FORMER US President George W Bush said these words which were immortalised in the movie Too Big to Fail: “I do believe in the American dream. Owning a home is part of that dream. We are taking action to bring many thousands of Americans closer to owning a home. This project not only is good for the soul of the country but good for the pocket book of the country as well.”
While maybe not exactly the same words could have been said at a recent board room in Nelson Mandela Avenue, Harare, action on the ground suggests that an executive team, with an unshakeable belief in the Zimbabwean dream, experiencing an Archimedian revelation, could have resolved to take action to bring that dream into reality. There is no doubt that Zimbabweans from all walks of life value owning a home, such that the term “dream house” resonates with most of them.
The team at this hitherto small institution, which was lauched in the 1990s, as the first indigenous building society, made a call which was to change the mortgage banking and urban housing supply landscape. At its inception, the society was Zimbabwe Building Society, before it was changed to First Building Society, following its acquisition in January 2005, by First Banking Corporation. It was subsequently re-branded to FBC Building Society, concurrent with the re-branding of the whole group. Up until 2006, FBC Building Society continued to play second fiddle to the likes of Cabs, CBZ Building Society (formerly Beverley) and ZB Building Society.
As part of its colonial legacy and until recently, Zimbabwe had a distinctly stratified banking ecosystem comprising commercial banks; merchant banks; finance houses; building societies and discount houses. Each stratum provided only specified products and services. Under this environment, the major role of the building society was to provide funding for housing construction and purchase. The building society would work with construction companies like Costain and John Sisk.
What are building societies and how did they start? The initial model for the provision of housing finance was in the form of terminating building societies which started in England in 1775. The early building societies were formed to mobilise savings of lower and middle-income households for the sole purpose of home construction.
Members would agree to contribute regularly to the society, build houses together and allocate houses by lottery until each member was housed. Once the defined group of members was provided housing and had repaid the loans, surplus assets, if any, would be distributed among members and the society would be terminated. Thus, the early building society was a mutual society.
A “mortgage” is a legal device by which a debtor/borrower pledges his residence to secure his obligation to the creditor/lender who provides the loan to construct or acquire it. A mortgage is typically a public, registered agreement and its creation is subject to certain legal formalities. The mortgage pledge is typically an accessory to the credit (it exists only so long as the debt remains unpaid). It is a non-possessory pledge, meaning that despite its existence, the debtor retains legal title to the residence. He or she is entitled to use and occupy the residence until he or she fails to perform his or her obligation, at which time the creditor has a preferred right to evict the debtor, sell the property and recapture the investment.
The problem with the standard building society model is that in the absence of the supply of new housing stock the building society becomes just like any other transacting bank, albeit a cheaper one. During the hyperinflationary environment, very few developers were bringing new housing stock to the market, and the building society sector was atrophying. At the same time, because of the transfer of wealth effect of hyperinflation, most building societies found themselves with no assets.
Following the Eureka moment, FBC Building Society, then under the leadership of Webster Rusere, decided to go back to 1775, but with a modified modus operandi. The building society solved the problem of raw material (housing stock), by setting up housing supply solutions divisions. It thus, started constructing houses and providing mortgages to borrowers to purchase the houses. As George Bush indicated the project is not only good for the soul or humanity but also for the pocket book of the building society as well.
There is a reasonable internal rate of return on the completed house, with most of the projects in Waterfalls valued at between US$80 000 and US$100 000. The same house immediately yields annuity income in the form of monthly mortgage repayments, ranging from US$800 to US$1 200 for 10 years. The building society uses a standard Loan to value of 80%, meaning that borrowers have to come up with a 20% deposit. Most of the projects, which now include state-of-the-art — if there is anything like that in real estate — cluster homes are located in Greendale, Waterfalls, and Philadelphia Borrowdale. In Gweru, FBC Building Society is putting up an entire high-density suburb.
Since the scheme, started, FBC Building Society has constructed new houses and provided US$21 million worth of mortgage loans.
The growth has also translated into full-scale economies with the balance sheet growing from US$6,2 million on January 1, 2009 to US$70,7 million as at June 30, 2013 which works out to Compounded Annual Growth Rate (CAGR) of a phenomenal 72% per annum for the past four and half years. Such innovativeness has seen FBC Building Society eclipse both CBZ and ZB Building Societies. Although it is still much smaller than CABS, asset wise, there is no doubt that FBC Building Society has more brand visibility and is making a much stronger impact in the economy and enabling Zimbabweans to turn their home owning dreams into reality.
If there was an award for the most innovative building society, FBC Building Society would not only be a worthy recipient but probably the award would not do justice to what the society has achieved.
On another level, FBC Building Society will rank among the few companies that are actively sprucing up and upgrading the environs of Harare, while at the same time earning a healthy return for its shareholders.