density areas. To enable low-income earners to access housing finance, building societies collaborate with employers for loans at subsidised rates. In July 2012, CBZ introduced the CashPlus Accounts range, including the CashPlus Housing account targeting the informal sector. This CBZ account allows clients to save money towards home financing, which is matched by the bank. Repayment is pegged over a term of between two and 10 years. Some microfinance institutions, including Homelink and Untu, provide loan products for new home seekers and other products for home improvements. Microfinance loans run over a shorter term in comparison to banks. Additionally, Homelink requires collateral, usually another house, as surety against the loan; this policy continues to exclude the majority who do not own property.

Affordability

 With the 2016 cash shortages, Zimbabwe’s fragile economy spiralled down and contracted significantly, triggering a humanitarian and economic crisis, 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.

Stanbic Bank and NBS both state that mortgage loan repayments are usually marginally lower than rental of a similar property. However, the application guidelines preclude the majority of Zimbabweans by conditions such as 12 months’ continuous employment; furthermore, the funds have to be channeled through the bank. With a significant number of Zimbabweans either unemployed or on reduced salaries, the number of people qualifying for loans are significantly reduced.

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 needed an initial deposit and CABS provided mortgage finance, repayable over 15 years. In October 2015, only 500 of some 2 800 completed housing units were sold   (approximately 20 percent of the entire project).  In response, the bank revised the mortgage terms: an upfront deposit of 10 percent (down from an initial 25 percent) is now required upon application, and the mortgage tenure is extended to 20 years. Despite these changes, home ownership is still unattainable to many, due to rigid mortgage terms in a highly informal economy.

In 2015, loan finance noted a high default risk due to low economic performance marked by retrenchments; the NPL rate stood at 14.52 percent as of 30 June 2015. These conditions prevail in 2016 as cash unavailability resulted in late or non-payment of retained staff in private and public sector. In most banks, low-income earners (earning $750 per month) qualify for mortgages between US$15 000 and US$20 000. CABS defines low income as a monthly income of at least US$750, significantly above earnings of most industry and commerce workers, and those in government service[iii]. The cheapest newly built house now costs a minimum of US$15 000 ˗ beyond the reach of many. While it is laudable to prioritise first-time home buyers, in reality the economy continues to haemorrhage jobs.  Even those in formal employment for a decade or more can no longer afford basic houses, partly due to savings depletion after successive currency regimes leading to the dollarisation in 2009.

A major affordability concern is high interest rates; prevailing interest rates of up to 20 percent are considered both prohibitive and punitive. 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.

Housing supply

Zimbabwe’s national strategy, the Medium Term Plan (2011-2015), had as its major objective elimination of the housing backlog and halving of the housing dependency ratio at household level by 2015.

Government plays a pivotal role in housing development through direct provision of houses, legislation and land. This is a daunting challenge considering that the current national housing waiting list remains at an estimated 1.25 million. The government plans to construct 130 000 housing units by 2018.[iv] Recently, the national Housing Minister appointed a new board for urban development with “three main functions, which include urban development, with emphasis on housing provision in a manner that creates sustainable urban settlement, provision of audit services and training of local authorities”.[v]

Several new housing Sino-Zim projects under Build, Operate and Transfer (BOT) loan facilities are underway to meet the ZIMASSET housing targets against one million plus housing backlog cited by government. The biggest project, the US$1.9 billion government contract with China-Africa Construction Company earmarked for Harare South, aimed to start in 2016 after feasibility studies and environmental impact assessments were completed in 2015. The agreement will provide 32 new houses and expansion of existing suburbs to meet the 2018 Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIMASSET) finish line. In early 2016, an additional contract for more than 32 000 houses was also secured from China, in line with the economic blueprint of ZIMASSET. As at July 2016, the construction had not yet commenced on this project.

Financial institutions are also promoting housing development projects through mortgage loans or by housing stock construction, as was done by CABS (in partnership with the City of Harare) in Budiriro; a project started in 2012 was completed in 2016. In addition to mortgage lending for buying and building houses, ZB Bank and FBC Bank both 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, with 1 095 undeveloped low cost-residential stands ranging in price from US$15 000 to $23 000. The project has so far developed an undisclosed number of two-bedroomed core houses. A minimum of 25 percent deposit is required; monthly repayments on the mortgage range from US$200 up to US$300.

Fidelity Life Assurance first embarked on housing development projects in 2011 and developed 317 stands in phase one of Manresa Fidelity Park in Arcturus. Although Fidelity failed to meet its end-of-2015 target to complete servicing stands in its South View projects, it reported in March 2016 that the project was 84 percent complete. At present all available 5 304 stands have been sold. National Social Security Authority (NSSA) came on board to provide housing stock; currently, it is working on 680 low-cost housing stands in Masvingo. After Masvingo, it moves to Bulawayo to construct between 800 and 1 000 housing stands[vi] .

According to the Zimbabwe National Association of Housing Cooperatives (ZINAHCO), an apex body representing housing co-operatives, its membership serviced more than 20 000 stands and built more than 10 o00 houses since 2000[vii]. Many housing cooperatives were being registered and delivering housing developments in line with ZIMASSET goals. However, the threat from such institutions is issuing of fake land allocation and distribution, which has led to extortion of and losses by home seekers.

In April 2016, following a review of its housing policy, the Harare City Council banned housing cooperatives from occupying any new state land,  to streamline housing development and better manage waiting lists and backlogs.  This development is welcomed as a large number of cases regarding housing cooperatives prejudicing their clients of their contributions under unclear circumstances, were heard in the courts. The City Council system remains a challenge, as backlogs and red tape compromise the service.

In March 2015 Bulawayo City Council commissioned a new suburb by unveiling 391 medium-density residential housing stands in Emhlangeni[viii]. The project – Emhlangeni Phase One – is the third in a series of the City Council’s pre-sale housing projects. The Emhlangeni contract started in September 2013 and was implemented at a cost of US$2.9 million. In March 2015, nearly 400 services residential stands were handed over to residents as part of phase one presales. The contract for implementation of services for phase two stands commenced in July 2016.

Property markets

A strong property market usually denotes a growing economy. “Financial results for the year 2015 released by  Pearl Properties and Zimre Property Investments Limited (ZPI) showed that commercial and residential properties were suffering due to weak demand for leased space and other real estate products.” [ix] Market activity for medium-density houses, flats and cluster units has been constrained by low disposable incomes coupled with speculation around the introduction of bond notes in 2016. Both rental prices and house prices are decreasing. The Independent of Zimbabwe suggests that this could be a result of several co-existing factors, such as increased allocation of state-owned land, the surge of low-income housing products by various banks, and the liquidity crunch fuelled by the general macro-economic slump[x].  Despite the market being constrained, unit prices in this category up to a value of US$150 000 remain elevated due to consistently high demand. More expensive homes are taking much longer to sell and have witnessed price stagnation.

The rental property market has been hard hit by the money crisis. The number of tenants defaulting on rentals  have increased; this has pushed some to re-negotiate existing contracts for downward rental reviews. In addition to tenants moving out of residential properties, others have resorted to property-sharing arrangements as single households cannot sustain current rentals. The property market has suffered a major hit in value as most properties have become dilapidated due to under-utilisation, poor maintenance or strain on facilitates and structures as a result of overcrowding. A large number of home seekers and tenants opt for cheaper housing options to rent or buy. It is not unusual for more properties to stay vacant for long periods, resulting in excess stock on the market. Due to the falling property prices, owners opt to hold on to their properties in anticipation of better market prices.

Zimbabwe maintained its ranking of 114 out of 189 countries according to the World Bank’s 2016 Doing Business Report’s ‘ease of registering property’ category. There are five procedures to register a property, which   takes 36 days and costs 7.6 percent of the property value.

Policy and regulation

The housing sector in Zimbabwe is shaped by a strong institutional and regulatory framework. Many Acts and instruments remain unchanged in recent history; they are mostly progressive and include the 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]; Rural Land Occupiers Act of 2002; the National Housing Policy of 2012; and Model Building By-laws. Some analysts observe that major challenges in the sector possibly stem from inadequate institutional capacity to support the effectiveness of these laws. For instance, the 1.5 million housing waiting list is cited as inaccurate as it does not adequately capture the deficit; the roll is also cited as susceptible to duplication as well as manipulation by officials.

Several laws also suffer the retrogression of not being retrospective in application. The government appreciated the importance of decongesting the urban areas and demand for housing therein through Acts aligned with the Peri Urban Settlement (GoZ 1998). This was aimed at augmenting residential and industrial infrastructure in zones called growth points. However, development at growth points has stagnated due to economic regression, and new laws are not taking cognisance of the gap that developed when targeted growth in these peri-urban centres was not achieved.

Further long-term funding to address infrastructure bottlenecks is needed for effective housing delivery, including additional 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.

Opportunities

While demand for housing remains a factor, several constraints affect both developers and potential buyers, reflecting the worsening macroeconomic environment. Opportunity for investors and developers seems tied firmly to economic performance. Finding buyers who can afford new or refurbished properties in this economic environment is not feasible.

Investment opportunities in Zimbabwe are still replete, banking more than anything on human capital. Zimbabwe must weather yet another storm in the wake of resurgent political and economic unrest fueled by incongruent government policies.

Investors, however, remain optimistic of Zimbabwean prospects; Africa’s richest man, Aliko Dangote, had feasibility assessments conducted throughout Zimbabwe early in 2016 in preparation to setting up cement plants to the amount of US$3 billion. This development is key towards creating competitiveness in the cement sector, which may result in lower prices. The government’s stance in various development policies articulates requirements to improve housing delivery; these require implementation

The RBZ’s continued efforts to cut interest rates and promote financial inclusion are direct policy interventions to reduce the cost of both capital and of doing business in Zimbabwe. This yields a positive effect on housing finance by making the cost of borrowing lucrative for homebuilders.

Sources

African Economic Outlook, Zimbabwe 2016. http://www.afdb.org/en/countries/southern-africa/zimbabwe/zimbabwe-economic-outlook/. Accessed 21/6/2016

allAfrica.com ( ) Zimbabwe housing coops to go. Accessed 21/6/2016

The Chronicle (20/4/16). Massive Housing Project for Zim

Cooperative News (13/4/2016). Housing Co-ops banned from occupying state land in Zimbabwe.

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

Investment Climate Statement, Zimbabwe: US State Department. Accessed 18/6/2016

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

Newsday ( 09/03/2016). Kasukuwere appoints new Udcorp board. Accessed 15/6/2016

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 2016. http://data.worldbank.org/news/release-of-world-development-indicators-20156. Accessed 18/6/16.

Zimbabwe Bankers Association. http://baz.org.zw/resources/database. Accessed 16/06/16.

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.