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Covid-19 slashes property values


PROPERTY values in Zimbabwe have plunged by as much as 40% in the second quarter of this year due to the Covid-19 pandemic, a new report has revealed.

According to the Integrated Properties research, the reduced business activity during the lockdown introduced in March to slowdown the spread of coronavirus has made it increasingly difficult for tenants to pay rentals.

“The undeniable impact of Covid-19 has been on the capacity of tenants to pay the rentals as the lockdown tremendously affected business operations, movement of people or customers, limited operating hours, limited international trade impacting on restocking or supply of raw materials, “ said Integrated Properties in its second quarter research.

“All those factors reduced revenues on operating entities invariably reducing their capacity to pay rentals, which are a critical component in the calculation of capital values.

“In a nutshell, property values have taken a knock due to Covid-19.

“In real terms, the cumulative impact will be as high as 30 to 40% at the end of the year.”

The lockdown that initially saw a total shutdown of the economy was partially eased in May where big businesses were allowed to reopen under strict conditions.

President Emmerson Mnangagwa subsequently extended the lockdown indefinitely citing the rising number of Covid-19 cases.

Integrated Properties said property sales during the period under review also went down drastically as both buyers and sellers developed a wait and see attitude.

“We note, the economic situation on the ground reflects that the decrease in property sales is due to the reduction of disposable incomes of many Zimbabweans as properties are becoming unaffordable to the majority of the population,” reads the report.

“The Covid-19 impact on the economy is unimaginable as the general economy is expected to shrink.

“The pandemic mitigation measures, which include restricted movement could directly be a huge contributing factor to the reduction in sales as property visits have been restricted and decisions to buy are only supported by an inspection of the subject property.”

The researchers observed that conducting valuations had been affected by the Covid-19 pandemic since the procedure involved physical inspection of properties and measurements.

All these activities involved movement, which is restricted under lockdown measures.

“There is also market uncertainty which has arisen as a result of the pandemic although it is external from the valuation process,” the report added.

“The valuation process is conducted using historical evidence that would likely have taken place before the pandemic and the impact of which is not reflected in market evidence.

The major blow to the property management business was the three month rental moratorium at the beginning of the lockdown, which businesses interpreted to mean it covered the commercial and industrial sector.

Additional operating costs in the form of sanitisation of premises and labour for temperature checks, meant reduced net flows to the owners while at the same time increasing responsibilities for property managers.

In the previous year, office space uptake was poor as a result of the depressed economic climate in Zimbabwe.

Tenants have been struggling to meet rentals and service charges, and the levels of arrears were generally high.

Defaults in the office sector have increased significantly with demand declining due to the underperforming economy.

The researchers said the property sector’s recovery in the near future remained uncertain given the unpredictable nature of the Covid-19 pandemic.

It has put pressure on the office space market and rental growth as a result of low economic activity and reduced business activity.

“Access to the central business districts (CBD) was a challenge putting pressure on the performance of properties within the CBD highly affecting the sector,” the Integrated Properties research report added.

“The sector’s occupancy level is estimated at 60% for the bulk of the office buildings in the CBD and this is projected to decrease as companies adopt technology for remote working and voluntarily surrender space surrender.”

Zimbabwe’s economy was already struggling before the onset of Covid-19 due to a myriad of reasons that included a collapsing economy and low levels of direct foreign investment.

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