Its November already and a lot of progress has been made in the economy this year. The Zimbabwean policy makers have been emitting mixed signals for a long time this year regarding the economic growth prospects. The GDP growth forecasts for 2010, now pinned around 8%, have been revised up and down for the millionth time, unnecessarily at times, but the most important fact is that the economy is growing. Considering that the performance of banks generally mirror the strength of an economy, the mid-year results by the banks show that the economy is still in some trouble, and indeed more hard work is still needed to put it back on a comfortable growth path. And with that, the prospects on the property market, which hinge more on economy-wide liquidity, vibrant banks and the pace of economic growth, remain uninspiring in the short-to-medium term. Interestingly, the depressed revenue from the last Diamond sales have dented the high hopes of fast recovery that had been erroneously pinned on the diamond industry following erroneous forecasts on the value of the piles of 4000 carats that had accumulated awaiting the Kimberly Process certification before being off-loaded.
Mortgage lending has resumed on the domestic banks’ balance sheet, albeit on a very small scale and short time-frames. This contrast sharply in such mature markets like South Africa where mortgages take up significant proportions of bank balance sheets, affording reasonable activity and indeed liquidity on the property market sufficient enough to influence more predictable and sustainable long-term yields. As of June 2010, mortgages sitting on SA banks stood at $144 billion, about 45% of banks’ total loan book and this contrast sharply with our local scenario where mortgages are estimated to be taking less than 2% of the total banking loan book which currently stands around $1.4 billion. High disposable incomes, affordable debt options and healthy banks are the very important foundations that will propel the Zimbabwean property market to attractive heights. The low average wages that are below $300 per month, and indeed the absence of a significant middle class have created a huge gap in the property market in Zimbabwe, resulting in very small numbers being able to access reasonable mortgages to participate in the property market, and that has depressed activity and indeed the yields.
The dollarisation has arrested the incidences of high inflation, and with our inflation likely to hover below 5% per annum over the long term, the prospects of significant wage increases are remote, more so when the general economic growth prospects are not so bullish. The economic force that therefore pushes the majority of our low income people into the middle class is weak, implying that more innovative solutions by banks and developers will be needed to create solutions for the many homeless Zimbabweans with strong aspirations to becoming property owners.
At Zimbabwe’s average incomes below $300 a month, owning a $50,000 middle density house in Msasa Park, Tynwald or Westgate becomes a pipe dream if 10 year mortgages, at around 15% per annum, require that one pays around $843 a month. And for a bank to approve such a mortgage, one would need to be earning a net salary of around $2400 per month. Back then in 1990, this was a feasible feat as the national wage averaged $1,546 per month, and indeed this economy witnessed huge developments in the real estate that time as household incomes were strong and stable. However the current wage rates are so depressed to afford the general homeless people to set foot in the property market, and with government being the largest employer and suffering from constrained revenue, it will take a lot in direct policy interventions to re-ignite the property market.
How many Zimbabweans earn $2400 as net salaries today to drive sufficient demand for the property market? What then becomes the fate of low-income earners who earn below $1000 in net salaries per month? And in any case where would one find 10-year mortgages in a market that is illiquid and exhibiting high returns on the short term for the banking sector? These realities continue to stalk the property market, and without doubt, the persistence of the illiquid market and poor incomes will prolong the return of the property market to vibrancy levels.
On the other hand, the current liquidity crunch besetting the local banking institutions mean equally that very few banks have sufficient liquidity on their balance sheet to plunge into the long term that normally suit mortgage products. Currently the banks, for fear of liquidity challenges, have been cautious on lending, resulting in relatively low loan-to-deposit ratios of around 60%. The mortgage market therefore, considering its long-term nature, becomes a distant choice for the banks in such an environment, creating more dislocations in the vibrancy of the property market. With the government being the largest employer and unfortunately suffering from serious budgetary constraints and with civil servants’ salaries pegged below $300 per month, very little would be expected therefore from the employers in coming to assist the property market development.
The government has recently announced a 10-year $5 million mortgage scheme for the civil servants at 5% per annum. Considering the current civil service wages around $250 per month, the maximum that an applicant would probably get is around $9600 repayable over the 10-years if one goes by the conventional mortgage guidelines. This translates to 480 people or 0.2% of the total civil service workforce. Though a pittance, the most important thing is that the government, on limited revenue, has began on an important step, and if well embraced by the private sector, the property market is set to start coming up from the bottom-up approach. This speaks of the volumes of challenges that the government is facing in revitalizing the property market, and indeed the sad story is that more resources need to be availed towards the development of low-cost housing models in the economy to provide practical solutions to the one of the most basic human need- thus decent shelter.
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