Valuation problems show property sector’s state of flux

Current problems around property valuations in the country reflects the state of the local real estate sector, an analyst has said.

The emergence of inflationary pressures in the past and in recent years has worked to muddle property valuations, which has hit hard insurance and pensions companies that have hugely invested in the property asset class.

Official data shows that investment property’s share of total assets — in the insurance and pensions industry — stood at 46,83 percent as at December 31, 2020

But, going beyond this simplistic view, property consultantMr Francis Nyambiri, says there is little going on in terms of adding value to already existing properties.

“Volatility is an interpretation of valuers. It shows how the market has performed over the past five or so years; for example, people have been buying properties and simply holding them and not adding value. There seems to be a naïve expectation that property values should always go up regardless. Property values have come off,” he told a Zimbabwe Association of Pension Funds (ZAPF) meeting recently.

“Irrespective of the currency in use, the same valuation approaches that we use in Zimbabwe are the same that are used across the world.

“Zimbabwe is a unique state; so how do we factor in these unique factors? We don’t necessarily need to adjust the valuation model, what we do is to adjust the inputs that are going into the model.”

According to actuarial consultant, Mr David Mureriwa, property values have come off by half since 2014.

“There is an apparent lack of consistencies in values, for example our properties in both the Insurance and Pensions sectors were US$0,944 billion in 2009, US$1,033 billion in 2010, US$1,326 billion in 2012, and by 2014 they were US$1,5 billion.

“But if you read current reports — as at September 30, 2020, they are only US$0,785 billion. The current figures seem to be capturing about 85 percent of the 2009 values and 52 percent of the 2014 values.”

The weakening property portfolio values have concerned the insurance and pension sector regulator — the Insurance and Pensions Commission (IPEC), which has been working with the Actuarial Society of Zimbabwe and the Valuers Council of Zimbabwe so as to come to an understanding on valuation guidelines.

According to IPEC director of pensions Mr Cuthbert Munjoma, the regulator will issue guidelines to the industry covering issues such as the rotation of valuers, the requirement of independent property valuation reports, and the submission of internal valuation policies to IPEC.

One of IPEC’s recommendation around valuation is for the rotation of valuers.

Mr Nyambiri, however, says such rotations would take away “consistency and anchoring.”

But notwithstanding some of these disagreements on the technical aspects of property valuation, it is the pensioners who eventually gets hit the hardest.

“If the current values are correct, can we convince a pensioner or those nearing retirement that there is value in property investments in Zimbabwe?

“If the current values are not correct, how best can we ensure that pensioners and those nearing retirement are not short changed, through intergenerational transfers?” asked Mr Murerirwa.-Herald.cl.zw