By Kuda Pembere
There is an outcry from land developers in Zimbabwe’s housing construction industry, with claims that banks are stripping away their profit margins.
The contractors said the institutions are straying from their core mandate of funding.
The issue came up at last week’s annual Construction Industry Association of Zimbabwe (CIAZ) conference, after it was mentioned that financial institutions are actively seeking housing projects to fund.
For Zimbabwe Global Investments (ZGI) Chief Executive Tendai Hlupo-Mamvura, the role of banks should remain that of providing funding, not taking over projects. She said developers are finding projects financed through banks more expensive than those awarded via competitive tender.
“My question to the presenter, who happens to be my neighbor here, is the origin of the separation of responsibilities, and all that was to create checks and balances along the way. Now you put in everyone in her one house; how do you ensure equity? Because, practically, there is outcry to say the project that has been done through a bank process tends to be more costly than the ones that are going through competitive tender. How do you respond to that? she said.
She said starting a housing project journey with a bank has led many land developers to complain of thin margins.
“There is one question again, the question I just want to ask regarding the collaboration with banks. I don’t know how many people here have attempted to engage banks at the inception of projects. A lot of the time the banks have actually become sharks, and when they become your partner, they literally take most of your margin away, and you’re actually left working for the banks.
“It’s like sometimes when people are also doing developments, where a developer comes and takes a piece of land and then they say, ‘Oh, we’ll give you three units,’ and then they walk away with a development with 20-something other units, and the owner of the land is left with nothing.
“I think it would be good to also sit at the table with the banks and remind them that their main responsibility is funding, not what, in the past, they’ve been called: nefarious activities. Where the banks themselves end up either charging you an interest of 52 percent per annum, which is not sustainable, or they are taking the project away from the developer such that the developer is effectively working for the bank,” she said.
Zimbabwe Institute of Quantity Surveyors (ZIQS) president Audily Chatora weighed in stating banks should stick to lending and leave construction to developers.
“It is only in Zimbabwe where you find banks developing. Banks’ core business should be to keep our money and lend money to developers to develop. If banks are doing that business and they want to be consultants, they want to put up construction teams, they are offline, and it should not even be allowed to continue. Say, with all due respect, your core business should be to keep our funds and loan out money for development projects, not for you to be partners in the context that we are doing at the moment, which eventually gives you a huge percentage of equity in an investment.
“This is what has been happening on the ground, and we are saying to our government, because we have taken and brought it to this conference, please relook at these. Streamline banks to go to their core business, and allow developers to do their core business,” he said.
National Building Society chief housing officer Engineer Peter Mukome defended the partnerships, saying banks are not “extracting value” but offering complementary resources, such as funding and land, to developers with skills and capacity.
Martin Chingaira, Chief Executive of the Construction Industry Federation of Zimbabwe (CIFOZ), said banks had approached the organisation expressing interest in partnering on housing projects.
“Then, coming to the issue of banks, these banks are the ones coming to our organization to say, ‘We would want to work with contractors who need funding when they’ve got bankable projects.’ So it’s a question of either you engage the bank through the feasibility study which we have, and they will see the bankability of the project, and you structure a deal which is a win-win situation. I think it can be done, but they are the ones coming to the Association looking for contractors.
“Then, over and above, we have got another organization called Export Credit Guarantee Corporation (ECGC) which is under Mutapa. Before last year it was under the Reserve Bank. It is also saying it would want to work with investors who may need funding and other guarantees.
“They can look for funding themselves on a project which they are engaged in. So I think these meetings are needed whenever there is a bankable project,” he said.
Export Credit Guarantee Corporation (ECGC) representative Wellington Siyamachira said his organisation has signed agreements with banks to provide security guarantees for developers lacking collateral, enabling more projects to proceed.
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