Lending directive rattles mortgages

Integrated Properties chief executive officer Mike Juru

A hot-tempered directive forcing banks to suspend lending in May last year created turmoil in Zimbabwe’s mortgage market, new data showed this week, as markets continue to digest implications of the controversial move.

Markets slipped into protracted turmoil from May 1 2022 after authorities forced banks to call off lending and give impetus to the government's battle to defend the Zimbabwe dollar, following a stubborn inflation rage.

There were blow backs to the move, which forced authorities to lift the suspension within eight days.

In an 18-page 2022 fourth quarter property market analysis, Integrated Properties (IP) indicated that sanity only returned after a near bloodbath.

Funding inflows from diasporans — said by the Reserve Bank of Zimbabwe (RBZ) to have totalled US$1,7 billion last year — saved the housing market, IP said.

“The housing market remained the best-performing real estate sub-sector in Zimbabwe,” IP said.

“It registered the highest number of transactions and also constituted the bulk of activities in the construction sector for 2022. This performance was mainly driven by diasporans, employer mortgage assisted schemes and business executives. However, the residential sub-sector was not spared when banks were suspended from lending, and when interest rates were hiked to 200% as mortgage-based transactions took a sharp knock,” the report noted.

Two weeks ago, the RBZ cut the policy rate to 150% — still the world’s highest — but much lower than 200% before.

Interest rates — the profit that banks charge clients who borrow from them — determine the overall pricing system in an economy.

They have a huge say in the trajectory that inflation takes — and central banks worldwide have spent the past year keeping eagle eyes on rates — to protect economies that have come under pressure from spiralling costs.

But ZB chief financial officer Emmah Mungoni said last week that further aggressive reviews were vital to bring the rate to 80% before December.

She may have supporters among bankers, but policymakers may not be prepared to budge and abandon the tougher stance, which they credit for reversing months of vertical inflation surges in 2022, but has been slammed for holding back lending and spending power.

IP chief executive officer Mike Juru told businessDigest that with mortgages suffering, and the housing waiting list barrelling, many shifted to self-financed housing units.

“The plus 1,5 million units housing backlog further fostered owner-based construction. This is supported by the mushrooming of cluster developments on the housing market. Housing construction has seen growth at new high rises, cluster house developments and gated communities came onto the market in 2022. These developments were a result of public private partnerships, particularly from private developers who partnered with financial institutions. Before May 2022, Zimbabwe’s interest rates averaged 59,22% from 2019 to April 2022. In May 2022 the government raised interest rates to an unprecedented 200%, opening up the economy to unsettling changes as commodity prices followed the new curve. These interest rate developments were not isolated to Zimbabwe alone as many global economies adopted the interventions. This made it expensive to borrow, in the process slowing down economic developments in real estate. Zimbabwe’s property market has become a cash market skewed towards the US dollar, although some transactions were still concluded in Zimbabwe dollars, and at a premium to contain currency and exchange rate risks in an inflationary environment. This could have been a form of cushioning property owners and sellers with the high inflation rates. When regulatory authorities suspended bank lending temporarily to contain speculative behaviour, this led to a further fall in Zimbabwe dollar transactions as the market shifted to the value conserving US dollar transactions. Coupled with an increase in interest rates and the introduction of gold coins, the fate of Zimbabwe dollar transactions in the property market was sealed. This development, if not upturned, is an indicator of a dollarisation trajectory for the Zimbabwean economy,” Juru told businessDigest.

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