The number of mortgage bond holders steadily increased over a period of five years between 2011 and 2015, according to the BBS annual report.
The slow uptake of mortgage financing is consistent with the industry wide downward trend on credit growth observed particularly on commercial banks. In its third quarter (Q3) economic analysis, Motswedi Securities states that credit growth in the business sector registered a considerable decline. According to the economic analysis since May, 2015, the business sector recorded a single digit growth and in July 2016 had registered a growth of 6.1 percent year on year. However, prior to 2015 credit growth had been averaging 16 percent.
The analysis also found this ironic given the successive interest rate cut by the Central Bank from 2015 into 2016. “We believe the irony of this declining trend could be attributable to the deterioration of borrowers’ credit capacity and weak demand prospects, which all have dampened banks appetite to extend more credit and demand for business to take up more credit,” read the analysis.
The BBS annual reported recorded the number of mortgage holders at 5206; 5488; 5540; 5484 and 5723 in 2011, 2012, 2013, 2014 and 2015 respectively. In figures, advances towards mortgages and short loans increased from P1 688 744 in 2011 to P3 010 432 million in 2015. The report does not show the proportion of mortgage financing in the advances figures, but one could deduce that the combined figure for both mortgages and short loans is not reflective of the encouraging interest rates.
Meanwhile, First National Bank Botswana (FNBB) introduced earlier in March an incentive to property ownership by offering 100 percent financing. FNBB called the product ‘FNB 105 % mortgage offering’ targeted at first time home owners which allows the bank to consider financing up to 100 percent of the purchase price plus an additional five percent of the purchase price which goes towards legal and administration fees. “It will empower prospective owners to purchase their homes and this will therefore stimulate the real estate market especially developers, to increase housing developments in order to capitalise on the heightened potential for sales,” stated the bank at the time.
One could also argue that the effort taken by FNBB is not sufficient to stimulate an industry wide real estate development; hence a combined undertaking by all the banks will prove more effective. This is particularly relevant to BBS given its mission to provide affordable property finance and thus establish itself as leading mortgage financier.