Tag: mortgages

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ZNBS Launches Timange Housing Loan:

A New Path to Homeownership

Zambia’s housing landscape is evolving, and the Zambia National Building Society (ZNBS) in collaboration with Habitat for Humanity has just introduced a new product aimed at expanding access to homeownership. The “Timange Housing Loan” is designed to cater to a wider demographic, specifically targeting low-income earners, including those in the informal sector. We watched the launch event on February 27 2024 and here’s what we understood after all the speeches.

Key Features of the Timange Housing Loan:

  • Target Audience: This loan product is geared towards both formally employed individuals and those in the informal sector, acknowledging the diverse economic realities of Zambians. However, it seems to only target women (to be clarified)
  • Accessibility for Non-Salaried Individuals: A significant aspect of the Timange loan is its inclusion of non-salaried individuals, a segment often overlooked by traditional lending institutions.
  • Village Bank Group Requirement: A crucial component of the loan process is membership in a village bank group that holds an account with ZNBS. This collective approach aims to build trust and shared responsibility.
  • Flexible Repayment Terms: The loan offers repayment periods ranging from 3 to 36 months, providing flexibility to suit different financial situations.
  • Competitive Interest Rates: Interest rates start from 3%, making the loan potentially more affordable.
  • Application Requirements:
    • Employed individuals require a 3-month payslip and a letter of employment.
    • All applicants must belong to a village bank group that has an account with ZNBS.
  • Fast Approval: ZNBS aims to provide loan approval within 48 hours, streamlining the process for applicants.

What This Means for Aspiring Homeowners:

The Timange Housing Loan represents a significant step towards financial inclusion in Zambia’s housing sector. By incorporating village bank groups and catering to the informal sector, ZNBS is attempting to break down traditional barriers to homeownership. The short approval time also adds to the attractiveness of this new product.

Now, we’d love to hear from you: How do you think the village bank group requirement will impact the accessibility of this loan? What do you think about getting a loan to build your home. Share your thoughts and experiences in the comments below!

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PART 2: Is Buying a House in Zambia worth it? Should you just buy for the sake of it?

Disclaimer: This information is for general knowledge and guidance only. It does not constitute financial or investment advice.

Is Buying a House in Zambia worth it? Should you just buy for the sake of it? In the last article we talked about how to calculate your return on investment (ROI) using Capitalization Rate. If you haven’t read that article yet, please read it here (https://zambiahouseplans.com/?p=811) 

Let’s continue our assessment by using another method called Cash on Cash Return.

The following methods are suited for people who are interested in knowing the cash flow before investing in a property.

Cash-on-cash return measures the annual pre-tax cash flow generated by a property relative to the total cash invested. In simpler terms, it tells you how much cash you’re getting back on your initial cash investment.

Let’s use the same example of a block of flats in Chalala, Lusaka. Grab a pen and paper.

STEP 1. CALCULATE YOUR ANNUAL PRE-TAX CASH FLOW (APCF)

This is the net income you receive from the property after deducting operating expenses and mortgage payments, but before accounting for income taxes.

  1. Determine Gross Annual Rental Income
  • Research comparable rentals in the area to set a competitive market rate. Be realistic.
  • Consider factors like size, amenities (e.g., parking, appliances), and property condition.
  • Rent in Chalala 2 by 2 bedroom house R= 5,500 x 2= 11,000 per month
  • Multiply monthly rent by 12 months account for potential vacancy periods (e.g., between tenants). 
  • Gross Annual Rental Income= K11,000 * 12 months= K132,000
  1. Determine Annual Operating Expenses (AOE)

Add up all the annual operating expenses you expect for example:

  • Mortgage Payments: Include principal and interest.( Let’s assume 4,500/month
  • Insurance: Many people in Zambia don’t take this seriously but please insure your house.
  • Utilities: (If you pay any)
  • Maintenance and Repairs: (Estimate for routine and unexpected costs)
  • Property Management Fees: (If applicable)
  • Vacancy Costs: (Estimate potential lost income during vacant periods)
  • Total Annual Operating Expenses (AOE)= K90,000 (just an example factoring in all the above, )
  1. Annual Pre-tax Cash Flow (APCF)

= Gross Annual Rental Income – Annual Operating Expenses

= GARI – AOE

= 132,000 – 90,000

APCF = K42,000

STEP 2. CALCULATE TOTAL CASH INVESTED

This is the total amount of cash you put into the property upfront. This includes down payment, closing costs and any initial renovation or repair costs.

Let’s assume you purchased the property including closing costs and renovations for K1,000,000.

Then:

  • Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) x 100

= (42,000/1,000,000)*100

Cash-on-Cash Return = 4.2%

This means you’re getting a 4.2% return on your initial cash investment each year. Is this good enough for you?

  • Interpretation:
    • Higher Cash-on-Cash Return: Indicates a higher percentage of your initial investment is being returned annually in cash flow. This can be very attractive to investors.
    • Lower Cash-on-Cash Return: Suggests a lower immediate return on your initial investment.

To increase the percentage, you can either have higher rent or ensure your initial investment is as low as possible by negotiating and making sure you assess the renovation costs accurately before buying by engaging a professional. It can also help you choose which loan/finance to use.

  • Key Considerations:
    • Investment Strategy: If your primary goal is immediate cash flow, a higher cash-on-cash return is more desirable.
    • Pre-Tax: Cash-on-cash return is calculated before taxes, so it doesn’t reflect your actual after-tax profit.  
    • Leverage: Cash-on-cash return is heavily influenced by the amount of leverage used (mortgage financing).  
    • Cash Flow Focus: This metric primarily focuses on cash flow, not property appreciation.
    • Short-Term View: It provides a snapshot of the current year’s return only, not the long-term overall return on investment.  

Cash on cash return is a very useful metric, but should be used in conjunction with other metrics such as cap rates.

So tell me, does the result of this calculation matter to you or are you buying real estate regardless of the returns?