By Taurai Mushambi
THE recently launched Homelink Housing Development Scheme (HHDS), which enables non-resident Zimbabweans in the diaspora to purchase or construct houses, purchase stands or improve residen
tial properties, is a most welcome development.
Eligible non-resident Zimbabweans will be advanced a loan in Zimbabwean dollars equal to the value for which the funds are required. This amount will be converted into foreign currency using the currency where the Zimbabwean is domiciled, at the ruling auction rate on the day the funds are disbursed. Interest will be charged at a rate not more than 10% on the foreign currency amount of the loan. Repayments of the loan will be strictly in foreign currency on a monthly basis for sixty months (five years).
This is an opportunity not to be missed because it is a cheap source of financing for fellow Zimbabweans in the diaspora.
For a property which costs $500 million, a loan of a similar amount will be disbursed and will be converted into pounds, for example, the pound amount which will then be the amount on which interest is calculated.
Amortising the loan over 60 months will result in a fixed monthly payment of £1 175. This monthly payment converted at an auction rate of $11 000/GBP will amount to $12 914 000 and an annual payment of $155 million.
The £1 175 per month will just be about half or a quarter of what they earn in the UK. This is certainly a better option than having to be sending money home saving up to buy a house whose price will be rising due to the acute shortage of houses. Property prices are actually at a low so it will be to their advantage to lock in these low prices at a low and fixed interest rate.
To get a mortgage loan to purchase a house in Zimbabwe is not anything individual prospective houseowners would even consider because of the high interest rates which result in high monthly instalments which are several times their net salaries.
Applying for a loan for $500 million, an individual will be required to make a down payment of 35% ($175 million) then the remaining $325 million will be amortised over 25 years at a market rate of 97,5% to come up with 300 monthly payments of about $26,5 million. Resident Zimbabweans might as well encourage their loved ones in the diaspora to take part in the HHDS.
RBZ must be excited about this scheme mainly because the much-needed scarce foreign currency will now be flowing onto the official market rather than into the property market through the parallel market as has always been happening.
This scheme will thus help in curtailing the parallel market and channelling the much-needed foreign currency onto the official market, which can then be utilised to boost production and slow down inflation.
In the event that the loan holder cannot continue to participate in the scheme, Homelink (Pvt) Ltd will purchase the property from the owner.
The borrower will be re-imbursed in foreign currency up to the maximum amount he will have contributed. To qualify for this guarantee the bondholder should have made regular payments to the scheme for at least 12 months but failure to continue making payments should not be self-inflicted.
Lets look at a scenario where the Zimbabwean dollar significantly depreciates by end of year 2005.
The auction rate is forecast to be at $28 500/GBP and the fair market value at $44 840/GBP by end of year 2005. If these rates turn into reality, then if a borrower after 12 months stops making payments, he will be re-imbursed $14 100 (£1 175) which he can convert at the parallel rate and amass about $632 244 000.
Whether or not the forecasts are unrealistic, a significant depreciation of the Zim dollar against the pound will create a profit opportunity for the diasporas. It will be very difficult for the RBZ to ascertain whether failure to continue monthly repayments was self-inflicted or not.
Rather the RBZ should not promise to re-imburse the forex contributed, but each case of failure to continue with repayments should be assessed on a case-by-case basis.
Another cause for concern is the effect of this scheme on the money supply. The Zimbabwean dollars disbursed will all be passed onto the sellers of the property which effectively means that there are more Zimbabwean dollars in the system not backed by any increase in production. The expected monthly foreign currency receipts are only going to have an impact on supply after a long time lag to match the initial disbursements.
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