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New building society to spur construction

THE launch of the National Building Society, wholly owned by statutory body the National Social Security Authority, is widely expected to provide relief to a construction industry that has been seriously affected by the shortage of long-term investable funds on the local market.

However, property experts fear that even the minimum mortgage rates offered by NBS – at nine percent considered to be the lowest on the market – will still price out low-income earners.

Economists say infrastructure projects stimulate economic growth via aggregate demand created throughout the value chain. Construction supports downstream industries such as cement, brick-moulding, stone crushers and plumbing among several others.

But the architecture of the local banking sector, where more than 90 percent of deposits are short-term, has not been able to support construction.

NSSA holds long-term investable social security funds that it seeks to use as leverage in the NBS, the country’s fifth building society.

Mortgage rates offered by the NBS, which was launched on Wednesday in Harare, range from 9,5 percent and 11,5 percent, with the lowest rate being for first-time home buyers.

Not only are NBS’s mortgage rates relatively lower to those offered by its peers, but its tenure, at 25 years, is considered reasonable as well.

The tenure of mortgages offered by FBC Building Society is 20 years, while CABS and CBZ Building Society are both at 10-20 years.

CABS’ mortgage plan has an interest rate of 12 percent per annum, while CBZ Building Society and FBC charge up to 16 percent yearly. ZB Building Society completes the line up.

Though NBS’ interest rate is comparatively low, it is still viewed as expensive in a US-dollar based environment. A beneficiary who qualifies to access a mortgage of US$20 000 will repay about US$200 per month. At the end of the 25-year tenure, the beneficiary would have paid the building society more than US$60 000 – three times the principal amount. Property expert Mr Mike Juru, founder and MD of Integrated Properties, said: “By and large, if you look at it, it’s actually the prices of property (that puts off potential buyers) because at nine percent, what is the repayment on an entry level in the high density which is around US$30 000?

“The income levels are too low that (NBS) won’t have much impact. But its launch is a welcome development but the challenge is that the price of properties remains too high. At nine percent interest and the amount of deposit that is required – who is able to raise US$10 000?” said Mr Juru.

Mortgage rates in the United States average 3,7 percent. NBS managing director Mr Ken Chitando told The Sunday Mail Business that building society would operate within he prescribed debt service ratios.

“Obviously we are operating within the prescribed debt servicing ratios which don’t exceed 40 percent of your salary,” said Mr Chitando.

Formal employees who seek to benefit from the new bank will have to deposit their salaries with the institution for at least three months before they qualify for a mortgage. Informal workers will also have to deposit with the bank to create a track record of their transactions, which will be used to qualify for the facilities.

“We have to ensure that we adhere to sound credit lending practices so what we would need to do first and foremost, is to ensure that a person has a steady income.

“If they are employed, we would need the salary to come through the building society for a period not less than three months. If they are working, self-employed, similarly, we would want to see proof of his earnings for a period of three months.

“And the credit vetting would go beyond just getting the salary in, we also want to understand the company that a person works for; whether it’s a sound company that is enabled for continued payment of salary,” said Mr Chitando.

Subscription for mortgages has been low.

CABS was recently forced to relax requirements for its Budiriro housing project after only 500 out of 3 000 units were purchased in almost a year.

Initially, the Cabs project targeted first-time home-owners but now anyone can access the houses while the initial deposit for the facility has also been slashed from 25 percent of the property price to 10 percent. Mr Juru said an illiquid market would not drive down mortgage rates.

“Barclays has joined the property market, POSB will also join the property market and if you look at it, so many banks are offering houses, but who is qualifying?

“The thrust should be on new stock … by funding existing properties, we are simply promoting an economy of dealers but additional stock will reduce the price of the houses.

“If new developments come in we have more housing stock, which means prices will self-adjust, then they will be affordable. But as long as we are giving people loans to buy existing stock when we know that there is limited supply, then we have a challenge,” added Mr Juru.


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