As the demand for housing increases, in […]

As the demand for housing increases, in meeting the 1.5 million deficit, some Zambians are turning to financial institutions for loans to build houses. However, the biggest challenge of the market is the high interest rates that go as far as 25–30 percent, unlike other developing countries whose rates are below 15 and 10 percent.

Commenting on the matter, economist Nalylor KopaKopa observed that acquiring a loan to build a house has fewer risks, but the return takes longer than 10 years. He also warned that the high interest rates are unfavorable for a common Zambian, and therefore interested borrowers must take careful consideration.

Revealing that the interest rates for building a home for rent are quite high as compared to the rates for just residential. One of the advantages of borrowing a loan is the ability to finish the project faster, unlike a situation for a regular worker to construct it in phases depending on the flow of income.

 “One of the biggest disadvantages is that due to the high interest rates, the repayment of the loan may exceed the value of the home, which can be quite strenuous for the borrower,” said KopaKopa.

 “It’s not a bad idea except that the interest rates are very high, and real estate is quite a good business; if you are building a house for rent, it means that the cost of building will go up by the cost of the interest, and the payback period is longer because the return is just about 2 to 5 percent.”

 He added that the payback period for a borrower might even take more than 10 years, which is a huge constraint for those wanting quicker returns. KopaKopa emphasized that real estate is risk-free, but the return is quite low, depending on the type of business, with the exception of commercial renters if the premises are located in expensive places.

Article Samuel Mutale