Property prices to remain high

PRICES of property materials are expected to remain high during the second quarter of the year due to high financing costs, Old Mutual Securities (OMSEC) has said.
In their portfolio manager’s report for the first quarter of 2019, OMSEC said the property sector was facing low demand in the housing market and property-related fixed assets due to high rentals and building costs.
“Low economic activity and higher voids have seen property yields remaining depressed. The high cost of building materials for new property developments will see property prices remaining comparatively high when compared to regional peers. We expect a recovery of this sector when real macroeconomic fundamentals realign in the medium to long term,” the advisory firm said.
The property market is receiving support from risk-hedging investors as they sought options against erratic currency travails especially the past two months.
Zimbabwe has been battling acute cash shortages for nearly three years, with some depositors who are failing to get their cash out of banks opting to invest in property. This has been happening at a time bond notes have been losing value against the US dollar, which is the base currency in Zimbabwe on both the interbank and parallel market.
While returns on properties exceed inflation and other investment vehicles, few in Zimbabwe consider buying a property as an investment beyond securing a family home due to the costs.
There is also a small mortgage market in Zimbabwe, resulting in stunted growth in the construction industry as many do not qualify for loans. The high costs to return ratio, rising inflation, lack of alternative investments and low real incomes have resulted in the property sector developing slowly.
Going forward, OMSEC said: “The property sector is now a long term investment return vehicle whilst money market investments are not viable as a real investment return hub given inflation in excess of 66 percent as at March 2019.”
The country’s economic environment is characterised by suppressed Gross Domestic Product growth rates, company closures and a liquidity crisis. At sector level, the property market is characterised by declining occupancy levels, increased tenant evictions and space surrenders.
Commenting on the money market, OMSEC said the growth in inflation was rendering the current ceiling of 15 percent for lending unrealistic as this is resulting in negative returns for money market investments.
“A revision of the ceiling is likely to occur as the absence of such will maintain this asset class as highly unattractive,” said OMSEC.

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