Property sector sneezes as economy catches cold

Zimbabwe’s property sector is reeling from the marked slow-down in economic activity over the past year, with defaults on rentals and declining occupancy levels resulting in diminishing revenues.

The government has had to revise its earlier optimistic 2014 economic growth target of 6.1 percent to 3.1 percent due to lack of capital amid, low business confidence, and weak commodity prices among other factors.

The country’s major property firms have registered declining revenues, attributed to rising default and void rates.

Industry experts say default rates have surged to an average of 60 percent in 2014, from about 20 percent last year, while void (vacancy) rates are above 10 percent, against acceptable levels of 6 percent.

Listed concern Zimre Property recorded $2.9 million revenue in the six months to June, down from $3.5 million previously, with void rates up to 20 percent from 11 percent in the first half of 2013.

In the half year to March, Mashonaland Holdings saw its revenue declining to $3.6 million from $3.9 million in the comparative period of 2013, with occupancy levels coming down to 85 percent from 89 percent previously.

Dawn Properties also registered lower revenue of $5.5 million compared to $5.7 million in the year to March 2014, while Pearl Properties’ revenue dipped marginally to $4.4 million from $4,.5 million previously as occupancy levels came down to 78 percent from 80 percent.

Zimre Property Investments (ZPI) managing director Edson Muvingi blamed the economic slowdown for weakening rental income.

“Vacant space is increasing because a number of tenants are actually closing business and this is not just a ZPI portfolio issue but it’s across the board,” Muvingi said.

A senior property consultant at Knight Frank, James Chirombo said rising voids in the office and industrial letting market reflected a weak economy.

“In the absence of long-term financing, coupled with the high costs of borrowing, demand for investment property is weak. Prices being offered on the market are below valuation.”

“The trend is such that it is a buyer’s market though there is a disparity in the selling prices.”

Chirombo said the residential market was also constrained as a result of the absence of substantial mortgage funding.

“Financial institutions have been unable to provide long-term financing as would be applicable to property purchases. As a result, the demand for residential property purchases in the low to medium density suburbs has been restricted,” he said.

Most property companies have turned their attention towards low-cost projects to exploit the strong demand in that sector with minimal outlay.

Mashonaland Holdings chief executive Manfred Mahari  said that trends in the market were pointing towards low cost properties.

“Companies are feeling the pinch and constantly downsizing and you will also see that companies have a different setup. Today they no longer require traditional working spaces. So this presents us with an opportunity to relook our products and tune them like what we have done with the Avondale complex,” he said.

Mahari said Mashold had since slowed down the $6 million Hazeldene project, a residential cluster development in Borrowdale, and turned its attention to the less expensive Westgate project.

“There is huge activity in the high-medium density sector, the low density properties usually require huge amounts of money and without mortgage finance there has been limited activity,” he said.

Muvingi indicated that ZPI was also shifting to low-value properties to widen revenue streams, citing mortgage finance for low cost properties rather than for the high end market.

The real estate sector’s woes have been telling on the stock market, with listed property firms’ stock prices reflecting the industry’s sluggish outlook.

Of the four listed property concerns, only ZPI recorded a marginal year-on-year growth of 0.83 percent to 1.21 from 1.14.

Pearl properties today traded at 2.8 recording a negative year-on-year growth of 15 percent from 3.3.

Dawn has since October dropped 20 percent to trade at 0.80 recording a year-on-year low of 0.65 in February.

Mashonaland Holdings was not any different, registering a 13 percent year-on-year decline to trade at $2.60.- The Source

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