Why Properties in Zimbabwe are overpriced?
Rufaro Hozheri
Eloquent in Finance| CFA Level 3 Candidate| MBA Candidate| Weekly Columnist
You have probably heard the claim that properties in Zimbabwe are expensive, especially compared to regional peers like South Africa and Kenya. To substantiate this claim, a quick online survey on property websites will make you realise that with US$100K in Zimbabwe, you might fail to secure a decent property in the northern suburbs of Harare but the same ZAR1.8 million will fetch you a modern-designed property in a secured suburb. Why is that so?
In all fairness, products in South Africa are generally cheaper than in Zimbabwe. This explains why South Africa is our biggest trading partner and we import billions worth of finished goods from them. Nevertheless, I want to focus this article on the idiosyncratic factors that make it expensive to purchase a property in this country. Having been a host for a real estate talk show, I believe I have accumulated significant insights from industry experts to formulate an opinion.
Lack of Alternative Investment Options
Considering that Zimbabwe has been affected by at least two cycles of hyperinflation in the last 15 years, monetary assets as an investment option become questionable. The equities market albeit tracking inflation and outperforming other investments in some years, also suffers from policy inconsistency. Considering the level of informalisation in the country, these investment options are not even considered by some of the economic agents who in other countries would have ordinarily participated.
This leaves the Real estate market as a sober investment for the general investing public to understand and consider. Besides property returns tend to track inflation or harden faster in the case of currency change. I opine that in Zimbabwe there is too much money chasing properties which results in expensive houses.
?High Cost of Construction ?
Another argument put forward to explain why the Zimbabwean property market is pricey is the high cost of construction. As a net importer, we are vulnerable to price changes in the producing country in addition to taxes and duties. Albeit the recent mushrooming of construction products manufacturing plants like the tiles manufacturing in Norton, most of the finishes are imported from Zambia and South Africa. These costs are then passed down to the customer making the properties relatively expensive than those in the region.
?
领英推è
Lack of a Proper Mortgage Market.
The norm elsewhere in the world is that middle-income earners do not buy properties on a cash basis. They are helped by banks through a loan that is backed by the property and this loan is called a mortgage. In Zimbabwe due to the unpredictability of the operating environment, banks have moved away from offering these long-term loans and left the real estate market dominated by cash buyers. Without a strong financial system to support the purchase of houses by individuals, it makes purchasing properties is very difficult and expensive.
?
High Taxes.
Although I haven’t carried out a comparison of different tax structures in the region, the property experts I have talked to have expressed that the income tax structure makes properties expensive locally. This is more so since the introduction of S.I. 133 of 2019 which fostered the 1:1 conversion for USD and Zimbabwean dollar. Construction developments that were started during the dollarisation era tend to show artificial local currency profits due to interbank conversions and attract higher taxes. This also makes properties in Zimbabwe less attractive and expensive.?
?
Lack of a structured rental market
Zimbabwe lacks a structured and formal rental market that is offered by corporations and institutions that provide lease agreements that govern the relationship between the parties. The reason behind this could be that corporates felt that the legislation favoured tenants to such an extent that it hindered the market forces to operate and determine the rentals.
The role of such a rental market is to reduce the need for individuals to own properties. Currently, most rental arrangements in Zimbabwe are verbally agreed upon and don’t offer any security to the tenant. This forces most of the tenants to see the need to own their house subsequently increasing the demand for properties and pushing prices upwards.?
In conclusion, there is a formula for the madness of the property prices in Zimbabwe. Despite the construction frenzy that is currently being experienced in the country, it is quite clear that the demand for properties outweighs the supply. The country’s economic blueprint has an aim to deliver 225,000 houses by the end of 2025. I however opine that it will take more than just housing delivery to correct the real estate market in Zimbabwe, if that is the goal.
CUSTOMER CONSULTANT AT CBZ HOLDINGS
1 å¹´Did u consider the total land size between ZW and RSA or Kenya. The latter nations have more land in comparison to ZW. Therefore due to limited square metres in ZW results in higher real estate prices. Then there is the total number of metropoles in S.A per province. This results in little need to migrate to Gauteng Jo'burg to experience World class living standards. During my stay in S.A I met University students whom had never left their province to see other parts of the country because there was no need. Opportunities were available close-by unlike in ZW. Then there is the concept of vertical construction in S.A. Many parts of that country have high rise buildings, hostels, and flats even in high density suburbs this accomodating more people per square metre unlike here in ZW. We all want to own our own 200 to 400 square metres. Therefore we use up more land to accommodate the same number of people pe square metre this pushing up prices. What ever the case maybe there are a myriad of reasons why real estate is more costly in ZW. The biggest loser is the people and the nation as peoplydont have more disposable income for other things and value is locked up in land.