Landlords fuelling inflation – Gono

Ngoni Chanakira

THE decision by landlords to continue pegging their properties in foreign currency has been cited as one of the several reasons why Zimbabwe’s inflation rate continues to escalate, says Reser

ve Bank of Zimbabwe governor Gideon Gono.


The RBZ governor says the scramble for property by asset managers has resulted in asset-driven price inflation arising from the diversion of savings from banks into real estate, foreign currency purchase, equities, vehicles and other forms of consumptive spending.


Gono says this is crowding out credit from real productive activities and is causing capacity constraints at the supply level.


Building societies, on the other hand, say Zimbabwe’s depressed economy and the hyperinflationary regime are major concerns and indicate the need for them to increase their margins in order to survive.


Last year landlords began pegging their properties in foreign currency, including for rentals, to hedge against spiralling inflation currently standing at 619,5%.


The landlords said pegging their properties in foreign currency was the safest way to hedge against inflation.


Finance and Economic Development minister Herbert Murerwa in his 2004 National Budget Statement conservatively predicted that inflation would reach 700% during the first quarter of the year, but economists say it could reach 1 000%.


“The major causes of the high level of inflation in Zimbabwe are: the foreign exchange shortages and parallel market activities which have effectively dollarised this economy from property rentals/purchases to many other non-forex consuming goods and services,” Gono said in his Monetary Policy Statement last month.


“Asset-driven price inflation arising from the diversion of savings from banks into real estate, forex purchases, equities, vehicles and other forms of consumptive spending due to lower than inflation interest rates. This scramble for property is crowding out credit from real productive activities thereby causing capacity constraints at the supply level.”


It is illegal to charge for properties in foreign currency but landlords can charge the equivalent in Zimbabwe dollars – which is officially $824 to the greenback.


The landlords, through their estate agents, have complained that they are not getting value for money because of the country’s hyperinflationary environment and thus use parallel market rates.


Upmarket properties are now going for as much as $1 billion in Zimbabwe dollar terms while houses in high density suburbs are asking about $50 million.


Houses are still being advertised in US dollars and British pounds in local newspapers and on the Internet.


This week a house in Highlands had a price guide of US$200 000 while properties in Eastlea and Borrowdale were asking for US$50 000 and US$500 000 respectively.


Diplomats, non-governmental organisations and chief executive officers are now snapping up such houses.


Zimbabweans living and working abroad have also led to the escalation of property prices as they sell their hard cash on the parallel market.


Gono said the new auction system to be introduced at the end of this month could help solve this “criminal activity”.


“It is always important in turn-arounds to fully appreciate the key sources and major causes of the type of challenges one is trying to fight or address,” the governor said. “In the sphere of turnarounds and crisis management, this imperative is referred to as a diagnostic exercise without which no amount of painkillers will cure the disease.”


He said there was now imported inflation arising from “iniquitous parallel market forces in the country as opposed to major price changes at source”.

He said inflation, which he promised would be reduced to about 200% by year-end, was being caused by misuse of concessionary resources meant to support the productive sector but misdirected towards financing consumptive and sometimes speculative ventures and forex parallel market activities.


The Association of Building Societies of Zimbabwe last year said the country’s depressed economy and the hyperinflationary regime were major concerns and indicated the need for them to attempt to increase their margins in order to survive.


They said interest rates for mortgages were well below market rates for loans offered by other financial institutions and, as such, building societies were at a major disadvantage.

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