Global Themes
Economic uncertainty, political conflict, and recovery from the COVID-19 pandemic have created significant challenges in the real estate industry in recent years. Economies around the world are raising interest rates making it more expensive to take out mortgages. There is decrease in demand for office space but increase in demand for warehouses as e-commerce increases in popularity. Rapid population growth and cost pressures have increased housing shortages around the world. According to the World Bank, about 1.6bn people are expected to be affected by the housing shortage by 2025. Also, due to political tensions, some companies are onshoring their offices.
Sub-Saharan Africa Real Estate
Apart from the poor availability of data on transactions, valuations of properties, and lack of international investors, the real estate sector in Sub-Saharan Africa has faced similar problems with the rest of the world. The impact of remote work has hit some SSA cities harder than those in the US, Europe and Asia. According to a report by Knight Frank, Johannesburg has a 18.7% office vacancy rate compared to London with a 9% vacancy rate. The residential sector has seen rapid growth mainly as a result of urbanisation as people seek better living conditions.
Zimbabwe Real Estate
The Zimbabwean economy continues to face inflation, currency, and exchange rate headwinds affecting economic activity which in turn affect the property sector. As of June 2023, the inflation rate stood at 175.8%, with a month-on- month inflation rate of 74.5% according to ZIMSTATS. Due to disparities between the official and parallel exchange rate, suppliers of construction materials practice forward pricing leading to significant cost pressures on property owners and developers. The market also remains affected by slow space uptake in the CBDs due to low formal economic activity. The retail and residential sectors continue to benefit from increased demand for quality space.
Zimbabwe Real Estate Equities
Selected real estate companies on the ZSE and VFEX are trading at an average P/BK ratio of 2.1x and mean of 0.4x compared to an SSA average of 0.5x and global average of 2.8x. Relative to the regional and global peers, only First Mutual Properties and Mashonaland Holdings present buying opportunities. The Tigere REIT seems demanding at a P/BK of 1.5x compared to an SSA average of 0.6x and global average of 1.0x. However, dividend yields for listed real estate companies are way below both the ZWL and USD inflation rates which are currently standing at 175% and 8.5% respectively. For FY2022, First Mutual properties and Mashonaland Holdings had 3% and 1% dividend yields respectively. West Prop was only listed earlier this year, so it hasn’t declared a dividend.
