US dollar shields real estate sector

Enacy Mapakame CHARGING customers in US dollars when buying land and buildings, as well as rentals, has cushioned the real estate sector from currency volatility. Despite economic challenges such as inflationary pressures and exchange rate volatility, the real estate market has remained steady due to its ability to generate foreign currency. Real estate is one […]

May 19, 2024 - 09:43
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US dollar shields real estate sector

Enacy Mapakame

CHARGING customers in US dollars when buying land and buildings, as well as rentals, has cushioned the real estate sector from currency volatility.

Despite economic challenges such as inflationary pressures and exchange rate volatility, the real estate market has remained steady due to its ability to generate foreign currency. Real estate is one of the sectors that have adopted US dollar pricing for the sale of properties, as well as rentals for residential, industrial and commercial properties.

Zimbabwe uses a basket of currencies and in April this year introduced the Zimbabwe Gold currency that is much stable as it is backed by gold and other precious assets.

This also comes as more than three-quarters of local transactions are in US dollar terms, according to statistics from the Reserve Bank of Zimbabwe.

“The sector has generally remained insulated from prevailing currency headwinds owing to its forex-based income-generating ability,” said Tigere Property Fund, a Real Estate Investment Trust (Tigere REIT).

Landlords across the country have largely adopted the US dollar as the payment mode to hedge against inflationary pressures and exchange rate fluctuations.

The trend cuts across all segments, from residential to commercial and industrial spaces.

“Rental agreements are predominantly denominated in US dollars,” said real estate consultants Knight Frank Zimbabwe in its sector report for the six months to December 2023.

Residential developments, for example, have for years been pegged in hard currency to hedge against volatility.

There is a range of prices for the new cluster developments predominantly available for sale in Zimbabwe. Units in high-density suburbs typically range from US$60 000 to US$80 000 per unit.

At the same time, those in middle-density areas command higher prices, ranging from US$140 000 to US$250 000 per unit. Luxury villa developments like Millennium Heights, 9onDart and Cyber City are emerging, with many sold off-plan. Prices for these luxury properties can reach as high as US$500 000, reflecting the growing demand for upscale living options in the market.

Landlords have also pegged rentals on US dollar pricing. According to the Knight Frank report, net leases range from US$1 400 monthly for prime three-bedroom units to US$3 000 for luxury apartments.

Despite varying rental rates, the sector maintains an average yield of 8 percent, “reflecting the attractiveness of residential property investments amidst evolving market dynamics”.

Retail spaces have not been left out on the US dollar rental charges. Demand for retail space has been firm, driven by informal traders, who have exerted significant influence on Zimbabwe’s retail market, creating a tenant-biased environment.

In response, landlords are adapting to the situation by subdividing buildings into smaller units, particularly ground floor spaces, ranging from 9 square metres to 50 square metres, to accommodate these traders.

“This shift has led to a surge in monthly rental rates for such spaces,” said Knight Frank, adding rentals for such spaces have increased by 100 percent since the beginning of 2022, from US$20 to US$40 per square metre.

Within the Central Business District (CBD), rental rates for space that is more than 50 square metres range from US$17 to US$25 per square metre, according to the Knight Frank update.

Rental rates for the suburban retail space have generally remained stagnant. In some cases, the figures have increased marginally from US$13 to US$17 per square metre. The yield being achieved in the retail market is 7 percent to 8 percent.

However, the transition to predominantly US dollars in rentals in the office sector has been slower compared to the residential market, according to Knight Frank’s market update.

This is largely influenced by corporate entities, which constitute the majority of players in this sector. Rental rates in the CBD range from US$6 to US$10 per square metre for office spaces, contingent upon the conditions and amenities offered on the respective office premises. For suburban office spaces, monthly rental rates are US$12 to US$15 per square metre.

Overall, the sector is expected to continue presenting opportunities for growth, while sellers are expected to take advantage of the foreign currency shortages to lean towards the US dollar, driven by concerns over an unpredictable exchange rate.

In terms of demand for real estate, Tigere REIT asserts that demand for quality retail infrastructure remains elevated; however, “supply of stock has been limited by unattractive financing options”.

“Notwithstanding, the development of clusters, student accommodation facilities, corporate housing and warehouse space has continued on an upward trajectory.

“The ongoing infrastructure works will provide opportunities as the road networks expand to new areas and shorten travel distances,” said Tigere.

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David Lee Munemo David Lee Munemo is a rising Zimbabwean journalist with a passion for making complex news discoveries accessible to the public. Driven by a belief in the importance of information communication, David's work tackles a variety of news fields, from groundbreaking entertainment research to the latest political news.