This is a sentiment we have heard from a lot of people whenever conversations are made about property in Zimbabwe. A lot of people feel houses are overpriced compared to other countries. This is underscored by low rentals that make it hard for those who invest in properties to recoup their costs. It will take you more than a decade, at least, as a property developer to get back your investment.
A house in Madokero as an example
To illustrate our point let us take the average house in the middle-density suburb of Madokero. There a 3 bedroomed house sells for between US$60 000 to US$90 000 depending on the design and estate agent you engage. In comparison, such a house would fetch rentals of about US$300 and US$600 per month if you were to turn it into a rental.
We are going to be simplistic here and use it PayBack Period to do our calculations. If you buy a house for US$60 000 and rent it out for US$300 it will take you 200 months to recoup your expenditure. This translates to 16 years 8 months. On the other hand, if you buy for US$90 000 and get a tenant who pays US$600 you will recoup your expenditure in 12 years. We are assuming you get reliable tenants here and your house is not empty at any given point.
It just feels expensive
Houses in Zimbabwe are not expensive even though it feels this way. They are just un-affordable due to lack of financing. Most banks are not readily issuing mortgages. Having had their fingers burnt during 2008 and again during the Government of National Unity period banks had non-performing loans that eventually were defaulted on. This has made banks wary when it comes to issuing loans even relatively safebets like mortgages. A lot of people are also self-employed or un-employed making it hard to gauge whether they should qualify for a mortgage. The default behaviour for banks is to restrict loans to the few that can clearly qualify and leaving the rest of the population in the cold.
Zimbabwean houses are therefore un-affordable and not necessarily expensive. A quick comparison will prove this. Take for example our Madokero house example. Similar houses for sale in South Africa cost something around R1 500 000.00 according to leading South African property site Property24.com. That translates to US$103 000.00. Not too different from the US$90 000.00 in Zimbabwe.
Cost is a complex function
When it comes to determining the cost of something like a house a lot of factors are considered including:
- The cost of building materials. While a lot of items are made in Zimbabwe some are imported using scarce foreign currency. There is little leeway when it comes to factoring the total cost of building a house into the final asking price. No one wants to build/develop a house and sell it at a loss
- Title deeds versus cession-properties with title deeds are much more expensive as there is little risk involved in the investment. Cession is different- it simply means you have an understanding with the developer that the property now belongs to you. As some people have come to find out in recent months that understanding is worth nothing if the original developer did not have authority to build that house int he first place
- Competition- in other countries like South Africa you see developers competing to make a sale and therefore charging lower margins when making a sale
- Frequency of sales-less sales means higher property developers have to charge higher margins otherwise they will not survive the time in-between sales
- Property taxes and regulations also affect the ultimate price you pay in the end3
- Demand and supply- while there may be a lot of houses on the market there tends to be fewer coveted properties that everyone is interested in. For example, in Zimbabwe people tend to want property in newly built areas as opposed to say old suburbs like Mbare and Greendale
- The economic outlook of country-Zimbabwean policies tend to be made on a whim. What’s perfectly legal and profitable today might turn into a highly illegal business tomorrow after a rushed ban. Properties on the other hand offer a safe bet. You have the assurance that your investment will be safe and unlike say holding your savings in Zimbabwean dollars whose value fleeting. Many people are aware of this and tend to view property as a store of value..
- The above means that even if you get low rentals you have to bear in mind that there is a pretty low opportunity cost when it comes to making a property investment. There are a few viable ventures that you could investment if you are, say, doing it as a form of pension investment.
- Location- see what we mentioned above on suburbs. No one wants a house in Mufakose. Everybody wants Aspendale, Madokero and Mabvazuva
- Greed- this is not at the top as people tend to over-emphasise this in my opinion. However it is true. Zimbabwean businesses do have the tendency to want high margins. Mark ups of 25% are not unheard of and often importers charge 100% mark up or even more. Look at the prices of iPhones and MacBooks in Zimbabwe.
Rent is a function of disposable income
While house prices are constrained in terms of how low they can be rentals are a direct function of disposable income. Thanks to years of economic problems a lot of people in Zimbabwe live below the poverty line. A fact admitted even by the usually chirpier government. Put simply people can simply not afford to pay economic rentals. This leaves property owners with two un-enviable options:
- Charging low but un-economic rentals that people can afford or
- Shutter their properties while they look and fight for those few tentants that can afford the viable rentals
It’s not surprising that most property owners have gone with option one. If you drive around Harare you will find a few empty properties where owners have chosen to try and find someone who can pay the rent they are asking for. The frequent lockdowns and current pandemic hasn’t made things easier at all.
There you go. We hope we have done a good job of explaining the apparent disconnect between property prices and rentals in Zimbabwe. If you have any other such questions get in touch with us:
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