What’s happening in Zimbabwe’s property market may surprise you

Source: What’s happening in Zimbabwe’s property market may surprise you – Moneyweb

Commercial property professional Kura Chihota from eXp South Africa is the guest on Moneyweb’s milestone 100th episode of The Property Pod, which goes regional this week, as we look at what’s bubbling in Zimbabwe and broader SADC real estate markets.

Welcome to The Property Pod, South Africa’s premier property investor podcast. It’s our milestone 100th episode, and on this weekly show we gain insider insights from leading executives, analysts, developers and entrepreneurs in South Africa’s expansive property industry.

On this week’s podcast, we are going regional and speaking to a commercial property professional who has worked in Zimbabwe, his home country, as well as in South Africa, and a number of SADC [Southern African Development Community] countries over the years.

He is Kura Chihota, who has some 30 years of experience in the real estate sector, both on the listed and unlisted sides. Currently he’s regional property consultant at eXp South Africa.

Highlights of his interview appear below. You can also listen to the full podcast above or download it from iono, Spotify or Apple Podcasts. 

Zimbabwe, Emmerson Mnangagwa, Kura Chihota, Zimbabwe property market, eXp South Africa, The Property Pod, SADC

Commercial office buildings in the central business district of Harare, Zimbabwe’s capital. Image: Bloomberg


Since Zimbabwe is where you are from, can you share some insights on that market broadly? I know it’s a very broad question, but it seems there’s a bit happening there, despite Zimbabwe’s well-reported economic challenges.

“Let’s go a little bit back into history. You say I’ve been in the game a while. It makes me feel an old man to say that I’ve been doing it for 30 years, but be that as it may.

“Zimbabwe, as most people observing from outside would know and remember, has gone through crazy hyperinflation. We get laughed at for numbers with 27 zeros. So you imagine in an economy where you have financial assets, the likes of Old Mutual and other pension funds, names there that you’d recognise, if you had financial assets – your retirement annuity or your pension fund – invested in those, when the Zimbabwe dollar version 1.0 blew out, you had nothing.

“So against that backdrop, if you had a title deed and you had real estate; you had an invested funded position – if you had bought it on a mortgage, now that mortgage has evaporated and you’re left with a cold, hard capital asset.”

“And that’s been increasingly valuable because it now trades exclusively in US dollars – we now have a market that circulates US dollars amongst itself – so what you get for US$100 000 in Zim can’t be compared to what goes for R1.8 million down here in South Africa.

“We’ve seen that real estate – because of its hard nature, its enduring nature, and its ability to attract US dollars – has caused capital to flow to it, and our professional property managers, pension funds, provident funds, insurance companies – 55% of their value is actually stored in real estate. So that gives us an over-concentration in the asset class.

“Some people wonder if it’s a bubble, but I think it’s a natural reaction to the only asset class that has endured at this time through these economic circumstances. And for love of money, no one is going to let go of that asset in anything but US dollars.”

How much is actually going in there? You are talking more from a Zimbabwean perspective, but Zimbabwe still is a well-known tourist destination. In fact, close to Victoria Falls there’s a secondary stock exchange planned – if not already having commenced trading. Who are investing in the property market? Are they mainly Zimbabweans?

“It [the stock exchange] is up and running …

“At this stage it’s mainly Zimbabweans. We do have interest from outside parties, be it Chinese, be it some money out of Eastern Europe. But the money that’s moving within the country is Zimbabwean dollars because, as I said, you bought an asset in Zimbabwean dollars with debt, and that debt evaporated away. Now you’ve just got US dollars, and US dollar trading. So people are moving it from one pocket to another.

“Some guys have made money in mining or commodities or what have you, and they’re looking for a store of value.”

“So at a household level, if you don’t already own the house, you probably bought a stand and you’re adding to that stand over time incrementally, because we don’t have active mortgage markets.

“We’ve got less than 5 000 registered mortgages active in the country, so people are using it to store value because you can’t put your money and expect a return in US dollars from a pension fund or any other financial product. So it’s locals investing locally.”

In the context of what you’re saying, it’s quite an active market in Zimbabwe, believe it or not. Can you give us some insight on some big projects that we may not be aware of that are taking place in Zimbabwe at the moment – whether commercial or residential?

“For trackability, last year we saw the listing of a company called WestProp. They are property developers. They have an ambitious target to build over one billion bricks over the lifetime of their projects. So they’ve got a number of projects, a $200 million book that they’ve listed on the Victoria Falls Stock Exchange and they’re developing projects.

“But you have a number of large but unlisted property developers, more likely on the land-development side because, from an affordability and access point of view, selling a stand for 20/30/40 000 dollars is a lot more realisable and achievable than selling apartments for 100/200 000 dollars.

“But then you’ve got smaller players like Turnbury Property Developers, who do bespoke clusters within towns. So there are players there, and it’s really trying to match capital with capital appetite.”

“The capital appetite is small inflows, be it because salaries or most of Zimbabwe’s economy is now 80% dollar-based. People’s salaries are coming in dollars, so their savings are trying to be put in dollars. Those are ending up at a household level, buying a stand and building up something – or at an institutional level they’re putting it in development projects that are bit bigger.”

“We’ve also got Tigere Real Estate Investment Trust [Reit] listed; that’s been active on the market. I think the share price we bought on IPO about a year ago at ZW$28. The last time I checked my stock position, I think we were trading at about ZW$600. So it’s horses for courses, where you are trying to find and preserve value as it comes in and you need to find an appropriate investment to drip your money into.”

Clearly you are a proponent of Zimbabwe, but you’re also a proponent of the broader SADC and South African real estate markets. Can you share a little bit about your background, how you got into property and what excites you about the real estate game in this region of the world?

“Funnily you bring it full circle. I’m standing in Braamfontein at the very moment, and this is where I started. I came down in 1994 as a student to do a BCom in real estate at Wits.

“I got into the property game by listening to my mom, God rest her soul. She said, look, I think you should get into property. A lady she worked with or went to church with, her husband was a property valuer. So literally the day I walked out of school I walked into the property profession. I did that for about three years from finishing school until I came to South Africa …”

“South Africa in 1994 [was] just a golden land of opportunity.”

“I took a gap. I started working for a commercial property firm, making phone calls, cold calls, phoning up people and trying to get them to buy real estate or rent offices. From that I became a broker in the CBD and the bug bit me from there. I then moved to Durban and got born to property asset management, where the company I was with [Gensec] was putting together one of the early consolidated [entities] – eventually becoming Reits – but property loan stocks at that time.”

“Integrating the capital markets with the real estate markets just grabbed my heart and I’m grateful to say I’ve served on a number of boards here in South Africa – Johannesburg Housing Company, Fortress Income Fund, the Reit. So property has been in my blood.

“Then I went back home when the second largest portfolio manager there, the National Social Security Authority, called me up and said in 2016: ‘Come back home and deploy your skills back home.’ I answered that call.

“So I’ve always been in real estate. It’s in me. I can’t dilute it or run away from it.”

Kura, you are at eXp currently, but you also were an executive of Leapfrog Property Group for over a decade according to your CV. Just on that note, what are your thoughts on the residential property market in the broader region? 

“Indeed. I was at Leapfrog – as an executive director and shareholder, and I ran the commercial division. So I was the CEO of the commercial division, not the whole group, but invested in the whole group.

“So eXp has just been a godsend, where I can now internationally operate with over 100 000 colleagues across the world on a virtual platform. I have access to IP while sitting at my desk wherever, but with the internet connection my phone and laptop can connect.

“I’m off to Kenya next month for a housing finance symposium, where it’s really trying to crack that nugget. Everywhere outside of Zimbabwe housing in Africa is a very credit-dependent commodity.

“Where interest rates are [high], trying to bridge the gap of low incomes versus high capital values is going to be the challenge of our lifetime.”

“We’re all urbanising as quickly as we can, and that’s going to be the state of Africa – highly urbanised. [As for] the state of the residential market, we’ve seen [in] South Africa where you sit on the data and you talk to the Lightstones and what have you, we are flat on capital growth. The yields have been under pressure because costs are rising faster than income is rising. So that’s difficult.”

“I was in Zambia last year and the affordability, where interest rates are about 24%, makes it very difficult for you to finance a long-term asset. It’s very difficult there.

“In Botswana, I think it is trying to raise a quality book. There are products, and new developers are bringing across some really interesting product at the million-five kind of pula mark [around R2.07 million]. But to get the qualified people in the numbers that make that development [feasible], where you put in 40/50 units at one go – to get that number of people qualifying and to have the banks be happy with the credit risk on overinvesting in the sectional-title scheme – becomes a bit of a challenge.

“So it’s horses for courses in the region, but Zimbabwe stands out in that we are not financed.”

“People are doing instalment sales or buying for cash or the diaspora [is] raising money wherever they are, and then sending that money to Zim to do the purchases. So it’s a sprinkling, but in broad the residential [market] is not wildly yielding right now.

“I’d say the shining points are kind of South African townships, where you’re doing backroom developments or inner-city developments which are trading at about 12/13/14% yields. I think that’s where the residential activity is for now.”

Are there opportunities in investing in African real estate? I’m talking ex South Africa now. This is a largely South African-focused podcast but having you on the pod brings a regional flair. The reason I ask about this is because I might have a little bit of a South African bias here, but a lot of South African companies in particular have had their fingers burnt in Africa. Hyprop and Attacq highlighted this, particularly Hyprop in their results recently with their investments in Ghana.

“Resilient [Reit] as well …

“I think that it’s just like at national level, when we’ve bought Euro bonds or something like that, loans in hard currency, but in a local currency we’ve created a noose that hangs around our necks.

“So all of those deals that you’re talking about were probably originated out of the likes of Standard Bank or RMB, who went [in] aggressively – and in a commodity upswing and boom it looks easy to say, oh look, the dollars are there.

“If you look at Ghana, they discovered oil and [the city of] Tema was flying, and everything was looking great. In Nigeria, you’ve gone in and you say, look, rising oil prices, this looks really great – and the dollars were flowing.”

“Then you can take them by name – Nigeria, Ghana, Zambia – when the commodity price turns and the balance of payments turns, then you now get a rationing on the forex and you sit at the back of the queue to get access to that forex to remit it back home. MTN can write a dissertation on how painful that is. They’ve been through this a couple of times.”

“So if we borrow in US dollars and expect the remittance in the local currency, or at whatever exchange rate, I think we’ve created an inherent weakness there.

“The best thing I would imagine is to have a matching, where you raise local money in local currency, and then you’ve got that kind of matching. So whatever’s happening locally, the rates may go up and down and you can have monetary interventions that kind of protect those flows. But if you’ve pegged it to the US dollar I think you’re going to have a challenge in an African economy that’s so dependent on commodity exports.”

What would you say is the most exciting or potentially lucrative subsector in the sub-Saharan property market? Again, ex South Africa?

“I think my operating model is property development with as short a cash cycle as possible. You put in for land, you can speak to a landowner who’s got a funded equity position, you bring in capital and yellow material and some funding to put some servicing in to meet the subdivision and regulatory requirements, [and] that is going to have a quicker cash cycle.

“So you’ve put in dollars and then you’re selling the product for dollars. You may be doing it off terms, you may get somebody to pick up a mortgage book after you, but I see that as being low-hanging fruit, given the overwhelming nature of Africans to be moving into urban centres and looking for that El Dorado, that piece of ground, its 200 square metres in – what’s it called, Mia something, [in] Lusaka, the name escapes me, or Harare or any of the smaller towns.”

“I think there’s always a lot of focus and it’s easier for you and me to fly into Lusaka and look at opportunities. But going to the Ndolas and the Kitwes, we are having urbanisation in those smaller towns and the aspirations are real.

“We’ve all got smartphones, we all watch DStv, and we are all aspirational. We want the things that other people have – and I see that as a dominating trend, supporting why people are leaving a rural lifestyle and coming into an urban lifestyle.

“And to provide an affordable product to them is where there are going to be long-term returns, for the investor who puts that up.”

“But managing risk, you want to get in and you want to get out in a year. If you’ve got your permitting in process, you should be able to start reaping a real dollar revenue off your expenditure.”