‘Property Reporter
RESERVE Bank of Zimbabwe (RBZ) governor, Gideon Gono, has advised government to harness the country's real estate sector in a bid to unlock international capital and quicken economic growth.
Zimbabwe's property construction sector has been lukewarm since the use of multiple currencies in 2009 due to low incomes and a subsequent lowly mortgage bond market and limited capital inflows.
Gono said the country could securitise its up-market properties to tap into financial resources of some leading economies that seek to hedge their investments.
Securitisation is the transformation of an illiquid asset into a liquid asset which can then be tradable.
"In the construction sectors, for instance, we are one of the few countries that are in the majority of cases without mortgage bonds. There are very few people with mortgage bonds.
"Can you imagine the kind of capital we can unlock if we started to pull together all the mortgages , the houses that we have in the northern suburbs or anywhere else and pull them together and use the title deeds to mobilise externally so that those houses can be owned by whoever and the money is channeled through building societies which will create momentum for the beneficiaries or owners of those houses to borrow for industries, to borrow for mining, to borrow for whatever project they want on condition that they pay over the next couple of years merely just like a mortgage," said Gono at a business conference recently.
"If the Chinese can own a great deal of real estate in the United States, why can't they do so in Zimbabwe on the basis of very nice houses that we have got?" Gono asked.
The performance of Zimbabwe's residential market has been low due to limited financial institutions offering mortgage financing. The financing has been at punitive annual interest rates of over 15 percent. The tenure of these mortgages is currently capped at 10 years and have been available mainly through employer-assisted facilities and five years for self-financed plans. This in turn has resulted in a market with little credit available and where the bulk of residential properties are self-funded.
Government this year expects the construction sector to grow marginally by 1,5 percent on the back of improved mortgage finance. Despite a poor country risk that has adversely affected foreign direct investments and capital inflows over the last years, experts contend that Zimbabwe's building societies could grow their businesses from a high credit appetite and strong credit rating on the domestic market.
Currently, leading mortgage financier, Central African Building Society (CABS) and CBZ building society are active on the market offering mortgage financing for low cost houses.
CABS last year resumed mortgage lending, which had been suspended in 2008 when the country's hyper-inflation eroded both interest income and loanable savings.
The building society said the funds were sourced entirely from customer deposits although there are plans to court international financiers and grow the loan book. Experts also say due to the transitory nature of deposits in the banking system, the rate of growing mortgage lending in the country could be sluggish.
Last year, a unit of CBZ Bank Limited, the country's largest commercial bank by deposits, advanced over US$47 million in mortgage lending in a move that marked the resurgence of the sector.
"The banking sector has largely mobilised short-term deposits, which are transitory and volatile in nature, mainly driven by salary payments.
The short-term nature of deposits has hindered effective financial intermediation to the productive sectors as lending is restricted to short-term periods," Gono said.
"The inability to access long-term funding by industry on the local market coupled with the limited availability of external credit lines is constraining economic growth as industry is failing to finance working capital requirements as well as undertake recapitalisation initiatives," he added.
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