Players in the property sector are developing packages to suit low-income earners as they chase the elusive dollar owing to the prevailing harsh economic environment.
BY TARISAI MANDIZHA
The number of empty buildings is growing, leading to a huge decline in rental income as tenants seek cheaper places to rent.
The packages include flexible and relatively affordable terms; for instance 200 square metre residential stands now sell for about $10 000 with payment terms requiring that 20% deposit be paid followed by an average monthly payment of $200.
However, despite these attractive packages, declining aggregate demand, high financing costs and high qualifying threshold for mortgages remain a challenge.
In an interview with Standardbusiness last week, property analyst Washington Musiiwa said the demand for purchasing properties was low and the situation was worsened by the current economic environment.
“Property developers are faced with mainly the twin problems of access to finance and land. Property development requires huge sums of money, and as such, borrowing has been a significant feature of property development. Unfortunately, traditional financiers have not been lending to private property developers, with some building societies instead preferring to fund their own housing projects,” Musiiwa said.
“Where capital has been availed, the interest rates have been expensive, pushing up property prices as developers pass the cost to end users. The demand to purchase properties is low.”
Property experts say low salaries were pushing people to stay in illegal settlements as a way out of paying rentals.
Musiiwa said the trend had forced land owners to offer cash buyers discounts of up to 10% and 15%.
What has also affected the sector is failure by some landlords to adjust to current trends, with some going for months without tenants as a result.
“Landlords used to demand cash from tenants, but at this stage, mobile or bank transfers are all coming in handy. The requirement that tenants pay up their rentals within the first week of the month is now heavily watered down, because there is no more known pay-dates.
Any date of the month, as long as the rent is paid, is good enough,” Musiiwa said.
The sector’s default rate is currently high due to the tough operating environment.
“The assessment of the default rate is currently 45% to 55% across the country. The most affected being industrial, followed by commercial, that is (offices), while the least affected is residential,” he said.
He said property developers were faced with the problems of access to finance and land.
Zimre Property Investments (ZPI) managing director Edson Muvingi said companies were adjusting terms to the current property market trends.
“All the projects started selling on a cash basis, then 60% deposit balance over a period of six months without an accumulation of interest. With the deteriorating operating environment, potential purchasers’ capacity to pay apparently suffered. We restructured the pricing system to a 60% deposit and balance over 12 months, which worked for a while,” he said, adding that his company had now extended tenure for payment to one, two, and three years on a 30% deposit.
“Prices differ accordingly as we have to ensure that on a discounted basis, there is no loss to the organisation. Purchasers have been allowed to build as soon as their installments reach 50%. The understanding is that it is better to assist the purchaser by removing the rental burden and facilitate payments to us,” Muvingi said.
“We retain ownership of the stand and by extension, ownership of the structures thereon. The latter obligates the purchaser to ensure that payment is made as there is greater loss thereto where the value of the land is not liquidated.”
ZPI is currently in discussions with mortgage-lending institutions to ensure that the stands delivered to the market have financing for both construction purposes and the value of the land.
Muvingi said the uptake of land-related products depended on the quality of servicing, passing of title to the purchasers, size of the specific lots delivered, and sense of future value uplift and general enforcement of overall development quality.
He, however, said defaults were a problem and in some instances, the company had to repossess stands.
“We have had to repossess a few stands within our portfolio. It is a difficult environment where purchasers fall into arrears but come up with arrangements to settle their dues. It is about securing a home for the future. Market-wide, defaults are a big problem, as we have seen with banks and other institutions that offer credit facilities. However, my experience has been that it is too expensive to terminate agreements on the part of the purchaser,” Muvingi said.
ZB Bank, head group corporate services Shadowsight Chiganze said the bank has extended its mortgage offering to a maximum tenure of 25 years and also reviewed its interest rates.
“There are so many players in the development industry, including co-operatives which ultimately do not have a brand to protect and thus can afford to offer services that short-change the client and yet we still have to compete with these players,” he said.
“Generally, the price of developing a property is relatively high yet at the same time, the clients have low disposable income, thus to strike a balance of a finished product which will meet the market demand and disposable income is difficult. At the same time, it seems concentration of development is mainly in Harare as compared to other cities and towns and thus the challenge is getting land to develop in the significantly relevant area. Abandoned projects, unapproved developments, poor workmanship and very few developments are compliant with our requirements,” Chiganze said.
Commenting on the uptake, he said demand exceeded supply but the limitation was the ability to repay the facilities.
He said the availability of flexible terms of payment for residential stands was a welcome trend.
Shelter Zimbabwe sales and marketing manager Moses Tawengwa said companies were coming up with deposits which they felt were more attractive to the market given cash and liquidity challenges.
First Mutual Holdings Group marketing and strategy executive Farayi Mangwende said there was low demand for space and increasing vacancies in the sector.
However, she said the retail and industrial sector (small warehouse units) was performing fairly well while offices continued to be the worst affected sector.
Mangwende said the prevailing economic environment resulted in tenants struggling with rental obligations.