Property sector depressed

via Property sector depressed – DailyNews Live 29 September 2014 by John Kachembere

HARARE – Zimbabwe property sector is expected to remain depressed in the medium term due to economic uncertainty in the country, industry players have warned.

Property analysts contend that while mortgage lending has resumed on the domestic banks’ balance sheet, it still remains on very small scale and short time-frames.

This sharply contrasts with mature markets like South Africa where mortgages take up significant proportions of bank balance sheets, affording reasonable activity and indeed liquidity on the property market sufficient enough to influence more predictable and sustainable long-term yields.

“High disposable incomes, affordable debt options and healthy banks are the very important foundations that will propel the Zimbabwean property market to attractive heights,” said Takunda Dapi a property analyst with a local real estate company.

“The low average wages that are below $500 per month, and indeed the absence of a significant middle class have created a huge gap in the property market in Zimbabwe, resulting in very small numbers being able to access reasonable mortgages to participate in the property market, and that has depressed activity and indeed the yields,” he added.

A recent half-year report by Bard Properties (Bard) noted that the decelerating property market cycle which has not yet reached its lowest point is having a disastrous effect on the market.

The report indicated that the local property sector is currently suffering from increased vacancy rates, rental arrears and rising legal costs due to arrears chasing and evictions.

“The market has witnessed an unprecedented increase in vacant and unrented residential and commercial properties. The numbers are increasing monthly,” read part of the report.

Bard said a general decrease in retail rentals is expected throughout 2014 and added that landlords previously pursuing the maximisation strategy have been forced to reduce rentals as tenants’ failure rate has reached unprecedented levels.

This sector witnessed increased returns in 2011, especially in Harare, due to high demand for smaller shops in the CBD. However, in 2012 and 2013, activity stabilised due to competition and supply for small shops became saturated.

In the property office market, Bard said the interest in the central business district (CBD) office space has decreased due to lack of demand, particularly in Harare.

“As the vacancies continue to increase, it is expected that rentals will drastically reduce in the future, this will have negative implications on the values,” said Bard.

The rates for office parks slightly shifted upwards between 2012 and 2013 due to an increase in demand as a result of relocations from the CBD in the case of Harare.

“However, the vacancies in this sub sector have started to increase and we project rentals to come down by the end of the year,” read part of the report.

Under the industrial property sector, Bard noted that de-industrialisation has picked pace in most towns and companies are either relocating or collapsing due to lack of demand and capital.

“This has resulted in increased vacancies and abandoned properties. Demand for industrial properties is very weak at the moment. Most operating industrial buildings are used for storage of imported finished products.

“Recently, a large industrial space let in Harare was let at 50cm2, this is clear proof that some landlords have become desperate and knowledgeable tenants are taking advantage. The market will soon drift towards rental holidays as long as the tenant can afford to pay rates. Good tenants are in effect detecting to landlords, that they want, that is, a take it or leave it situation,” read the report.

Property developers in the southern African country also said their operations have been significantly affected by increased tenant defaults on lease obligations, declining occupancy levels and voluntary space surrenders.

“The local property market remained depressed due to the adverse macro-economic environment. Increasing tenant defaults on lease obligations, stagnating or declining occupancy levels, surging tenet evictions and voluntary space surrenders. These fundamentals have adversely affected upward rental reviews,” said Pearl Properties group chairman Elisha Moyo.

He added that residential property sales continued to trade through limited employer assisted mortgage finance schemes, cash and deed of sale, with mortgage finance becoming more accessible but the pricing remains uncompetitive.

Resultantly, Pearl Properties recorded a 1,74 percent drop in revenue in the half year to June 30, 2014.

The property developer’s revenue for the period dropped to $4,4 million compared to the prior year’s slight increase of $4,5 million.

Edson Muvingi, the Zimre Property Investments managing director said his company was mulling salary cuts among a raft of cost cutting measures to improve the firm’s performance in the face of weakening revenues.

With revenues down 17 percent to $2,9 million for the six months to June, having been dragged down by increased voids, Muvingi said the company would also shift to low value properties to widen revenue streams, citing mortgage finance for low cost values rather than properties for the high end market.

He said revenue performance was negatively affected by a five percent drop in rental income and a 32 percent fall in projects sales. ZPI posted an after tax profit of $802 000 compared to $1,1 million in prior comparative period on falling revenue.

“We used to have a medical aid scheme, with a 100 percent cover by the group, we cut that. We are sharing with the employees. We realised also that communication was a major issue, so we simply put a system that monitors everyone’s phone and what we discovered is that the bill reduced dramatically,” Muvingi said.

“We have not increased our salaries for the past two years and we do not anticipate to increase. There could be a cut coming.”