In the 2014 National Budget, Finance minister Patrick Chinamasa announced tax incentives for mortgage lending, opening a new frontier for mainstream banks. Previously, only building societies had enjoyed tax privileges in respect of mortgage lending.
Omen Muza
The fiscal incentives were followed by the Reserve Bank’s exhortation for banking institutions, “to offer mortgage banking products through the establishment of dedicated mortgage banking departments”.
It is against this background that in a report accompanying its audited financial results for the year ended December 31 2015, the People’s Own Savings Bank (POSB) revealed that it had obtained a licence to offer mortgage financing and would “soon be participating in the property market through offering mortgage loans and property development.”
NewsDay columnist and Monthly Financial Sector Bulletin (MFSB) editor, Omen Nyevero Muza (ONM) speaks to CEO Admore Kandlela (AK) about the bank’s rationale to venture into mortgage lending and the business model it intends to use.
Given that the dizzying cocktail of high interest rates, low incomes, high property prices attributed to an inadequate housing stock means that most workers either find available mortgages unaffordable or do not qualify for them altogether, Kandlela also speaks about the savings bank’s envisaged competitive advantage to ensure optimal uptake of mortgages.
ONM: Congratulations are in order for obtaining the mortgage licence. Are you at liberty to disclose when exactly the licence was obtained? AK: Thank you. The licence was obtained in August 2015. ONM: Does the licence come with any special conditions? AK: There are no special conditions. ONM: What are the bank’s top three reasons for venturing into mortgage lending? AK: The bank decided to venture into mortgage lending in view of the following factors, among others: First, in support of the ZimAsset target for the provision of sustainable and affordable housing; second, to diversify the bank’s portfolio through the introduction of long-term assets. Third, the trend for many banks is that one should have an account with them to qualify for a mortgage loan; therefore, our clients have not been able to access this product in other banks, hence, the need to introduce mortgage finance to cater for our customers.
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ONM: What do you envisage to be the bank’s competitive advantage in a space that has attracted the attention of most financial sector players, including the insurance sector, which has reportedly invested over $300 million in housing projects?
AK: Our competitive advantages include low interest rates relative to market averages, a huge client base and a wide branch network.
ONM: Some of the institutions that have sunk their teeth into mortgage financing have found it a hard nut to crack in terms of uptake of housing units. Examples are Cabs (Budiriro Housing Project) and ZB Bank (Twentydales Cluster Homes in Hatfield). How do you intend to deal with this challenge? AK: The major challenge faced in mortgage financing is the cost price of the housing units, which is beyond the reach of many.
POSB will have a targeted, tailor-made approach for the specific market. The POSB product will be market-driven.
ONM: Is there any truth to speculation that the bank will use some resources from the Communication and Allied Industries Pension Fund, whose contributors are employees of POSB and the telecommunication companies Netone and TelOne? AK: Members of the Communication and Allied Industries Pension Fund (CAIPF) will be part of the beneficiaries of the POSB mortgage product.
The CAIPF will be a partner in some of the projects. In terms of resources, we have several streams of funding for mortgage lending.
ONM: We gather that your mortgage loans will be for periods of up to 10 years at annual interest rates of around 12%. Is this reflective of the envisaged terms and conditions of your mortgage loans?
AK: Initially, our mortgage products will be for up to 10 years. Depending on the nature of the funding (cost and tenure) we will be able to attract for projects, the tenure will eventually be increased to the standard 25 years. ONM: Any other eligibility criteria that you think potential customers would be interested to hear about?
AK: To qualify for mortgage financing, one should have an account with POSB showing a steady stream of income for at least 3 months.
ONM: What do you say to the long-held perception that most existing housing schemes are speculative in nature and, therefore, priced out of the reach of the low-income segments, which are largely POSB’s targeted client base? AK: True, most of the existing housing schemes are out of reach of the mass market, which is our major customer base.
POSB is, therefore, coming in to fill the gap for the low income earners by providing affordable mortgage loans.
ONM: As early as September 2015, modalities to operationalise the bank’s mortgages division were already in progress and in early December, you advertised for the post of a mortgage loans manager. How far has the bank gone in setting up the mortgage loan department?
AK: The human resources aspect is now in place. We are now finalising the setting up of the systems.
l Omen Muza edits the MFSB. You can view his LinkedIn profile at zw.linkedin.com/pub/omen-n-muza/30/641/3b8 or initiate contact on [email protected].
