Low lending rates to spur property market
The recent reduced lending rates by the Reserve Bank of Malawi (RBM) will positively affect mortgage rates and assist in house ownership schemes and reduce takeovers, a leading property dealer has said.
Press Properties Limited (PPL) General Manager Martin Chimangeni said in an interview with Nyasa Times that although the reduced lending rates may positively affect mortgage rates at household level, there is need to sustain the trend beyond the general elections and the lean period thereafter.
“At household level, reduced lending rates will positively affect mortgage rates. Low mortgage rates would assist in house ownership schemes and reduce takeovers that have been so evident in the daily newspapers the past two to three years.”
“Real estate developers who develop for sale would realise better returns with lower lending rates. This may spur development of more housing schemes, commercial buildings and shopping malls provided the trend remain sustained beyond the general elections and lean period thereafter,” said Chimangeni, a registered Quantity Surveyor and a council member of the Surveyors Institute of Malawi.
Recently RBM revised the monetary policy rate from 16% to 14.5% and directed that all banks to have their lending rates at 14.9%. Mortgages are normally priced at a bank’s base lending rate. As at December 2018, some banks had their base lending rates at about 22%.
Chimangeni said if someone had bought a house on mortgage at K20 million in December 2018, he or she would be paying mortgage at approximately K550,000 per month but with the reduction of the rates now, the mortgage would be reduced to somewhere around K310,000 a month provided the rates remain stable.
“Reduced lending rates would also affect loans and cost of financing from borrowers. This would mean available financing to investors and would be investors for sustained development of assets. It remains to be seen how lenders would price their processing fees for an overall reduced rate on loans. We have so far seen that lending institutions especially banks have reduced their maximum lending rates to about 26% from around 33%,” said Chimangeni who is also Vice Chairman for Quantity Surveyors of Malawi.
“The reduced interest rates may not have an immediate impact on emergence of development as of now, but if the trend is sustained we may see improved housing schemes, better private sector participation in property development, availability of employment to most technical staff in the real estate sector who, despite qualifying, took up less paying jobs, changed careers or are idle at home.”
“Property development would also bring confidence to other investors other than the general trend of uncompleted buildings characterizing our towns,” added Chimangeni.
He said the lower interest rates may assist in lowering the financing costs for real estate investments and property values may improve if the trend is maintained over time.
“If the trend continues, it may have a positive impact on the real estate market though it faces challenges on high cost of importation of construction items as opposed to Malawi’s somewhat lower rentals,” said Chimangeni.
He also noted that if inflation remains low and lending rates keep going down, overall gross market yields for real estate would be positively affected as well adding that lower cost of investment would mean better yields for an investment where rentals are competitive.