Real Estate Investment Opportunity

Real Estate Investment Opportunity

Buyers’ Market

When there is an oversupply of properties in the market buyers get the upper hand. Sellers compete to sell their property to a few buyers on the market. Buyers on the other hand have a great bargaining power. Low offers become the order of day. In the current environment of Zimbabwe, Buyers can negotiate 10-20% off the asking price. Due to the liquidity crisis the nation is experiencing, cash buyers are few and they are hunting for bargains. Properties are now selling in USD given that the RTGS has lost close 1,000% to inflation.

Unemployment rate has reached alarming levels in Zimbabwe maybe around 90%. The economy has moved from formal to informal trading. Majority of families are making a living from informal trading. This scenario implies that there are few people who can meet the criteria for a mortgage to purchase a property. However, banks stopped giving mortgages due to inflationary pressure. The mortgages on offer by some banks are ridiculous from a borrower’s point of view. Banks are offering clients with free funds 10-year mortgages denominated in USD but issued in RTGS at bank rate and repaid in USD. This a ridiculous mismatch of loans. Effectively one is borrowing in RTGS and repaying in USD. The borrower loses money from day one as prices are pegged at parallel rate of 120% while bank rate is 82%. There is an immediate loss of 38% in buying power of the loan. The bank carries little to no risk while the borrower carries all the risk and makes money for the bank. It is understandable that banks lost a lot of money in past when they issued loans which value was wiped out by inflation. Lenders make the real estate industry liquid, which in turn increases buying and selling activities. The lack of funding depresses the market; hence cash buyers are put in a strong negotiating position.

Investment Opportunity

The Zimbabwe property market has never lost value due to any recession in its history. The market is not prone to fluctuations. Property prices only go up and not down in real terms. That shows that real estate investment in Zimbabwe is a safe place to keep your money. How is that house prices kept going up despite the battering the economy has suffered? The trend clearly shows that real estate investors will always make money in Zimbabwe. Here are some reasons why I believe real estate value will go up when the economy of Zimbabwe recovers:

Demand for property will rise. Buying power will rise resulting in many people who cannot afford to buy properties now to start buying in the future.

Employment level will rise significantly making a lot of people legible for mortgages

Foreign investors will flock to Zimbabwe and will require properties to house their businesses

Diasporas will return home and will require accommodation

Mortgages will be affordable and interest rates will be low

Stable policies will attract investment

There is every reason to believe that property values will rise up to 30% at the time of economic turnaround. In the “New Zimbabwe” infrastructure development will compel property prices to go up. The trend to develop houses and office parks outside the CBD area will be more prevalent. The real estate industry will be a hive of activity which will bring huge returns to property owners that purchased their properties during the economic depression.

From 2009 at the time of economic dollarization property values were on the rise. In general (especially land) values have gone up by 50-300% depending on the area. For example stands in Damofalls Ruwa that were going at $2,500 to $5,000 are now going at $10,000 to $13,000. Low density areas like Borrowdale that had half acre stands that were going at $25,000-$30,000 are now selling at $50,000 to $70,000 depending on the street. This increase in value was achieved without a lot of economic stimulation in the nation.

In the New Zimbabwe, one is persuaded to think that there will be exponential growth in real estate investment. Now is the best time to buy real estate. We are in a difficult period to rely on rental income as tenants are facing challenges in paying rent. However if one can get rent to meet the holding costs without necessarily achieving passive income, the equity in the future will make the pain worthwhile. The market is in a state of “buy now enjoy later”. There is always a window of opportunity from time to time in every market. It is only those that are prepared that stand to benefit from the opportunity. I believe the window of opportunity to buy real estate is now, take it and enjoy the benefits thereof.