PROVIDING quality affordable housing for people of all income levels is an integral component in any smart growth strategy.
Charging rentals that are also “affordable” and “justified” is universally regarded as a positive development for economic growth and stability.
The Estate Agents Council of Zimbabwe (EACZ) this week said rentals in Zimbabwe were still the lowest in the region despite complaints by locals that rentals in the country are too high and beyond the reach of many.Explaining the benchmarks and formulae used to arrive at rentals in the country and regional comparison, EACZ chairman, Oswald Nyakunika said a strong economy causes an increase in the demand for housing. He said as for Zimbabwe’s case “increased demand for housing drives real-estate prices and rentals through the roof. And then affordable housing becomes completely inaccessible”.The rentals made available by EACZ, are however lower than what is being charged on the market. According to property experts and a survey by businessdigest the figures are low by an average of US$80.The Consumer Council of Zimbabwe (CCZ) last week said rising rentals have contributed to the rise in the cost of living. “Rentals have been increasing every month. For example in May, accommodation in high density suburbs in Harare was US$40 and in June it was increased to US$50,” CCZ said.The cost of construction and shortage of property might see prices return to last year’s levels and increase thereafter, particularly when bonds are available again.The formulae being used by the market for rentals were being derived from direct comparables that is what other tenants are prepared to pay for a vacant and to let space. “Certain premises are built by Pension funds to specific tenant requirements. A percentage of the gross replacement cost or cost of building is applied either as new or as depreciated,” Nyakunika said.He said the market rent in majority of cases in Zimbabwe has always turned up to be cheaper.Commenting on turnover leases Nyakunika said the concept is that tenants pay Basic rentals or turnover whichever is greater. “They pay a fixed rent monthly (basic) but this will be compared to turnover and the higher of the two will apply,” he said.Some premises such as hotels only pay turnover. On sale and leaseback Nyakunika said: “The seller wants to sale, use the proceeds to recapitalise and lease premises back from the purchaser. He is therefore the one who will offer a return that is he may say I will offer 10% (apply to most commercial) or 12% (apply to most Industrials) of sale/purchase price as rent.Nyakunika said cost replacement should be 10% of gross replacement (for new) or of depreciated replacement cost (for old). Throughput rental is supposed to be 10-15% of profit margin per litre.Throughput rental applies to service stations and is a percentage of profit margins made on each litre sale.The rent act SI 626 of 1983 states that fair rent is equal to 10% of depreciated replacement costs or market rent which ever is lower.For residential the Rent Act of 2007 states that fair rent is equivalent to standard rent or rent determined by a registered valuer.“Both acts agree that rent must be net that is it excludes expenses/operating costs of running the building,” Nyakunika said.       “Every application to the board for determination of fair rent must be accompanied by a valuation report,” he said.Meanwhile there is a lot of confusion about the market value of residential property, and the future outlook in the second quarter of the year.Residential property prices have been rising because of high foreign currency costs of daily business operations in the country.Most residential properties are still selling for a fraction of the replacement costs or building costs, which is why developments were not viable.Increased foreign currency costs have forced more and more owners to sell, as they cannot afford to live in their current homes.These forced sales have forced down the market value, and the situation has been exacerbated by a decline in purchasers who do not have disposable income after dollarisation. Analysts said between 60-70% 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.Local tenants are said to be unable to pay a viable rent, and professional residential management is also believed to be virtually impossible.
BY PAUL NYAKAZEYA
