In Zambia, 60.5 percent of the population live below the poverty line; additionally UN-Habitat estimates a housing backlog of over 1.3 million housing units. In circumstances such as this innovation is the name of the game when it comes to housing delivery. Standard approaches only yield standard results; which inevitably have minimal effect on reducing the housing backlog.
According to the World Bank’s Global Financial Inclusion (Global Findex) Database only 22 percent of rural and 14 percent of urban Zambians over the age of 15 have an account with a formal financial institution, and only 11 percent of employed adults earn a formal salary or wage – further undermining Zambia’s already vulnerable mortgage finance sector. Stringent terms such as high deposit requirements, as high as 20 percent, and relatively short loan repayment periods, i.e. two to ten years, make it difficult to afford mortgage finance.
Zambian Home Loans (ZHL) offers an alternative to the conventional mortgage finance instrument: a building loan, which is converted to a mortgage once construction of the house has been completed. ZHL is a collaboration between Investrust Bank, African Life Financial Services and Sofala Capital. It specialises in building loans which are paid out in tranches according to the various building stages, i.e. foundations, walls, roof, fixtures and fittings and the complete house. Once a stage has been completed, a tranche payment is made for the next construction stage. This financing structure guarantees that the final product will be delivered as per the agreement and the required quality standards, ultimately resulting in physical collateral to put against the building loan. Zambian Home Loans has partnered with various construction companies, such as Builders Warehouse, Sunshare, MicMar, NDS Glass and Aluminium, Vaal Sanitaryware, Union Tiles and MAT Floors. Consequently they are able to secure bulk discounts for building materials which are then passed directly to the applicant. Over and above this, ZHL offers standard house plans for 1 to 4 bedroom houses, which cost between K128,000 or K3,287 per month (US$16 237 or US$417 pm) to K735,000 or K19,119 per month (US$93 235 or US$2 425 pm).
CEO of Zambian Home Loans, Twaambo Hamusute, indicated that 500 formally employed Zambians were surveyed to assess the feasibility of this mortgage financing model. The findings revealed that individuals preferred building their own homes as opposed to renting or buying. Many of the surveyed individuals used their savings to build their homes; which could take anywhere between 8 – 15 years. Even after this period the house would only be 85 – 90 percent complete. Findings from the survey also indicated that 9 out of 10 potential customers do not have title deeds. Thus in an effort to increase the amount of land and/or home owners who have title deeds ZHL has partnered with a number of conveyancing firms to assist clients with the registration processes.
ZHL acts as the financier, therefore it does not hire contractors, or other professional team members, nor does it oversee the building process on the applicant’s behalf. As an alternative to the short mortgage periods traditionally offered in Zambia, building loans from ZHL are repayable over a maximum 20 year period. The loan is structured according to the applicant’s personal profile, degree of indebtedness and affordability level. To be considered for a loan one must work for a ZHL partner employer, have worked at the said employer for more than two years, earn more than K6 600 (US$837), be a full time employee and own a stand with a title in the applicant’s name. Twaambo indicates that the loans offered by ZHL are insured against death, permanent disability, terminal illness and loss of employment. In addition to this ZHL provides contractor liability cover, during the construction stage, and c0ver against fire damage once the house has been completed.
ZHL is an example of innovative collaboration between the private sector and the prospective home owner; it highlights the citizen’s ability and desire to be an active role player in the housing delivery process. In circumstances where the housing backlog is so high, innovative measures and mutually beneficial collaborations are intrinsic to facilitate a significant decrease in the housing backlog.