28 March 2013

Zimbabwe: Construction Costs Balloon

CURRENTLY, the construction industry is lagging behind its regional peers as the cost of building materials remains prohibitive unlike most sectors that have revised downwards their prices after the economy was dollarised in line with the rest of the region, writes Paul NyakazeyaIN Zimbabwe, it now costs more to build a residential property in the medium and low density areas than to buy a complete house more so if one does not have the land readily available to build on.

What has made building a residential property more expensive is the cost of building materials which are high due to heavy duty imposed on imports; the persistent liquidity crisis which has resulted in many buyers bargaining for properties put on the market; the absence of mortgages and rising cost of residential stands.

Ailse Africa Properties managing director, Andrew Chifamba, told The Financial Gazette In-Depth that it was now more expensive to build in the medium and low density areas especially when one is to factor in the cost of acquiring the residential stand.

"Due to the persistent liquidity crisis you can bargain for a complete house something that is not very common with cement or bricks and other building materials due to increasing demand. It is important to note that cost does not equate to value as market determines prices," he said.

"You find that most houses being advertised for US$220 000 end up being sold for between US$170 000 to US$200 000 because there is no money on the market," he added.

Chifamba said building in medium and low density areas has also been made expensive by the increasing demand for land which has resulted in prices of residential stands rising.

"It is a different story if the land was acquired soon after dollarisation or before," he said.

A house in a medium density area such as Haig Park in Harare is being sold for between US$55 000 and US$85 000 depending on the state of the house and how big it is. It costs about US$650 and US$700 per square metre to build which can translate to over US$75 000 for the property, which is more expensive without taking into account other unforeseen costs and the value of the land. This is assuming one is using standard building materials.

In Highlands, a stand costs as much as US$50 000. The value of a property on that land cost between US$160 000 to U$220 000. It would therefore cost more if one is to build a house that is "in the same league" as those in the same neighbourhood.

Former president of the Construction Industry Federation of Zimbabwe (CIFOZ), Daniel Garwe, said the issue of whether it was cheaper to build or buy a finished house was based on perception. He however, highlighted that "the issue depended on factors such as quality, size, the contractor, features of the house among other factors".

Garwe said the construction sector had great potential.

Currently, the industry is lagging behind its regional peers as the cost of building materials remain prohibitive unlike most sectors that have revised downwards their prices after the economy dollarised in line with the rest of the region.

"Some property industry players still have a hyper-inflation hangover. Most contractors' quotations are still very high compared to what the region is charging and this is inevitably slowing down projects," he said.

In Zimbabwe, 1 000 common bricks cost between US$60 and US$90 while the same quantity in the region cost less. Semi-common bricks are being sold for US$40 and US$90 while semi-common bricks in the region cost between US$30 and US$70. Face bricks cost between US$100 to US$190 locally while the regional average is between US$80 and US$160.

"In Botswana and South Africa, plumbing materials, door frames and window frames cost about 20 percent less than what is being charged in Zimbabwe," he said.

Five cubic metres of pit sand cost between US$40 and US$60; the same quantity of river sand between US$45 and US$60 and quarry dust US$50 andUS$60 while gravel is being sold for between US$70 and US$80.

Five litres of gloss paint cost between US$25 and US$42 while PVA is being sold for between US$27 to US$35. A bag of cement costs between US$9 and US$14.

Property analyst, Micheal Russell, said while the property market was adjusting itself after dollarisation the same could not be said of building a house in medium and low-density areas.

"The rental yields, themselves a function of the income levels and the pace of economic activity, have improved in the medium density and low density segments but the cost of building when compared to the region has not," he said.

"If one is to do a cost build-up of the house they want to build, especially in low density areas, they might be tempted to buy a finished product unless they have steady incomes from various sources," Russell said.

CIFOZ immediate past President Philip Chiyangwa, however, said property prices in Zimbabwe are still priced lowly as compared to other countries such as Zambia, Botswana, Angola and South Africa.

"We foresee a scenario whereby prices will correct once the political situation in the country has been resolved and new investments come in," he said.

He said there was no real mortgages to talk about in Zimbabwe, except once in a while when a bank opens a short window for schemes being offered by one or two property development companies.

"Although not enough, there has been a slight improvement albeit negligible activity," he said.

Prices of residential properties in Zimbabwe are said to be distorted because potential sellers use comparative methods and are said to be "greedy." Property experts say buyers and sellers should do proper valuations of their properties.

Valuation is the act of determining the value of a property. It is the price of the property established by appraisal of its quality, condition and desirability or the cost of replacement and near recreational facilities.

Valuation means a formal report prepared by a valuer in accordance with his client's instructions stating the valuer's opinion on either the open market value of any property in terms of its capital or rental value.

This will be as at a certain date or/and the replacement cost or depreciated replacement cost of any building and improvements thereon as at certain date, whether or not such valuation was arrived at with the assistance of a building construction professional.

According to the Valuer's Act of 1996, a valuer is the person who is registered in terms of the Act, or a company or partnership practising or carrying on business as a valuer in terms of the Act.

A valuer's art is more than making estimates and desktop assessments or price appraisal. It requires skills in carrying out researches, feasibility studies for developments, project management, financial consulting and even discount cash flow analysis. It also involves working with comparable data, searching for relevant information, for example deeds searches, town planning, studying the lease, producing a detailed valuation report which must include information such as full instruction by the client, purpose of the valuation, basis of valuation such as open market value, correct description of the property, the extent of the subject property and date the inspection was made and the effective date of the valuation.

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