Real estate sector, a lucrative investment option
Although the real estate sector remains a lucrative investment option in Zimbabwe offering real returns despite, the obtaining economic headwinds pose serious threats to its full potential.
Since time immemorial, real estate has always been a safe haven for investment during uncertain periods and a perfect hedge against inflationary pressures for instance.
In the past few years, various real estate projects have been undertaken across the country to cater for residential, office parks, industrial and retail space to meet growing demand.
Companies like Terrace Africa rank among those that have been active, also seen by their listing of what became Zimbabwe’s first real estate investment trust (REIT) on the local bourse.
Zimre Holdings Limited (ZHL) has also indicated registering a REIT and plans major projects for Mazowe area and Victoria Falls.
However, experts have noted the prevailing economic challenges characterised by inflationary pressures, exchange rate volatility, the disparity between official and parallel market rates and erratic utilities supplies make it difficult for investors to pour in funding or complete projects on time.
“The Zimbabwean economy continues to face inflation, currency and exchange rate headwinds affecting economic activity which in turn affect the property sector,” said IH Securities.
As of June 2023, the inflation rate stood at 175,8 percent, with a month-on-month inflation rate of 74,5 percent according to figures from the Zimbabwe National Statistics Agency (ZIMSTATS).
Due to disparities between the official and parallel exchange rate, suppliers of construction materials practice forward pricing leading to significant cost pressures on property owners and developers.
The market also remains affected by slow space uptake in the central business districts (CBDs) due to low formal economic activity.
After decades of economic meltdown, big businesses downsized operations while others eventually closed forcing people to turn to the informal sector. Additionally, the economy also struggled with the adverse impacts of the Covid-19 pandemic with limited formal employment, thus further boosting informality.
The challenges are not unique to Zimbabwe alone but prevalent across the region.
“Apart from the poor availability of data on transactions, valuations of properties and lack of international investors, the real estate sector in Sub-Saharan Africa (SSA) has faced similar problems with the rest of the world.
“The impact of remote work has hit some SSA cities harder than those in the US, Europe and Asia,” said IH Securities.
According to a report by Knight Frank, Johannesburg has a 18,7 percent office vacancy rate compared to London with a 9 percent vacancy rate.
However, the residential sector has seen rapid growth mainly as a result of urbanisation which has increased demand for housing with Harare in need of close to a million units to meet demand.
The industrial space also presents growth potential as the sector is seeing increased demand following increased activity in agriculture and mining.
Apart from agriculture and mining, retailers are also coming in with strong demand for space. As e-commerce increases, so does the need for warehouses and industrial space.
“In recent years, there has been a shift from traditional in-store shopping to online shopping resulting in an increased demand for warehouse space. The worldwide prevalence of e-commerce has also made industrial real estate, particularly warehouse real estate, an attractive investment.
“The e-commerce boom has given a strong boost to the popularity of industrial properties and final-mile fulfilment centres,” said IH Securities.
Worldwide, the desire for same-day delivery and the desire to get products into customers’ hands sooner has helped to drive investments into last-mile distribution complexes, IH opines.
According to JP Morgan, e-commerce accounts for less than 20 percent of retail sales and there is room for growth.
-ebusinessweekly
