Rental defaults to continue into 2019

INCREASED pressure on rental defaults is seen continuing into 2019 given the tough economic environment which has seen rentals on business premises become unaffordable, a real estate executive says.

By Melody Chikono

Dawn Properties MD Patrick Matute says the property market will improve but cautions that it is not going to be immediate.

However, Matute says Dawn Properties remains upbeat and foresees brighter prospects driven by a positive business momentum.

“I don’t see any changes on voids and defaults. It’s likely to continue on the upward trend up to the end of year even after elections. It’s not going to be immediate, maybe up to 2019 in terms of property management. At the moment, if we look at other companies’ results, our property management occupancies are slightly above average at 76% while the market is around 74-75% there about,” he said.

Dawn Properties is currently managing the National Social Security Authority (Nssa) and National Railways of Zimbabwe (NRZ) pension fund portfolios as well as airports, a unique portfolio.

He added that Nssa and NRZ voids were in line with the market.

“At the airport, we manage the real estate, coffee shops, not including National Handling. Voids are much higher and there isn’t that much traffic. In terms of collections we are collecting about 80% of what we bill and the default rate is reciprocal. There is a lot of downward pressure on rentals,” Matute said.

“We get a lot of requests from our clients requesting rental deductions, we then make a request to the landlord who would have no choice but to reduce because most of the clients are long-term tenants. There has also been increased pressure on defaults.”

In the five months to May 2018, Dawn Properties Ltd revenues jumped 27% to US$2,2 million compared to the same period in the prior financial year.

Property income from hotels and timeshares was 33% higher than in the same period last year on the back of good performance in the hospitality industry.

The company is putting priority on consolidating the existing performance while continuing to explore new areas of growth in both hospitality assets and residential property development.

The sector has of late been facing an increase in property voids, reflecting the nature of the country’s unstable environment.

An increasing number of tenants are failing to pay rentals due to the worsening liquidity crunch and joblessness, while others are re-negotiating existing contracts for downward rental reviews.