Insurance firms invest in property projects

With tight liquidity conditions biting the economy, businesses have been forced to be a little innovative. Insurance companies have also taken cue; by moving directly into property development.

By Taurai Mangudhla

Traditionally, insurance firms have invested in property projects through third parties or used funds to develop commercial structures such as buildings for rent to safeguard their client’s investments, but they are now moving into direct low cost residential housing development as a way of getting cash from clients’ monthly installments at a time insurance policy holders are defaulting on their premiums, analysts say.

Econometer Global Capital head of research Takunda Mugaga said more projects would be undertaken as insurers deal with the liquidity crisis.

“Given the limited cash in our economy, insurance is becoming an afterthought and it is no longer a choice due to the high levels of poverty,” Mugaga said.

He said clients are now opting to go for third party vehicle insurance because they cannot afford full cover.

“My prediction is that there will be more and more decline in insurance products uptake because of the liquidity situation so it’s only normal for the industry to be proactive,” he said.

Leading property analyst Mernard Chekayi said the fact that the insurance sector, the prime domain of long-term finance or savings in the nation, is shifting towards the residential real estate investment is a good development and resonates with research findings of the last three years that residential real estate is a viable investment asset which needs to be exposed.

He said the impact of such a move would be great, saying even listed companies have acknowledged the performance of the residential sector and are making efforts to enter into the sector.

“I expect to see growth from just the sites and services (stands) to super-structures (houses) and more innovative and accommodating payment plans for the would-be home owners in the absence of mortgage,” Chekayi told businessdigest.

The property analysts said government was being relieved of the cash demands for housing development and local authorities are slowly being pushed to consider public private partnerships with insurance players.

“Over the medium term we expect to see rapid growth on the supply side particularly the previously ignored affordable housing sector that is low-cost housing,” he said.

He, however, said government needed to activate proposed mortgage securitisation plans and the previously ignored tax incentives and draw more entities to this sector.

There is a huge market for low cost housing development in Zimbabwe as national statistics show there are about 1,5 million on the waiting list for urban housing as of April 2013.

Last week, Fidelity Life Assurance of Zimbabwe (Fidelity) group FD Benard Bare said premiums were being affected by liquidity challenges. He said the company’s gross premiums rose by only 3% to US$14,5 million in the year to December 2013 due to liquidity challenges that have seen employers failing to pay premiums and individuals cancelling their policies.

“Individual life business reduced by 12% to US$2,8 million as a result,” Bare said, adding group business and funeral assurance income contributed US$18,9 million, 7% down from US$20,3 million reported last year.

Fidelity MD Simon Chapereka said he was pinning hopes on the success of its Southview Park, a low cost high density housing development scheme.

Fidelity forecasted a US$30 million profit performance in the current year ending December 2014 buoyed by Southview Park project, which according to Chapereka is the company’s primary focus for 2014.

“This year we are expecting US$30 million profitability, US$21 million coming from the Southview Park project,” Chapereka said, adding the project was a huge game changer.

He said shareholders had assigned one of the company’s senior staff, former FD German Mushoma, to head the project full time.

Chapereka said 2000 out of the total 5950 stands available for sale had already been sold with another 1 500 expected to be sold by year end either on cash or installments. Presold stands have raked in US$4,5 million in revenues so far.

Financial services group First Mutual Holdings Limited (FML) last year also announced plans to develop thousands of housing units under its proposed low cost residential property scheme.

CEO Douglas Hoto told businessdigest this week the project, to be implemented under FML’s property subsidiary Pearl Properties Limited, was yet to take off due to delays in concluding agreements with key partners including the Harare city council.

“Negotiations are still underway, it has taken us long the deal together. We still haven’t been given the land allocation for instance, but a fairly significant number of housing units will be produced under the project,” said Hoto.