The Sunday News
Roberta Katunga Senior Business Reporter
HUNDREDS of property owners are losing their houses as a result of defaulting on bank loan payments amid revelations that there is an influx of property being auctioned by the Deputy Sheriff’s office, a trend that has been defined by economists as a symptom of an over-collateralised banking sector.
In his July monetary policy statement, Reserve Bank Governor Dr John Mangudya said non-performing loans had risen from 1,6 percent in 2009 to 18,5 percent ($705 million) as at June 2014.
“The level of non-performing loans has risen from 15,9 percent as at 31 December 2013 to 18,5 percent as at 30 June 2014. Globally, non-performing loans (NPLs) have been a hindrance to economic stability and growth of economies.
“The Reserve Bank is cognisant that the problem of high levels of NPLs which exceed the international benchmark of up to five percent can be a threat to financial stability and economic growth,” said Dr Mangudya.
Economist Mr Chris Mugaga said NPLs had been increased by what he coined cavalier lending, which is lending based on connections rather than rationality and due to the deteriorating economic growth, companies lose capacity to repay loans.
He said there was also a blatant disregard for corporate governance.
“There has been a desperation by banks to grow their balance sheets by over loaning, that is giving too many loans and failing to recover,” said Mr Mugaga.
In response to the auctions, Mr Mugaga said it was a symptom of an over-collateralised banking sector and the only resort was to auction off property to recover the money.
“When people lose their properties it leads to destitution, heightened poverty levels and people lose their source of income as some rely on rent to survive,” he said.
In separate interviews estate agents and auctioneers revealed that in the northern region for example, the Sheriff’s department has been having two auctions monthly while in Bulawayo and surrounding areas, a major Sheriff auction sale would be held on 19 September where at least 16 properties were on offer.
A research analyst at a property company in Harare who spoke on condition of anonymity said there were a number of properties on auction as a result of bad loans although some were withdrawn when the owners defend themselves in courts.
“There is indeed an influx due to defaults but in some instances with few takers because of liquidity constraints. As property players we monitor these sales to note the forced sale values of the properties,” said the research analyst.
Speaking on the trends in the property sector, Bulawayo Real Estate managing director Mr Mike Nekati said when people apply for loans, they surrender their title deeds to banks as collateral security.
He said in the event of a breach of the agreement, banks attach property.
“It is hard to say whether there is an increase but there are at least two auctions per quarter and at the end of September there will be one where quite a number of properties will be sold as banks try to recover depositors’ money,” he said.
Mr Nekati said people should exercise due diligence before they approach banks to borrow money, do a risk analysis and proper feasibility study before pledging title deeds to the bank in order to be given a lump sum.
“Some people when given loans divert the money and do not channel it towards the intended project putting them in a precarious position.
“Despite the economic hardships, there is an element of negligence by borrowers. Businesspeople should have financial discipline,” he said.
According to impeccable sources, the Sheriff’s department uses forced sale value instead of the open market value.
In July, 17 properties valued at $997 500 were auctioned in the northern region.
Property from Kumalo, Hillcrest, Pumula South, Queens Park, Entumbane, Hillside, Selborne Park, Bellevue, Killarney in Bulawayo as well as Kwekwe and Gweru will be auctioned as part of the southern region auction to be held on 19 September.
Responding to questions on whether an influx of property on the market did not affect the value of properties, the research analyst said under normal circumstances prices were supposed to fall.
However, he said there were a few sellers prepared to reduce their prices and therefore property prices remained on the high side.
“There is a housing backlog of over half a million units in the country hence the demand is generally high.
“When you also look at the quality of property on sale, it might not be the type that people desire because right now there is a demand for high density houses. If for example more houses in that area are auctioned it might affect the general price.
This is because of the principle of supply and demand,” he said.
