Various local companies have withdrawn their properties from the market in the last part of 2019 due to weakening rental incomes weighed down by rising inflation and the depreciation of the Zimbabwe dollar.
According to a real estate quarterly report seen by Business Times, market players said high voids, a weakening domestic currency and low economic activity continue to threaten the viability of the property sector.
The property sector was also characterised by suppressed property transaction volumes, weak demand for commercial space especially for CBD offices, lower rental revenue due to a spiralling inflation rate, low rental growth as they are lagging behind inflation levels and dwindling property values.
“Property sellers have withdrawn their properties from the market further slowing down activity within the sector.
Disposal of several developments has been halted including the Steward Bank Fairview Projects, Dawn Property Consultancy, Marlborough Cluster development and FBC Housing Projects,” reads the report.
Property players said the market is not likely to recover from the 2019 downturn unless there are structural changes in the economy.
Properties in high density suburbs such as Budiriro, Glen View, Highfield, Kuwadzana and Warren Park in the last quarter was trading between ZWL$500,000 and ZWL$850,000 while residential areas such as Glen Norah and Kambuzuma were slightly lower between ZWL$450,000 and ZWL$700,000.
Dzivaresekwa, Mufakose, and Hatcliffe continued to trade between ZWL$300,000 and ZWL$400,000 while core houses were ranging between ZWL$300,000 and ZWL$380,000. Medium-density properties in the last quarter were ranging between ZWL$1.5m and ZWL$2.5m for properties in Waterfalls, Hatfield, Madokero, Zimre Park, Mabelreign and Westgate among others whilst low density ranged between ZWL$4m and ZWL$10m depending on location and design.
The 4th quarter report said low economic activity and higher voids have seen property yields remaining depressed particularly for CBD offices and industrial properties due to weak demand and restrained industrial production.
However, the report tipped the residential sector to remain resilient as investors sought to hedge against the currency and inflation risk.
Upgrading of existing infrastructure and rehabilitation remains critical for the real estate sector and the economy as a whole.
The sales sector continued to face low confidence owing to the widening gap between seller preferences and buyer capability, which has been intensified by the requirements of SI 142 prohibiting the exchange of properties in any other currency other than the local currency.
Sales remain leaned to residential properties, whilst little activity has been noted in the commercial and industrial sector. The mortgage sector recorded a steady growth from the period 2009 but was interrupted by the economic shocks from the period 2016 to date, the report said, adding that affordability of the mortgages and availability of properties in ZWL terms on the property sales market remained the biggest challenge.
The report said more activity is being noted in the high density sector especially for properties located in Harare and surrounding cities (towns) as demand for low-cost housing continues to grow.
The significant distribution of mortgages to the low-density sector is mainly attributable to mortgage refinancing activities by entities, it said.
The sector is still offering huge growth potential which can only be exploited if lending institutions consider backward integration by offering mortgages on their own housing stock (ready built housing units) and building finance.
In this light, there is a need for financial institutions to partner with developers for the development of housing stock and repayment in stock, the report said.
Property valuers over the last quarter have faced a test of strength and skill as valuation uncertainty loomed in forcing the practitioners to relook at the traditional valuation models with a market characterised by low transactions, dwindling rentals and stagnant salaries, property values in the last quarter significantly adjusted downwards in real terms.
The declining rentals have fed into capital values thus noticing a shrink in overall portfolio values by an average 10% in the first half of the year and 20-30% as the year closed.
“We foresee property values going down further if there are no significant structural changes in the economy.
Nonetheless, the current situation proffers opportunities for investors to rethink their portfolios and consider reconfiguration of existing properties into uses which yield higher returns.
“These initiatives include adopting sustainable development methods such as solar power for energy supply for all new housing stock,” Q4 report said.
Residential demand remained robust represented by the 1.3 million housing backlog owing to the growing population and urbanisation.
The sector however still suffers from lack of adequate infrastructure and continues sprouting of illegal settlements and development continues to skew towards high to medium density properties and cluster developments.
A total of US$268m was budgeted towards housing development for the year 2019 while ZWL $2.68bn will be channelled towards housing this year.
The report said notable new developments were for high to medium residential schemes.
Cluster developments, it said, dominated the sector with most developers targeting the affluent medium to low density residential schemes, especially the northern suburbs of Harare.
Cluster projects include Homelux, Quinnington Cluster Development with six cluster homes and Havana Villa Clusters sitting on 700square meters with each cluster having a floor space of 220sqm in Borrowdale.
Despite the current economic challenges which continue to hamper progress, the sector is projected to have a growth of 0,5% which is conditional to the government’s provision of improving the process of obtaining building permits and promoting contract arrangements/ regulations that encourage foreign contractors to work with local partners to promote skills and technology transfer and sharing.
In the outlook, the Real Estate Investment Funds (REIF) which came through Statutory Instrument 240 of 2019 introduced in the last quarter of 2019 fosters an investment-friendly environment.
The report said companies are expected to provide a low-risk property investment model, diversify through the ability to invest in a pool of properties and easy entry and exit from the investment where investors can buy and sell shares in a listed REIF anytime without the costs and delays involved in selling investment properties.