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Housing loans taken out with banks increased from Rs 106 billion in May 2023 to Rs 117 billion in May 2024. These increasing figures are not surprising, being almost necessarily part of a normality that should nevertheless be worrying.

Households continue to get into debt. Figures published by the Bank of Mauritius indicate that household debt as of May 2024 amounted to Rs 168 billion. Among them, housing loans account for Rs 117 billion. As was the case in previous months and for several years, housing loans continue to grow and represent a large proportion of total household debt.

Michel Hardy, president of the Association for the Protection of Abused Borrowers (APEA), concedes that the largest amount of household loans is for real estate, either for the purchase of a house or land. This is explained, he says, by the fact that few households have personal resources to finance their project. “Mainly young couples are forced to go into debt to acquire a house. This is not new, except that the amount of the loan is increasing,” he argues. According to a surveyor, a minimum of Rs 1.5 million is required for a plot of land of about six perches. The price goes up to Rs 2.6 million to acquire seven perches of land in a subdivision. According to the surveyor, the cost will continue to increase due to Smart Cities and the various developments across the island. “Some owners are in wait-and-see mode to sell their land. Although the location of the land is not very popular, the owners anticipate a price increase in the near future,” explains the surveyor.

From an economic perspective, buying land or owning a house is considered an investment. Economist Manisha Dookhony notes that in Mauritius, having a house is very important for a family. “Households go into debt to buy or build a house. It makes sense in terms of investment and repayment. A house is a personal asset,” she explains.

Refund

However, where there is a loan, there is a repayment. And that is the difficulty that stands in the way of some households when it comes to the accounting balance at the end of each month. Current expenses have been influenced by the cost of living and persistent inflation. Faced with this, the Minister of Finance announced in the budget a 5% reimbursement offered on the cost of purchasing a property. Manisha Dookhony specifies that this reimbursement does not only concern cheap houses, but also those of a certain standing. According to her, this is beneficial to different categories of the population and goes in the direction of access to housing. “It is important from a social point of view,” she adds.

For his part, Michel Hardy believes that this reimbursement rate is not sufficient. Because, he argues, we are counting today in terms of millions to buy or build a house. “It helps, but the government should have proposed a better reimbursement rate, especially for young couples who are starting a life together. We should give at least 10% for a first time buyer,” he points out.

The interest rate on which the repayment to be made by a borrower is calculated is based on the key rate. Which makes Manisha Dookhony say that it would be necessary to know what margin banks make when the key rate increases. “It is clear that it becomes much harder for borrowers. The repayment compared to a loan has increased significantly in recent years,” says the economist.
In this regard, one of the country's major banking entities saw its results for the quarter ended March 31, 2024, driven by a significant improvement in credit losses due to rigorous risk management. Its figures also benefited from a 6.6% year-on-year increase in net interest income, attributable in part to “a high interest rate environment.”

However, the president of the Association for the Protection of Abused Borrowers (APEA), Michel Hardy, fears that the key rate – set at 4.5% – will not fall as long as inflation remains high. The Monetary Policy Committee should begin to gradually reduce the Key rate, he continues, but inflation is playing spoilsport.

Luxury Real Estate

The situation is different in the luxury real estate market, however. Of course, as Timo Geldenhuys, director of Mauritius Sotheby's International Realty, points out, from the entry-level perspective, i.e. purchases of $375,000 and the entry-level smart city product, it is certain that people are more aware of their purchasing power due to inflation. On the other hand, he notes, in the upper segment of the market ($1.2 million and above), clients seem to be more resistant to inflation.

Moreover, from one year to the next, the luxury real estate market has experienced good growth. “We have recorded good sales, particularly in the high-end sector. That said, it is very difficult to predict trends. We were used to operating in a market where there were periods of high activity and quieter periods. The strategy we apply is to try to be consistent throughout the year,” he concludes.

The measures of the 2024-25 Budget

  • Under the Home Ownership Scheme, a 5% rebate is offered on the purchase cost of a property, up to a maximum of Rs 500,000.
  • For those who have taken a loan to build or buy a house, a 5% refund is granted, under the Home Loan Scheme, on the loan amount, up to a maximum of Rs 500,000.

housing info

Other loans

Economist Manisha Dookhony says the proportion of other loans needs to be taken into account. One needs to understand what this is. Home loans are at preferential rates and are spread over a long term, unlike other loans. “We are talking about consumption-driven growth. Were these other loans taken for cars, appliances or holidays? That will help understand the trend,” she argues.

Michel Hardy, president of the Association for the Protection of Abused Borrowers (APEA), agrees. He notes that in addition to housing loans, the rest of the borrowing is also pointing upwards. “Households are forced to get into debt because of the high cost of living. The aid granted by the government through the budget disappears very quickly with the increase in prices. The rupee continues to depreciate,” he laments.

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