THE Central Africa Building Society (Cabs), the country’s largest building society, says the introduction of statutory reserves that “earn O%” while lodged with the Reserve Bank of Zimbabwe (
RBZ) will result in loss of revenue for the society.
Cabs says however mortgage loans are still available to interested customers.
Last year building societies pointed out that finance raised through investment activities continued to be utilised for mortgage lending at rates that were considerably lower than those on offer in other sectors of the financial market.
The building societies said the high density areas continued to be their priority for lending activities but they had experienced difficulties lending to this sector due to the ever increasing costs of serviced stands and construction.
Mortgage interest rates for the medium and lower density housing had been increased during the year but the inflation-driven growth in the value of properties had far outstripped the average income earner’s ability to obtain loans of any meaningful amount to purchase a property.
Responding to written questions from businessdigest Cabs said the statutory reserve loss would influence an increase in mortgage loan interest rates as a recovery measure.
In its Monetary Policy Statement the RBZ introduced statutory reserves of 30% of 75% of funds that do not support mortgage loans.
“This loss will influence an increase in mortgage loan interest rates as a recovery measure,” Cabs said.
“In turn this will have a negative effect on affordability of loans for potential borrowers across the board but moreso for the low income earners. On existing loans this will have the effect of increasing monthly repayments to levels that may be unaffordable for home-owners resulting in increase in the default rate.”
The prominent building society said there was a high likelihood of premature repayment of loans in order to avoid the high interest rates resulting in a reduction in the society’s mortgage loan portfolio.
“On the positive side of the Monetary Policy Statement, if the RBZ allows the Society to access funds from statutory reserves for onlending to the construction industry which is classified as a segment of the productive sector, then this will enable resumption of activity on housing schemes and mortgage lending in all sectors of housing,” Cabs said.
The building society last year issued a total of 9 190 loans valued at $37 754 336.
There were 6 065 high density loans for $1 427 427 and 3 125 low density loans valued at $36 326 909.
“Currently mortgage funds are available,” Cabs said. “This current financial year from July 2003 up to January 30, the society has lent a total of $19,7 billion.”
The building society said it currently did not have any new housing schemes.
“Of late we have noticed an apparent slow-down in the rate of increase of property prices indicating a possible stabilisation rather than a reduction in property values,” Cabs said. “We have also noticed a shortage in the properties available for sale, presumably because some sellers are adopting a ‘wait and see’ attitude on the effects of the RBZ Monetary Policy Statement and its effects on exchange rates.”
Last year for the period ended June 30 the combined assets of building societies measured in historical cost terms grew by 162%.
Cash and investments grew by 168% and mortgage advances by 95% from $17,1 billion to $33,4 billion.
Deposits grew by nearly 180% from $39,9 billion to $111,2 billion and the shareholders’ equity, which consists mostly of permanent, paid up shares by $31,1 billion.
Outgoing president Nicholas Vingirai said the increase in cash and investments had been due by and large to inflation and the societies had “seen the effects of the cash crisis that was experienced in the few months”. He said of concern however was the increase in mortgage advances, which did not appear to have kept in line with inflation.