HomeBusiness DigestDollarisation and the Property Market

Dollarisation and the Property Market

DOLLARISATION brought many dynamics to the property market making it difficult for many players who built huge property portfolios on the back of rising inflation.

Anyone who bought a property in Zimbabwe dollars from bank financing last year probably got it effectively at less than 5% of its real value, while those that got mortgage financing in 2008 got their property at less than 1% of the real values due to miraculous benefits and healing effects of hyperinflation.
Many bargain hunters expected Zimbabwe’s property market to be hurting at all levels. But local and foreign buyers were in fact having to pay between US$90 000 and US$200 000 cash for modest three-bedroomed homes. Despite Zimbabwe’s economy staggering on the edge of collapse last year with many companies shutting down, unemployment soaring and an average monthly salary of less than US$150, the property market was booming.
With no home loans available in the country, buyers are paying in cash. Wealthy Zimbabweans are putting their money into assets they believe will increase in value instead of banking it.
Most local currency borrowing costs, which became as lucrative as -0,99% in 2008, benefited anyone who cared to borrow, from beneficiaries of Agricultural Support Productivity Enhancement facility and Basic Commodity Supply Side Intervention facility, to those who got loans to finance or refurbish their property portfolios.
Dollarisation caused liquidity problems on the market during the year resulting in property prices that had sky- rocketed to drastically come down due to effects of demand and supply.
Companies and individuals that had money during the first half of the year adopted a wait-and-see attitude in anticipation of a further reduction on property prices. This greatly affected the property market as there was little or no activity on the market.
During the first quarter of the year, a lot of tenants renegotiated their rentals downwards due to stabilisation of prices and reduction of prices of most residential properties. The period also witnessed a number of properties being abandoned as some tenants left without notice.
However as the year progressed, the country continued to enjoy stability economically and politically, many people became more comfortable dealing in the property market.
The second half of the year saw institutions offering mortgage facilities to their employees; this led to significant movement on the market.
As was observed the loans that were given affected a particular price range of properties, the bulk of the people who were offered loans were between the range of US$65 000 to US$150 000.
The commercial sector also saw increases in activity in the second half as a number of legitimate businesses were started leading to an increased demand for office space, thus pushing the price per square metre from as low as US$4/square metre to US$8-10.
Despite the limit of loans it still had ripple effects due to the fact the some of the people who were given loans had other properties as well. These homeowners ended up trading them with properties on the higher end of the market.
As the property market was adjusting itself, the market witnessed a lot of properties being sold using flexible payment terms which varied from 90 days to 12 months.
Another sector of the market that has enjoyed a lot of interest has been the commercial sector. The second half of the year saw the property market witness a lot of activity in the commercial sector with a lot of commercial buildings being put up for sale and a significant number of them actually being purchased by both local and international buyers. There was also considerable amount of interest from regional and international buyers.
During the last quarter of the year, there was increased activity on the market resulting in a shortage of properties ranging from 90k to 150k. The shortages resulted in unjustified price increase of properties that had initially been priced below US$90 000 to satisfy demand.
This year has been characterised by a lot of construction work due to the affordability of building material.
Zimbabwe Stock Exchange-listed property counters failed to enjoy the local bourse rally since the market re-opened in February despite the industrial index going up by 51%. During the year, property groups fell by at least 67%, with Pearl Properties and Dawn Properties falling by as much as 75%.
Mash Holdings fell by 70% and ZPI dropped by 65%. This trend indicates low appetite for the sector as investors are seeking more exposure in cash-generating businesses such as the fast moving consumer goods and retail sectors.
However, as these sectors reach full value, the property industry is expected to improve on revenues and subsequently on earnings.

 

Andrew Chifamba is the managing director for Ailse Properties P/L. He can be contacted on andrew@ailseafrica.com.

 

By Andrew Chifamba

Recent Posts

Stories you will enjoy

Recommended reading