USD trading environment to sustain the property market
THE extension of the USD trading environment to 2030 is expected to sustain property demand in the immediate term, First Mutual Wealth has revealed in its report.
The Government last year extended the multicurrency regime to 2030 through Statutory Instrument 218 of 2023, and the move is anticipated to improve business confidence in the short term and will assist in promoting lending support to productive sectors of the economy.
“We expect an increased prominence of hard currency rentals and shorter lease agreement arrangements to persist for local currency-denominated rentals as inflation uncertainty remains,” reads the FMW economic and market review.
The report highlighted that property developments are likely to be skewed in favour of storage, warehouse, retail, port or transport hubs, tourism and residential developments, while central business district (CBD) office space is likely to have lower relative activity in the immediate term.
“We similarly expect innovations in the form of real estate investment trusts listing on local public bourses to enhance the pricing and liquidity of property developments,” said FMW.
During the year 2023, the market witnessed the introduction of the second Real Estate Investment Trust (REIT), known as the Revitus Property Opportunities Real Investment Trust (Revitus REIT).
Tigere REIT had the distinction of being the first REIT to be listed on the ZSE, a milestone achieved in 2022. However, the Revitus REIT is already on the market to raise US$10 million targeted for the refurbishment of distressed properties. According to the REIT Association of Zimbabwe, the market is slowly evolving in
Zimbabwe as a viable capital market instrument, and its potential market size is estimated at around US$40 billion.
REIT Association chairperson, Dr Mike Juru, recently said Zimbabwe’s documented residential and commercial infrastructure needs, coupled with the attractive investor returns, present a compelling business case for the broader market to take up REITs as a viable capital market instrument.
According to Dr Juru, considering that REITs are still in their formative stage in Zimbabwe’s capital markets, he is convinced that the market performance of REITs is primed for further improvement in the short to medium term as the market fully embraces REITs in their investment portfolio diversification and hedging efforts.
However, FMW noted that the absence of long-term financing from the banking sector is expected to dampen potential growth in the sector as the mortgage finance industry is largely non-existent. It said currency uncertainty has limited the banking sector’s appetite to finance 10, 15, or 20-year mortgages, as was the norm historically.
“Most mortgage debt options in Zimbabwe are poorly structured for retail clients, as they require 20 percent to 50 percent of the property value as a deposit and full settlement of the loan within six to 24 months.
“The resultant payment terms attached to such financing options are quite exorbitant and therefore largely exclude retail clients from the property development sector, and the result is a property sector dominated by pension funds, corporations, the diaspora and high-net-worth individuals,” FMW said.
FMW noted that notwithstanding the lack of mortgage funding, the Government expects the construction sector to grow by 3,4 percent in 2024.
“On our part, we are of the belief that the construction sector will grow by 8 percent as demand for assets in this sector grows given its hedging mechanism against inflation and, secondly, due to the growth in infrastructure spending in both the private and public sectors.”
It added that demand seems strongest in retail, warehousing and other specialised property developments.
“There is, however, a need for adequate infrastructure support from councils to allow for lower development costs and better yield returns for the new properties that are coming up,” FMW said.
FMW said the masterplan demands by the Government on local councils to supply adequate supporting infrastructure would go a long way in lowering development costs and sustaining the growth of this sector.