Zimbabwe: Pandemic Threatens Real Estate Sector

14 August 2020

Property values could decline by as much as 40 percent as the real estate sector continues to feel the pinch of the pandemic, local consultants Integrated Properties has projected.

The Covid-19 pandemic has largely disrupted most business cash-flows due to the social distancing requirements that have necessitated restricted movement, lockdowns and reduced operating hours.

But for the real estate sector the consequences could be more pervasive.

Real estate consultancy firm Integrated Properties says property values in the country could decline by between 30 to 40 percent by December.

"It is a fact that there is a direct relationship between the values of income generating properties and the rentals payable.

"The undeniable impact of Covid-19 has been on the capacity of tenants to pay the rentals as the lockdown tremendously affected business operations, movement of people or customers, limited operating hours, limited international trade impacting on restocking or supply of raw materials, etcetera.

"All those factors reduced revenues on operating entities invariably reducing their capacity to pay rentals which are a critical component in the calculation of capital values.

"In a nutshell, property values have taken a knock due to Covid-19. In real terms, the cumulative impact will be as high as 30 to 40 percent at the end of the year," said Integrated Properties in its second quarter Property Market Report.

This "natural" revaluation could come as a relief for prospective buyers as the value of properties in the country have for long been considered rather pricey, compared to property prices in the region, for example.

Prior to the onset of the Covid-19 pandemic, the entry level price for properties in high density areas was approximately US$25 000, while in medium density areas the entry level price for a two-bedroomed house was approximately US$80 000.

In low density areas, the entry price for a two-bedroomed house was approximately US$130 000.

Meanwhile, the consultants say property sales have already taken a hit from the pandemic, which has worsened affordability constraints for the majority of Zimbabweans.

"From a research conducted by Real Estate Institute of Zimbabwe (REIZ) research team, property sales are reported to have gone down drastically by as much as 40 percent as both buyers and sellers develop a wait-and-see attitude.

"We note, the economic situation on the ground, reflects that the decrease in property sales is due to the reduction of disposable income of many Zimbabweans as properties are becoming unaffordable to the majority of the population," said Integrated Properties.

"A typical high density property valued at Covid-19 impact on the economy is unimaginable as the general economy is expected to shrink.

"The pandemic mitigation which involves restricted movement could directly be a huge contributing factor to the reduction in sales as property visits have been restricted and decisions to buy are only supported by an inspection of the subject property."

They added: "The affordability question has to be addressed, with a standard high density property pegged at US$30 000 at a rate of say $75, the value becomes $2 250 000 at an interest rate of 35 percent it means in the first year, monthly interest payment alone is $65 625 before insurance and capital repayment.

"The target market for the particular house type and size cannot afford it at all let alone the perceived middle-income earners."

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