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Petrol for property - Zimbabwe's new rental currency
Prof Francois Viruly & Kura Chihota, Real Estate Web
December 01, 2008

http://www.realestateweb.co.za/realestateweb/view/realestateweb/en/page197?oid=27558&sn=Detail

As a result of a 2000% de facto daily inflation rate in Zimbabwe, property owners in the country have resorted to accepting petrol coupons in lieu of cash for rental payment. Also offered - and accepted - for rental payment are laptops or anything of value that a tenant produces. At the moment, in Harare you can rent office space for a litre of petrol per square metre of space per month. And because of the hyper-inflation scenario, rentals are being reviewed every three weeks.

According to Viruly and Chihota property investors and service providers are virtually in "survival mode", with the emphasis shifting toward informal operators who are able to quote and collect rentals in US dollars.

Explains Chihota: "As rentals could until very recently only be quoted in Zimbabwean Dollars, reputable property management companies have lost a significant amount of property management business to informal sector operators and individuals who undertake illegal transactions in foreign currency. "

A limited number of transactions in commercial and industrial properties take place, and investors are holding onto properties as a hedge against inflation. While yields on residential properties are around 5%, in the commercial property markets yields have declined to a mere 1%.

Although the economy has experienced negative growth of some 12% in the past year, the demand for commercial space in Harare remains surprisingly strong, says Chihota. "Vacancy rates in the office, retail and industrial sectors remain low, less than 5%. For tenants who are finding it difficult to pay rentals, owners are often satisfied that tenants pay operating costs only. All leases are presently signed on a net rental basis only."

As far as market indicators are concerned:

• Net office rentals are quoted at approximately US$3/sqm per month, retail rentals at US$4-5/sqm, and industrial rentals at US$1/sqm;
• Land prices for offices are in the region of US$120/sqm, land with retail rights being closer to US$250/sqm;
• Building costs for office buildings are approximately US$1 500/sqm; and
• House prices vary from US$ 60 000, with up market homes selling for US$300 000-400 000.

As the mortgage market has collapsed, all transactions occur on a cash basis or through the transfer of company shares, depending on how the property is held. Transactions also occur through the transfer of, for instance, Old Mutual shares and other share quoted on foreign bourses.

The commercial property development market is largely at a standstill as a result of a lack of debt financing, a shortage of skills and the rising cost of important building materials, yet, developers are acquiring land that could possible be developed at some time in the future.

On the residential side, the sector has seen US dollar gains of over 100% over a three year period. The "Diaspora" (Zimbabweans living outside Zimbabwe and sending hard currency to relatives in the country) are the only players able to secure some level of debt financing to acquire real estate in Zimbabwe. Mortgages are however not available from Zimbabwean financial institutions.

As far as listed property is concerned, listed funds are not active traders in the property market as there is very little to buy and it is unattractive to sell. There are four listed property counters on the Zimbabwean Stock Exchange with market capitalistion in the region of US$40m.

"Although prospects for the Zimbabwean property market will largely be influenced by the unfolding political scenario, one should expect the economy will be increasingly dollarised. It is likely that rentals will soon be officially quoted and paid in US$ which should improve the overall trading scenario in this sector of the market," Chihota predicts.

The dollarisation of the property market will also make it possible for formal/institutional investors and property companies to re-enter the market, maintain their clients and capture a reasonable investment yield. As US Dollar rentals in Harare are relatively low by Southern African standards, an opportunity exists for Harare to rise sharply," he concludes.

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