Real estate prices to remain depressed
(No Ratings Yet)
Loading ...
(No Ratings Yet) Loading ...By GETRUDE GUMEDE
Published: December 23, 2009
Related
THE country’s property sector has continued to struggle following the adoption of the multiple currency system, which took effect in February 2009, removing most speculative opportunities and consequently dissolving the buying power of most players.
Hence, property values have dropped across the board.
Property prices are expected to remain low into the next year until the reintroduction of mortgages, which had been suspended in 2007 due to hyperinflation, reducing building societies’ liquidity.
Property market analysts said this development is however, subject to the development of the whole financial sector, a gradual development currently taking effect.
Between 1998 and 2008, the economy was characterised by high inflation, hyperinflation and high speculative behaviour.
As a result, investors and individuals who had excess to cash had to hedge against inflation investing on the stock market or in properties.
The last quarter of 2008 saw the monetary authorities put more controls to curb speculative behaviours, which resulted in a drop in most companies’ earnings.
Hyperinflation and the subsequent adoption of the multiple currency regime that brought an increase in real operating costs in a period of low revenues resulted in industries scaling down and in some cases, shutting down.
Resultantly, there was an increase in vacancies in the commercial properties as most companies failed to meet the new United States dollar denominated rentals.
This caused most land owners to compromise on their rental revenues to prevent an increase in vacancies and at least maintain a decent income stream.
Property sales have also been subdued since the conversion to the use of multiple currencies as there was a lack of an established mortgage issuer as well as low levels of disposable incomes to support such transactions.
EFE securities said it has been difficult to establish the market values of commercial properties over the year.
“However, we can conclude that residential properties have taken a real knock in value, with a house whose value was US$100 000 in July 2008 falling to US$65 000 by February 2009,” EFE added.
In the absence of mortgage facilities, low disposable incomes as well as low market liquidity, these prices should remain relatively lower than regional comparatives.
Most property groups with excess land banks reserved for property development made decisions to prioritise the renovation of their current properties to a standard in line with regional standards before they considered erecting new structures.
“As the commercial world starts to regain life, we should most likely see an increase in demand for the limited office and retail space,” EFE said.
At present, with the current low business activity, the average vacancy rate on all property groups is five percent.
Added EFE: “As the economy continues to recover, we should see a growth in demand for rental space, pushing rentals upwards”.
Retail space is expected to lead this phase. As we have witnessed a rapid recovery of most retail giants as well as the establishment of new and very aggressive retail outfits.
The actual time it is likely to take before the property industry recovers may be difficult to predict at this early stage, but we believe that when the time comes, there will be a sharp increase in both the property values and rental yields.
The two main factors affecting rental yields are market liquidity and demand for rental space.
The local market liquidity was reduced by the liquidity crunch of Q4 2008, which caused the reduction in capacity to meet rental costs presented by property owners.
This resulted in the reduction in rental rates and subsequent rental yields.
The developments that followed the recently ended reporting seasons demonstrated that rental yields and collection rates are improving as property managers are managing the quality of tenants they are signing up.