Property sector distorted 

Source: Property sector distorted | The Herald October 2, 2018

Property prices continue to escalate due to the continued use of the four-tier pricing system by the majority of merchants, but these capital values no longer relate to the rentals that are being paid, a leading player in the real estate sector has said.

Under normal circumstances, values of commercial properties are a function of the rentals realised from the investment but currently rentals are depressed giving rise to an abnormal situation where rentals and capital values are no longer related, said Dawn Property Consultancy (Dawn) in its report for the first six months of the year 2018.

According to Dawn, properties are being sold at different prices depending on the payment method be it US dollars, bond notes, mobile money, or RTGS.

“Properties attract higher prices (premium added) if the payment is effected through bank transfer and or bond notes,” said Dawn.

However, the increase in property values has not been supported by increasing rentals amid increasing voids.

The property consultancy firm said there has been marginal movement in average rentals being achieved for office space with CBD offices averaging $4/m² to $8/m² (which is below regional averages of $10-$20/m2), suburban offices have been averaging $6/m2 to $12/m² and office parks achieving the highest rentals of $8,50 to $15.

Corporates shun CBD offices

“Due to the high pressures of urbanisation which has seen the CBD being characterised by poor building upkeep, inadequate parking, traffic congestion, surges in street vending and informal trading, large corporates now prefer to operate from office parks because of their quiet ambience and well-maintained infrastructure.

“This has seen a rapid deterioration of CBD occupancies and rent levels for new lettings,” said Dawn.

Said Dawn: “The incursion of informal traders on the street pavements of all major cities has adversely affected the sales turnovers of formal retailers as they have to compete with vendors who are operating without rental expenses.

“Retailers have therefore struggled to meet their rental obligations and continued to advocate for rent reductions while others have opted to voluntarily surrender space,” Dawn said.

For the first time since dollarisation, vacant retail space is now noticeable in CBD which to some extent is due to the impact of informal traders.

In addition, retailers have also been affected by the erosion of disposable incomes of spenders as a result of rampant increases in prices of commodities in a market where customers are increasingly price sensitive.

In its observation, Dawn noted the change in the traditional supply chain model which has led to the sprawling of wholesale outlets that sell products at both wholesale and retail prices and sell mostly fast moving consumer goods at thin margins targeting the lower end of the consumer market.

“Informal retail sector is now being recognised by manufacturers and wholesalers as an important conduit to deliver goods to consumers.”

Solid demand for housing

Meanwhile, the demand for housing continues to outweigh supply and is being compounded by city-to-city migration especially to major cities such as Harare and Bulawayo as individuals seek employment.

The national housing backlog currently stands at about 1,3 million with Harare alone requiring half a million units. Currently estimated at 2 million, Harare’s population is poised to grow to 5 million in 10 years’ time according to Government reports which means the demand for housing shall not end soon.

Said Dawn: “The greatest activity in the residential market has been in high density low income housing schemes, compared to middle income and executive housing projects.”

However, failure to access mortgage financing in this sector has hindered protracted growth.

Dawn, however, believes the future of the local property market remains positive.

“An improved economy will be critical in igniting economic activity which will then improve property demand in commercial, industrial and residential sectors.

“Despite the negative operating environment, property still remains the most favourable investment asset class because of its ability to retain and increase the value of capital invested in the medium to long-term,” reads the report. — Business Weekly