In many countries, house price swings have been associated with financial instability. There are several examples of house price booms in different countries. The unaffordability of housing also poses unmanageable challenges to the overall economic growth. The surge in the housing investment inputs such as cement, metals, space for construction, and other construction technologies become critical at this time.
Housing finance systems differ considerably across countries along a number of dimensions, including product diversity, type of lender, mortgage funding, and the degree of government participation. Availing affordable mortgage system helps providing houses with competitive price while urbanization is growing and citizens’ demand for houses increases in the country.
Recently, Selam Mortgage Bank was launched targeting to address the ever growing housing demand in Ethiopia. The Bank aspired to mobilize huge number of shareholders to realize its dream. Selam Mortgage Bank which is under formation is the second mortgage bank in Ethiopia next to Goh Betoch Bank which was established last year by Ethiopians Diasporas and other shareholders. During the Bank’s launching ceremony, Founding Member and Global Chairman of Fairfax Africa Fund Zemedeneh Nigatu said that the bank targets creating the largest generation of home owners in the country.
Selam Bank will bring different solutions to address the housing demand. The bank is ready to lend 100,000 mortgages in the next five years which will create a 200 billion Birr worth property. The bank will finance houses with estimated costs up to two million Birr. Addressing the lower and middle-income owners is the priority of the bank and its mortgage lasts for 30 years. Selam Bank prioritizes delivering houses with affordable price for youths and women with long-term loan and stable interest rate. Currently, most Ethiopian banks’ mortgage lasts only for ten years and collects 17 to 18 percent interest rates which are unaffordable by the lower and middle-income owners, according to him.
“The fastest growing population and speedy urbanization are the major drivers of the growing demand for houses in the country. As a result, the housing market has become among the most expensive in Ethiopia compared to other African countries. The current banking mortgage system is unaffordable and the interest rate is discouraging especially for low income earners to buy the houses mostly in the big cities of the country,” he remarked.
According to him, for instance, only 3.5 percent of Ethiopians can afford the current banking mortgage system at the moment. Accordingly, in order to alleviate this problem, Selam Bank aspires to meet the huge housing demand in Addis Ababa and other towns through introducing new construction technologies and innovations with an affordable price. Studies have shown that there is a severe housing crisis in Ethiopian urban centres. Currently, the housing shortage in Addis Ababa is estimated at 1.9 million units, with the demand increasing by 100,000 units each year. Therefore, Selam Bank works in partnership with effective housing developers, contractors, consultants, the government and other pertinent stakeholders to achieve its targets, Zemedeneh said.
Selam Bank founding member, an entrepreneur and Executive Director of Sole Rebels and Garden of Coffee Bethlihem Tilahun for her part said that Selam Mortgage Bank is launched aspiring big in the housing construction sector. The Bank aims to create the largest generation of homeowners in Ethiopian history, she added. Selam Bank will offer houses with down payments of as low as 15 percent. The Bank set to start operation within the coming five months.
Attending the launching ceremony, President Sahlework Zewde on her part said that private investors should play their role in solving the housing problem in Ethiopia.The rising cost of housing is challenging the lower and middle-income earners in the country, she added.
The president further said that various platforms should be installed to address the growing housing demand. Experts in the area also recommend that the coming of new competitive mortgage banks in the country will have a positive role to ease the government’s load to avail sufficient condos especially in the capital Addis Ababa.
The banking sector, according to the experts, needs to be modernized to meet the growing housing demand in different parts of the country. This is because the services being provided by regular commercial banks in the country have a general service nature and interest rate which is unaffordable with the lower and middle-income owners.
More importantly, credit duration and loan period are decisive to entertain the lower and middle-income owners. The experience of different mortgage banks in other countries witness a positive role in addressing housing demand, the experts added.
Beyond the regular banking system and mortgage banking, the country also needs agricultural banks to facilitate the agriculture sector and support the major economic engine, the experts underscored. It is known that there are 16 private commercial banks operating in the country and one government commercial bank. There are also commercial banks that are entering the market, including those which are undergoing the process of selling shares and holding their formation meetings.
The banking sector, like any investment and business venture, enters the market by researching market demand and supply. Therefore, the Selam Bank founding members proved that there is a big difference between the demand and supply of housing in the country. Selam Bank, which is currently in the process of building its capacity to sell its next 5 billion shares of capital with 2 billion paid up capital, has seen the fundamental gaps and opportunities in the market and will create more job opportunities than regular banking services. All in all, the introduction of a new banking system will be a stimulus for the financial sector and the opening of additional housing bank is likely to benefit both the market and the shareholders, the experts opined.
BY TEWODROS KASSA
The Ethiopian Herald June 8/2021
