Analysts however said Zimbabwe had the potential to grow much faster than the present rate. This they said was against increasing disposable incomes which have seen average civil servant wages increasing from below US$50 per month in 2008 to just below US$200 presently, a strengthening banking sector, fiscal discipline and recovering global commodity prices are all vital elements that will contribute towards the property returns firming, edging towards regional parity. Economist Brains Muchemwa told businessdigest this week that the property market in Zimbabwe, which had become a refuge for investors during the hyper-inflation era, had started off on a low, but assuring note after dollarisation. “The rental yields, themselves, a function of the income levels and the pace of economic activity, have improved to around 7%, 6,2% and 5,3% in the middle density, high density and low density segments respectively,” Muchemwa said.Considering building costs averaging about $1 200 per square metre of office space in Harare, commercial property returns, in particular prime office rental yields, have improved significantly to around 6% in real terms from as low as 0,5% during the 2007-2008. Whilst property owners are now better off compared to their deplorable status of the past decade, the snail pace of income growth will continue to put off significant flows of commercial property investment from international investors as other destinations of real estate capital such as Angola, Zambia, Uganda, Tanzania and South Africa continue to offer sustainably high returns. According to Muchenmwa prime office space monthly rentals per square in Sandton, Kampala, Dar es Salaam and Lusaka hover around $13, $15, $17 and $20 respectively; whilst in Luanda any figure under the sun can be charged. Ailse Properties Managing Director Andrew Chifamba said rentals had moved from US$4-6 per square metre to between US$8-10 and about US$12 for better buildings.“There is a market improvement on the property market at present. One can negotiate from an investor’s point of view,” Chifamba told businessdigest.“There has been a lot of activity on residential and commercial properties of late. People are buying; there are now few houses on the market. Cash buyers are calling the shots,” Chifamba said. The Harare chapter of the Affirmative Action Group this week expressed concern over the continuous increase in rentals by property owners in Harare’s central business district suggesting that government should intervene.AAG Harare Branch Chairman, Councillor Charles Nyachowe said: “Government should swiftly intervene to the address rental row which has seen property owners charging above US$1 000 per month which is not commensurate with the performance of the country’s economy,” he said.The major players in the property market in Africa, in particular private equity funds, are targeting investment destinations offering internal rates of return above 20%. Considering the current and projected slow growth of Zimbabwean incomes and the absence of a clear and tenable exit market, the majority of international players sitting on hot capital are not putting Zimbabwe on their radar for property investments. Amid the good prospects of the property market in Zimbabwe, there is confusion in valuation of property portfolios after the dollarisation. In its June 2009 results, Pearl Properties states $230 million as the gross replacement value for its property portfolio offering 117 000 square metres of letable space. This translates to “market value” per square meter at $1 981, compared to its current market capitalisation per square meter at $254. Mistakenly, one can view Pearl Properties to be trading at a huge discount with an upside potential of 7,5X and consider it a hot “buy”. How does Pearl justify building costs at around $2 000 per square metre for its property portfolio, more so for Zimbabwe’s climatic conditions that do not require elaborate costly air conditioning as one would find in parts of East Africa? Although Pearl is trading at some potential discount considering the potential of improving rentals in the market in line with growing Zimbabwean incomes, the market is however not so blind, and has been completely ignoring such lurid gestures of its in-house valuation. It is no wonder Pearl’s market cap remains around $31 million, far from the showy $230 million tag.“It is not only Pearl Properties that seem to lie underneath a misleading veil of imaginary wealth. Pearl is not alone in the quandary. The Zimbabwean banking sector is a close cousin of Pearl Properties after it prudently piled its capital into ‘investment properties’ and now seems to suffer the same fate of appearing exaggeratedly rich yet being poor to change its fortunes,” Muchemwa said about Pearl Properties. Although it was an excellent strategy by Zimbabwean banks during the hyper-inflation environment that decimated all capital in liquid and near-liquid assets (denominated in the now defunct Zim dollar), the banks today are sitting on low loan-to-deposit ratios due to many reasons, one of them being that the greater part of their capital portions in properties cannot easily absorb risk since its illiquid, and therefore cannot practically act as the ‘last line of defense’ as may be desirable. Unlike European banks that ran on very high loan-to-deposit ratios and later collapsed as the sub-prime mortgage market crisis took its toll, most of the Zimbabwean banks are showing excessive prudence in understanding the limitations of ‘investment properties’ miracles on their balance sheet by running on low loan-to-deposit ratios.
Paul Nyakazeya
