Despite market uncertainties and inefficiencies, the Zimbabwean real estate market remains the safest investment option which provides a passive income and hedge against economic uncertainties such as exchange rate instability and inflation.
Patience Patongamwoyo, licensee for Seeff Zimbabwe, says the market remains active, and while it has shaken off the worst of the impact of the Covid-19 pandemic, it continues to operate under challenging economic conditions.
Economic factors affecting the real estate market
A weak economic landscape continues to weigh on the real estate market, posing various challenges. Impacting factors include sluggish economic performance, weak currency, high interest rates, depressed disposable income, unfavorable mortgage facilities, and exchange rate risks.
The interest rate is now at 150% which makes property and the cost of borrowing incredibly expensive. Most sellers also prefer US dollars which adds to the expense for buyers, especially local buyers who do not have high levels of disposable income.
There is an expectation that the interest rate will decline which will be positive for real estate, but that could cause inflationary pressures and still pose a challenge for buyers.
Property sales market is a mixed bag
Residential is the best performing sector of the property market, driven primarily by demand from diaspora and foreign buyers which makes up a notable portion of buyers who have more disposable income. That said, it remains largely a buyer’s market with buyers currently determining the prices.
Most local residential buyers tend to look for more affordable properties and flexible payment terms such as serviced residential stands and properties with title deeds. High income earners favour residential properties that offer more comfort and security such as luxurious homes, secured gated communities and cluster homes.
The busiest price band for high density suburbs is from USD17,000 to USD40,000, medium density from USD50,000 to USD120 000, and low-density suburbs from USD150,000 to USD1 million.
While accurately priced properties tend to sell well and fast, generally, well-informed buyers are purchasing at an average price of 80% below the asking price. There are unfortunately still a lot of overpriced properties on the market which hampers sales.
Most real estate transactions are conducted in US dollars with only a few conducted in the local currency, generally with a premium to compensate for exchange rate and inflationary risks.
Buyers in the high-density category tend to seek affordable homes and hence purchase in the lower price bands. These are mostly civil servants, mining workers and employees under Employer Assisted Mortgage Schemes.
Medium-density buyers include emerging entrepreneurs, farmers, young couples, miners, and business executives, and accommodates both local and foreign buyers. Low Density buyers are generally high-income earners who seek luxurious homes that offer comfort and security. These include diasporans, tenderpreneurs, senior civil servants (government officials) and business executives.
Selling is mostly for financial reasons, or relocation to a bigger space or better area, or other personal reasons.
Commercial property market overview
The commercial property market is experiencing contrasting trends as the demand for offices in the central business district (CBD) declines, while there is a noticeable increase in demand for industrial properties nationwide.
The rental market, however, is showing signs of recovery. In Harare CBD, the demand for retail space is on the rise due to the growth of small and medium enterprises (SMEs), leading property owners to repurpose their properties to cater to this demand.
On the other hand, the demand for office space in Harare CBD continues to deteriorate, with office seekers opting to migrate to suburban areas that offer a more favorable environment for business operations. Meanwhile, there is a steady increase in demand for industrial properties, driven by the growth of industrial activities such as mining, agriculture, and logistics.
Rental prices in the market are now quoted in USD, while rentals in the local currency are adjusted based on the prevailing exchange rate to mitigate exchange rate and inflationary risks.
Average rental for retail properties in the CBD ranges from USD18 to USD28 per square meter. Office rentals range from USD6.50 to USD9 in the CBD and USD12 to USD18 in the suburban offices. Rental for industrial properties ranges from USD5 to USD7.50. Average yields for retail in CBD are estimated to range from 6% to 7%, offices in CBD are achieving an estimated average yield of 8% and industrial properties are achieving an estimated average yield of 11%.
Challenges in the real estate market
Challenges for sellers include a lack of market insight which leads to overpricing, as well as unscrupulous agents who may manipulate property prices for their own benefit. Additionally, the inflexible mortgage financing framework can pose challenges including delaying transactions.
Buyers are also at risk of overpaying due to the absence of a standard pricing system. Furthermore, the public lacks awareness of the importance of only working with registered estate agents to ensure they receive the best advice and service.
There are also challenges around poorly developed properties as developers compromise quality to reduce costs and time, resulting in defects. Landlords encounter challenges such as late payments and defaulting tenants, with recovery of outstanding amounts often proving difficult. Engaging a reputable rental agent can help landlords mitigate risks through thorough tenant vetting and professional assistance including around tenant arrears, contracts, and legal issues.
A final challenge relates to tenants who often struggle to recover their security deposits upon lease expiration, as some landlords find excuses to retain them. Legislation is needed to protect the interests of both parties involved. Unfair rental increases and overpricing are common issues faced by tenants. Neglected property maintenance by landlords can lead to tenant rights to withhold rent until repairs are completed, although enforceability may vary.
Ultimately, the trends and challenges observed in the market underscores the need for sellers, buyers, landlords and tenants, whether residential or commercial property, to work with a credible real estate agency which is registered.
If you would like to know more about Seeff Zimbabwe and how we can help you, feel free to contact us today!
Author: Gina Meintjes, 26 May 2023, International