Bond notes introduction scares away investors – Pearl Properties

Source: Bond notes introduction scares away investors – Pearl Properties | The Financial Gazette September 20, 2016

FOREIGN investors who had shown commitment to invest in the US$54 million bus interchange planned for the Simon Muzenda bus terminus in Harare are no-longer interested in the project after the Reserve Bank of Zimbabwe announced that bond notes would be introduced next month.
The Zimbabwe Stock Exchange listed property firm was seeking US$35 million offshore to turn the Simon Muzenda Terminus (formerly 4th Street) into a modern bus terminus.
Construction of the modern terminus was initially targeted to commence this year.
With project finance in Zimbabwe available at a huge premium the company had, therefore, focussed offshore.
The project, to be spiced up with retail space, is a joint venture project with the Harare Municipality.
The project, which would also include a shopping mall, would be implemented in phases.
It would be bound by Simon Muzenda and Fifth Streets and well as Robert Mugabe and George Silundika Avenues.
Presenting the company financial results for the six months ended June 30, Pearl Properties’ managing director, Francis Nyambiri said feasibility for the project had been completed.
But Nyambiri hinted that the project might “take a bit longer” to come on stream after foreign investors they had engaged were suddenly spooked and pulled out of negotiations.
“Foreign investors who had shown interest to invest in the project developed cold feet after the announcement of bond notes introduction,” said Nyambiri.
RBZ governor John Mangudya last Thursday announced that the bank would introduce bond notes, a token currency which would circulate within a basket of multiple currencies, at the end of October with US$75 million worth of the notes expected to be in circulation by the end of the year.
Presenting his mid-term monetary policy statement Mangudya said the bank would start with US$2 and US$5 notes.
RBZ plans to introduce the bond notes in a bid to ease a shortage of bank notes blamed on a widening trade gap and the smuggling out of physical US dollars, which have dominated Zimbabwe’s multi-currency regime that was introduced in 2009 after the country dumped its inflation-ravaged Zimbabwe dollar currency.
The planned introduction of the notes, described by President Robert Mugabe as a surrogate currency, has been met with stiff resistance, sparking demonstrations and panic cash withdrawals from banks.
In the six months to June 30, 2016, persistent illiquidity and deflationary pressures adversely affected the performance of the property portfolio as tenants felt the macro-economic pressures. The occupancy level declined to 71,85 percent from 78,54 last year with vacations spread across the property portfolio.
As a result revenue declined by 2,41 percent to US$4,16 million from US$4,26 million driven by rental income that fell by 4,96 percent to US$4,03 million from US$4,22 million.
Administration expenses, at US$1,19 million, declined by nine percent from US$1,32 million as cost reduction initiatives were implemented.
The property market fundamentals remained depressed due to weakening aggregate demand, increasingly affecting the ability of tenants to serve their lease obligations. Increasing defaults, declining occupancy levels, increasing evictions and voluntary space surrenders continue to prevail in the market.
The worst affected areas are the central business district (CBD) office sector and the industrial sector. Whilst demand for CBD retail remains relatively strong, tenants are increasingly requesting for downward rent reviews to remain in operation.
The property development market has been dominated by low, medium and high density residential developments. Commercial developments remain constrained by low demand for new space compounded by punitive pricing of long term funding to support such developments.
Going forward, Pearl Properties said the positive correlation between economic fundamentals and the performance of the real estate sector will determine the performance of the real estate market.
In the short term, prospects for growth and improvement in the occupancies are minimal due to the weakening economy.
The company, however, says it was positioned to maximise on opportunities that arise within the market when the economy recovers.
“Opportunities to pursue leverage growth of the property portfolio will be actively tracked, targeting the development of the existing land bank, to enhance the value and long term sustainability of the property portfolio’s returns,” chairman Elisha Moyo.