'Property market a better investment option'

HARARE - Zimbabwe's property market continues to perform relatively better than other investment options such as stocks and to a certain extent money markets despite various economic challenges, says Bard Real Estate (Bre).

“Property’s ability to generate income even in difficult operating environments has proven to be its main attraction, unlike most listed companies on the Zimbabwe Stock Exchange which have failed to declare dividends for the last three years, depriving investors of any return,” says Bre in its 2012 mid-year report.

The estate agent said property returns have remained stable between the end of 2011 and June 2012 but there are indications that they are decreasing due to low demand, increased arrears, increased bad debts and low activity in the economy.

The property firm added that despite the poor and/or no service that municipalities are offering to clients — rates, water and sewerage disposals — are rising above what is generally charged in the region.
“Operational costs have been a challenge to both landlords and tenants as a result of high charges of rates, water and electricity,” said Bre.

These operational challenges have resulted in huge arrears building up on most property portfolios and in response to this; local authorities are now attaching buildings.

Zimbabwean property market’s other major drawback is the inability of tenants to meet their lease obligations.

“Arrears and bad debts are ballooning, as well as collection charges. Good tenants with strong covenants are not there anymore,” said Bre adding that this is one of the biggest concerns on the market.

Residential property values have come down as evidenced by current market prices and forced-sale values.
“Although sellers are still asking for exorbitant prices, those properties rarely have takers and some have been on the market for more than a year,” said Bre.

However, there is a huge appetite in terms of demand for flats and apartments in Harare owing to location advantages, security, low maintenance of garden areas and availability of key un-interrupted services.

Bre noted that Zimbabwe rentals still trail those that are charged in the region and international investors will only be attracted to invest if the rentals adjust to accommodate an accepted rate of return.

“Property values in Zimbabwe are their lowest and our advice is that this is the right time to buy,” said Bre.

Industrial rentals have almost maintained the same level as in 2011 and in small towns demand for industrial space has been low due to the economic meltdown and viability challenges.

The report noted that Bulawayo, whose erstwhile status as the hub of the manufacturing industry in Zimbabwe has been stripped due to the tottering economy, has suffered loss of more manufacturing jobs, company relocations and failures than any other city.

“Hence there is more industrial vacant space and factories for sale which have no takers. Most of the operating companies are hanging by a thread,” said Bre.

Industry in general faces challenges of low capacity utilisation and inefficiency due to old equipment, liquidity constraints and high cost of funding, power shortages and competition from cheaper imports.
The report also noted that office rentals have gone down in Harare for the half year of 2012 whilst in other towns they have remained stagnant at low level.

“The downward movement in Harare has been due to increased vacant space in the CBD, relocations by companies from the CBD to suburban areas,” said Bre adding that it is expected that the office rentals will continue to decrease unless there is an economic redirection.

The retail sector has had the highest growth rate of all sectors in the property market, according to the report.

“It is undeniable that those property investors who had more exposure to retail properties mainly in the main CBDs have achieved increasing and satisfactory performance as compared to investors with more weight in office and industrial property,” noted Bre.

“The high retail property demand triggered the supply response particularly in Harare where, we noticed some small retail developments that where developed in 2011 and June 2012,” said Bre noting however, these have virtually stopped as investors have begun to question the sustainability of the economic turnaround strategies. - Kudzai Chawafambira

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