Political risks keeping mortgages high

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LOCAL banks on Thursday  blamed shortage of long-term funding for the high interest rates being charged on mortgage loans that have left many housing projects run by financial institutions becoming unaffordable.
Zimbabwe’s political risk is seen as high, and local financial institutions access limited funding from international lenders for tenures of between five to 10 years at annual interest rates of up to 15 percent, banking officials said.
Most banks charge interest rates of up to 20 percent per annum with a repayment period of between five and 10 years instead of the universally accepted tenure of 25 to 30 years.
“We are operating in a difficult environment where there is no long-term funding,” Ken Chitando, a retail banking manager with the Central African Building Society (CABS), told participants at a property investment seminar.
CBZ Bank commercial manager, Mncedisi Nyathi, whose bank levies interest rates of between 15 percent and 20 for a period of five years for corporates and 10 years for individuals, blamed the economic environment for the high rates.
“There are not much funds circulating and it’s a challenge for banks to give mortgages,” he said.
Nyathi said since dollarisation in 2009 the bank had increased its lending period from  24 months to five years and now 10 years.
He said they relied on international financiers to offer cheaper loans.
“At the moment some international funders are giving us loans at a higher cost and for a shorter period of time,” he said.
Zimbabwe has a housing backlog of 1.5 million while a few new housing projects were being undertaken, driving property prices upwards, said Chitando.
So far over $180 million worth of mortgage loans have been disbursed since 2010 according to statistics from the Association of Housing Financers. Chitando said 983 loans worth $40.8 million were disbursed in 2010 of which 74 percent were issued by CABS.
In 2011, 1,500 loans worth $78 million were disbursed while last year the figure declined to 1361 loans of $60 million.
By October end this year, 1,217 loans worth $65 million have been disbursed.
On mortgages, CABS is funding up to 75 percent of the value of the property while charging interest at 15 percent per annum for low density suburbs, 12 percent for high density suburbs and 16 percent for commercial properties.Advertisement

Chitando said there was need to look at alternative low cost housing models.