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Property Values Create Confusion

THERE is a lot of confusion about the market value of residential property, and the future outlook.

Residential property prices have been rising because of high foreign currency costs of daily business operations in the country.

Optimists will claim that these will come down, but no publicly listed companies share this optimism.
In their residential property report for the first quarter of 2009, Seef Properties said most residential properties were selling for a fraction of the replacement costs or building costs, which is why developments were not viable.

“Prices peaked in about October, but have been on the decline since then. Increased foreign currency costs have forced more and more owners to sell, as they cannot afford to live in their current homes,” Seef Properties said.

These forced sales have forced down the market value, and the situation has been exacerbated by a decline in purchasers affected by the global recession.

“Owners who will not be forced to sell in the next four to six months are well advised not to list their properties. Between 70-80% of properties currently on the market are overpriced to sell in our current environment. Many owners appear to feel that renting is a viable option to retain the value of their investment,” said Seef Properties.

However, Seef Properties said most properties drop in value by 10-20% over a year from the time they are first leased.

“Obtaining vacant possession if a tenant does not pay or damages the property can be a disastrous and traumatic experience, particularly for owners not in the country. Lawyer’s fees are currently US$200-$300 an hour and hostile tenants can drag the process on for years,” said Seef Properties.

Local tenants are said to be unable to pay a viable rent, and professional residential management is also believed to be virtually impossible.

“Even when eviction notices are finally obtained, these may be difficult to enforce. Do not allow occupation without full payment of the purchase price. Ensure you consult a lawyer before agreeing verbally to enter into any arrangement. Use a registered estate agent with an established reputation,” the company said.

Going forward, Seef said the all-inclusive government and dollarisation had been a huge step towards the changes that are needed for business to become the engine for growth that the nation desires.

Unfortunately, particularly from the perspective of foreign investors, the continued lack of respect for property rights and problems with respect to the rule of law remain major hurdles.

This, combined with the effects of the global recession which could not have come at a worse time, have seen prices on the stock market plummet, while property values have also been affected.

“In the short-term (4-6 months) the market is likely to be dominated by forced sales, and prices are likely to remain depressed. However, the cost of construction and shortage of property might see prices return to October levels and increase thereafter, particularly when bonds are available again,” Seef Properties said.

Meanwhile two property construction companies —— Lafarge Cement Zimbabwe and Murray and Roberts —— announced their year-end financial result for the period ending December 31 2008 this week.

Lafarge announced their results in Zimbabwe dollars which does not give a clear picture to shareholders because of hyperinflation and revaluation of the local currency and absence of inflation indexes.

The price of cement remained controlled and increases awarded were low, unsustainable and not in line hyperinflationary trends.

“Despite these difficulties, the company remained in production throughout the year. However, capacity utilisation dropped from 80% in 2007 to 60% during the year under review,” said Lafarge chairman Much Masunda.

Both domestic and export volumes declined by 19% and 50% compared to the same period last year.

Clinker and cement production fell by 30% and 18% in comparison to last year’s figures.

In view of the recent breakthrough in the political impasse, Masunda said the business environment was expected to stabilise.

“The liberalisation of the exchange rate, improved foreign currency retentions as well as the removal of price controls are most welcome developments that will have a positive impact on the company’s profitability and cashflows,” Masunda said.

Murray and Roberts announced their results in US dollars but did not compare them to 2007 figures because of complications and inability to accurately translate them.


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