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Property market still subdued

Paul Nyakazeya

THE property market remained subdued this year, with prospects of recovery remaining weak on the back of increasing inflationary pressures which pers

isted throughout 2007.

According to a Knight Frank’s Africa Report of Property for 2007, there were minimal residential developments in the country this year with “residential development activity mainly focused on the servicing and subdivision of land”.

The first half of last year saw the property market playing second fiddle to other investment vehicles such as the money market and the stock market.

This trend continued until government embarked on a controversial price blitz in June.

Eric Shilton of Real Homes said property sector was hampered by government’s bureaucratic system which made it impossible for developers to put up new structures.

“The cumbersome bureaucratic system has seen property playing second fiddle to other investments markets. The regulations have made transactions in the property sector slower.”

He said many residential properties were not completed because of the cost of building materials. Other costs in the construction sector have gone up as well.

“Potential homeowners are less optimistic about property market prospects in the coming year (2008) as evidence by the reduction of house and building which were completed this year,” Shilton said.

Real Estate Institute of Zimbabwe (REIZ) said for the eighth year running, there were no major developments on the property market due to the unstable economic environment and hyperinflation.

“Demand for space to let, particularly commercial, continued to shrink as companies downsized on space requirements,” REIZ said.

“Rentals, although increasing in sympathy with inflation, were still way below regional levels and at the levels they are, are not good enough to attract new developments.”

REIZ said current office rentals were under US$1 per square metre compared to between US$5 and $10 per square metre in the region.

“Rental returns for property owners were severely being affected by inflation-driven building operating costs, in particular rates, water and security,” REIZ said.

“The tenant, in deciding to take up space, looks at the total occupation costs and we now have in the majority of cases instances where operating costs exceed rentals by up to one and a half times,” REIZ said.

REIZ said there was an acute shortage of houses and flats to let, contributing to the steep rise in rentals.

“In the case of houses and flats to let, one particular supply side bottleneck is the much talked about Residential Rent Regulations which caused institutions to shy away from housing as this sector had poor returns due to controls.”

Properties remained priced beyond many potential buyers in a market where the bulk of the country’s working class no longer qualify for bank loans or mortgages.

“High inflation has led to the dollarisation of prices whereby the market considers residential property values in US$ terms even though transactions can only be legally undertaken in Zimbabwe dollars,” said Knight Frank in a report.

“In terms of local currency, values have risen by over a 4 000% since the beginning of the year,” Knight Frank said.

A standard medium-density house, which cost between $150 million and $200 million in January last year, is now priced above $100 billion.

A standard three bed-roomed house in the high-density areas now cost over $50 billion from $60 million in January.

Some houses in low density areas are prices at over a trillion dollars.

Figures obtained from Southbay Real Estate indicate that, rentals in Harare had also significantly gone up.

Rentals for residential properties for medium and low density houses were pegged at between $150 000 and $300 000 in January but are now at above $100 million.

Most home owners are now charging their rentals in foreign currency.

The trend of quarterly rent reviews became the norm as property owners sought to cushion themselves from the galloping inflation. The year saw a decline in industrial output.

“Although the prevailing poor economic environment has led to a decline industrial output, there are no vacancies in Harare and Bulawayo,” said Knight Frank.

Knight Frank said occupier demand during the year from emerging small enterprises was very strong for small industrial units (200-500sq m).

“Institutional interest in industrial property investment however has waned over the last few years, reflecting a perception that the sector will continue to decline in the short to medium-term.”

Knight Frank said high quality retail space is fully let with not major developments in the pipeline.

“As with offices, institutions are showing strong interest in suburban retail space although, due to lack of supply, this can only come in the form of new developments,” said Mazarire.

According to information gathered from the country’s four building societies; Central African Building Society, Beverley, Intermarket and FBC Building Society most mortgage applications were turned down because the applicants did not meet the income requirements.

Compared to other investment, the property seems to have benefited from the price blitz.

With other sectors struggling due to price controls investors seemed to have found an option in the form of the property sector.

This growth came in the form of prices and no new structures.

However, even that recovery was not enough to surpass the growth on the stock market.

According to the Genesis Bank group economist, Brains Muchemwa, the unlisted property market to date has gained an average of 80 000% against inflation rate year to September at 3 576%.

“The property sector, though a huge disappointment when compared to other asset markets in Zimbabwe, has been exuberant on the back of increasing money supply, foreign currency shortages and dwindling influence of the construction industry since 2002,” Muchemwa said.

Muchemwa said the fact that properties were trading at a huge discount means that unlisted property market in Zimbabwe remains a very attractive market.

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