Real estate under Covid-19 second wave
THE year 2021 began with a virulent second wave of Covid-19, amid a spike in infections and deaths. This left the authorities with no choice except to reintroduce lockdown restrictions.
With indications pointing to a further extension of the lockdown, the multimilliondollar question being asked by property owners, investors, tenants, lenders, tax collectors etc is: what next for the real estate sector, as the cloud of uncertainty reminiscent of the period April to August 2020 hovers over the industry?
In its 2021 national budget unveiled in December 2020, the government projected gross domestic product growth of 7,4%, against 2,0% anticipated by the World Bank, thereby creating positive national vibes. The second wave of Covid-19, however, raises the need to revisit the forecasted growth and plans which had been put in place although the possibility of a vaccine reaching the country’s citizens keeps our hopes alive.
High inflation brings instability in any economy and promotes unproductive speculative behaviour which naturally destroys the economy. Though the deliberate efforts put in place in 2020 to combat inflation are commendable, inflation may continue with its downward trend, supported by improved performance in the manufacturing, mining and agricultural sectors. The second-wave of Covid-19, if it continues unrestrained, may however, dampen the inflation outlook.
Already, the year 2021 has started with the gap between the official exchange rate and the parallel market rate widening, putting pressure on the former. Any upward movement in the rate may inadvertently impact on inflation.
The expected good rains are bound to provide relief to power and food importation thereby availing much needed foreign currency to activate growth in other sectors. This will inevitably set the growth trajectory for the real estate sector as it is dependent on the success of the other sectors.
Inflationary pressures and currency stability will attract excess liquidity into the sector as hedging is a prerequisite for astute investors. Real estate investors in Zimbabwe have found property as one of the best alternative hedges against inflation and with the cloud of uncertainty hovering over our currency’s stability, more investment will be directed towards property.
Construction is likely to consolidate the gains achieved towards the end of the year with more developments in the housing sector as the nation works on addressing the housing gap of over 1,3 million. The limited stock of quality developments will continue to trigger new quality developments and with an upsurge in pricing with great uptake.
We have seen developments whereby despite their awkward locational issues, easily achieved the best rate per square meter, pointing to a thirst for quality. The approval of the Real Estate Investment Trust framework and subsequent income tax relief on the same will see listing of a couple of new big developments funded through the real estate capital market and this will spur property development and construction by the private sector.
Investable real estate will grow. The impact of Covid-19 on the real estate sector cannot be ignored and will surely reconfigure the treatment, management and operations of real estate.
At the same time, prospects of vaccines offer some relief. For a while, the retail sector has been undergoing technological transformations, but the pandemic accelerated the shift from brick and mortar sales to e-commerce. This trend will popularise warehousing in suburban locations, dissipating the retail space. As much as rentals for warehousing are lower than retail, the construction cost for the same is cheaper than retail shops which would make them preferred by both the tenants and investors who are all seeking to cut costs.
This will see the development of conveniently located warehouses within residential suburbs gaining traction. As more people adapt to working remotely, this will also see reconfigurations within homes to allow for workspaces, thus creating opportunities for renovations.
While this enhances values for properties with study/offices, the downside of it is that it leads to the decline in demand for office space. Once this phenomenon has become entrenched in people’s lifestyles, there may be no going back. However, overall prospects for the office sector will not be clear until the virus is eradicated and normal working patterns emerge.
In the short run, particularly in the city centres, office rentals and occupancy will continue to decline. A push for multipurpose buildings and relaxed town planning regulations may be unavoidable as owners of city centre office buildings seek to convert their properties to residential use and capitalise on pressures that are building for the nation to come up with more housing solutions. Technological innovations mitigating the traditional, direct physical contact will replace human interventions in the sector, which will see the reduction of manpower in property services.
Further, office on demand concept will emerge as the technology that allows for such is now available, coupled also with technological transformations.
Demand for fancy, expensive locations will go down as people will be able to work from anywhere, not confined to specific upmarket locations, making expensive locations and occupations unnecessary