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MASTER INVESTOR DOLF DE ROOS
contents
EDITORIAL
ISSUE 1 Cover Guide
PUBLISHER: Mennard T. Chekayi EDITOR-IN-CHIEF: Mike Hamilton ASSISTANT EDITOR: Angelique Redmond ART DIRECTOR: Michelle Alexander
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Page 12
A New Boost For Zimbabwe
Page 20
Want To Know Where To Invest?
Page 28
Add Value To Your Property
Page 66
The Golden Rules Of Investing
Page 10
Master Investor Dolf de Roos
CONTRIBUTORS: Phinias Tafa, Obert Tanyanyiwa, Karen Nyenga, Mennard T. Chekayi, Angelique Redmond, Koos Du Toit EDITORIAL BOARD: Phinias Tafa (Chairman), Neale Petersen, Moffat Chikuni, Isaac Kwesu, Munyaradzi Hwengere, Mike Hamilton, Mennard T. Chekayi PHOTOGRAPHY: KW Studio, Zimbabwe TRAFFIC: Juanita Heibron FINANCE MANAGER: Tendai Nyanjowa | tendai@ reimag.co.zw WEBSITE: ZImAge P/L
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REGULAR FEATURES 4
INVESTOR TALK Change your life with property The newly launched REIM/ZIM will show you how!
6 INBOX Ask The Property Experts What is in a trust?
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MASTER INVESTOR DOLF DE ROOS Learn how with Dolf de RoosDEN
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INVESTOR MARKET INTELLIGENCE Real Estate Market Data Will Invigorate
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PUBLISHED BY Real Estate Investor Zimbabwe P/L (REIM|ZW) Mennard T. Chekayi: Publisher
RESIDENTIAL 20
GETTING STARTED Want To Know Where To Invest Sought after areas revealed
22 FINDING See It. Love It. Buy It. The art of buying property 24 MANAGING Treat Your Tenants Like Customers
Phinias Tafa: Chairman ALSO PUBLISHED BY REIM SOUTH AFRICAN REAL ESTATE INVESTOR MAGAZINE
Feel The Pulse Of The Property Industry Where is South Africa heading?
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Your Tenant Could Sue You!
LISTED PROPERTY Are You Missing The Fireworks?
26 FINANCING Financial Innovation Is The Key Time to revive the property sector
7 Deadly Sins Of Property Investment JULY 2012
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28 IMPROVING Add Value To Your Property Painting always does wonders
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The New Land Rover Evoque Reviewed Z
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JUST PROPERTY MAGAZINE
Autumn 2012
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GETTING STARTED Buy or Build Which one is best for you?
32 SELLING Going..Going..Gone Strategies for selling 34 STRATEGIES The Intelligent Mind Residential real estate investment
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
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COMMERCIAL 38 MANAGING Guarantee Your Financial Success Make sure your commercial building is hot property 40
LISTED PROPERTY New Property Fund Listed Economy geared for recovery
42 ACQUIRING Find The Right Place For Your Business Should you rent or buy? 44
MARKET VIEW Time For Change Ethics in the property industry?
46
HOT SPOTS Investment Hot Spots Revealed We show you returns
48
CORPORATE PROFILE Funding Housing Development In Africa Housing for all
OFFSHORE 52
SOUTH AFRICAN MARKET Challenges & Opportunities The South African commercial market
56
INVESTING IN SOUTH AFRICA The Importance Of Financial Literacy In SA Investments Opportunities await you
58 FINDING The Price Is Right Property prices in South African
LIFESTYLE 60 PSYCHOLOGY Achieve Your Dreams 62
SMART MOVES Don't Hold Back
66 LESSONS Golden Rules For Investing
Contributors Obert Tanyanyiwa is a freelance writer with a passion for personal development and financial freedom. He has collaborated in a number of USAID, SAPES research and studies. He writes for the Financial Gazette and Sunday Mail in Zimbabwe.
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Admore Magorimbo is a realtor with vast experience in property sales and management who leads Paradise Property Group, one of the fastest growing real estate entities in Zimbabwe.
Phinias Tafa is an innovative entrepreneur, property investor with a passion for research, education and information particularly for the real estate industry. He is the Chairman of the Zimbabwe Real Estate Investment Magazine.
Angelique Redmond is our talented in-house copy editor. With a passion for words and music, her pink earphones are a permanent fixture.
Koos du Toit is the CEO of P3 Investment Group that offers hope and guidance to anyone looking to build a successful investment portfolio.
Karen Nyenga is a practising Estate Agent who leads a dynamic team at SEEF Properties (Zimbabwe), whose emphasis is on developing knowledge and comprehension of real estate.
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
3
INVESTOR TALK
Change Your Life With Property
The newly launched REIM|ZW will show you how!
T
he launch issue of Zimbabwe’s own real estate investments, research and advisory publication, which is aimed at informing, educating and promoting investments in Zimbabwe in general and in the property sector in particular, is here! Real Estate Investor Magazine | Zimbabwe, REIM|ZW, will become the focal point for property market advice and property information. The local property market is currently devoid of compiled research, analysis and decisionmaking data. This is in sharp contrast to other countries like South Africa, where the property market has strong research-based analytical information published through leading magazines, such as our own sister publication, The South African Real Estate Investor Magazine, REIM|SA. Every valuable investor in the world needs to know the performance of the sector in which he/she intends to place financial resources. REIM|ZW is here to provide investors with professional guidance through research and hard hitting but informative articles. We aim to put in place a g uided and scientific approach to tracking the property market developments in the country through statistical analysis for the benefit of a variety of stakeholders, including government institutions, local authorities, f inancial institutions, analysts, media, investors and others. As the current collective drive is to promote investment in Zimbabwe, we are targeting the property and infrastructure development sectors, with the aim of reversing the negative effects of the previous years’ high cost-to-return ratios, low real income levels, hyperinflation and disinvestment, which bedevilled the local sectors. The prospects of economic recovery are high. Such prospects can only be realised if the country manages to attract meaningful foreign direct investment in all sectors of the economy.
That requires huge investment in property and infrastructural developments. For that to happen, the country needs information and data that is well researched and scientific to guide investors. Investors need to decide whether to invest in retail, industrial, residential or commercial property, including land development. T hey a lso need to k now t he overa l l per formance of the proper t y sector in comparison to other sectors of the economy. That can only happen if data is available on costs, yield returns, growth projections, gearing ratios, propert y internal rate of return, mezzanine finance pool, intra-sector comparisons, regulatory environment, trend analysis and projections. “We sometimes feel that what we do is just a drop in the ocean but the ocean would be less because of that missing drop,” Mother Theresa once said. Real Estate Investor Magazine (Zimbabwe) has come as drop in the huge ocean of missing information that exists in the property market in Zimbabwe. Our readers from various walks of life will note that the thrust of our magazine is to provide well structured and well researched information on the dynamics, trends and structure of the property market in Zimbabwe. This should make possible a scientific, statistical and financial appraisal of this sector that will guide growth and transformation. Our goal is to provide a high quality magazine that will provide readers with useful data and information in various property market categories, such as the office market, retail market, industrial market, residential market, hospitality market, property finance and management, property development and other categories. I have seen many a simple man’s life become transformed through investment and then become elevated even f ur ther through investment in the property sector. REIM|ZW is here for people from all
walks of life. We would like to pass onto you information and tips that could help you make wise decisions when it comes to property investments. Start your journey to financial freedom today. The first issue of any magazine is a momentous occasion for a publisher. We have been encouraged by the support we have received for this magazine, which seems to confirm the desire there is for information on the property sector and that there is a gap in information in relation to the property sector that needs to be filled. We were pleased to see so many people, including our bankers and representatives of the Real Estate Institute of Zimbabwe, attending the ceremony at which the agreement between ourselves and our sister magazine in South Africa was signed, the agreement that has made it possible for us to bring you a Zimbabwe edition of Real Estate Investor. The support expressed on that occasion by Economic Planning and Investment Promotion Minister Tapiwa Mashakada was especially appreciated. We hope that we will be able to meet the high expectations that interest in this magazine has generated. We are certainly determined to fulfil those expectations and to play a part in stimulating interest in the property sector, as well as providing information that will be useful both to the experienced investor and the new investor.
Mennard T. Chekayi PUBLISHER
"We sometimes feel that what we do is just a drop in the ocean, but the ocean would be less because of that missing drop,” Mother Theresa 4
1st Quarter 2013 Zimbabwean Real Estate Investor
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INBOX
ASK THE PROPERTY EXPERTS
ASK THE EXPERT Question
I will soon have $200 000 to invest in property and wanted to start by buying one property and letting it out. Until I can buy another and do the same thing. Where do you suggest I buy, what type of residence, ie flat or house?
Answer The Zimbabwe economy is moving slowly out of economic doldrums, price controls and rent freezes. As such market fundamentals are starting to play their part now. A big challenge is per-capita income, which is currently around US$250.00 thus limiting affordability of rentals and in the end favouring high to medium density rentals. Despite this, there are areas where people are still reaping huge rewards in terms of rental income and capital growth. US$200 000 can easily buy you the following properties: a.One single unit residential property in good areas like Highlands, Chisipite, New Alexandra Park and
Borrowdale West giving a monthly rental income of US$1 200. b.Five residential houses in good residential areas like Glenview, Warren Park and Tynwald, giving you a return of US$400/month each. c.Two garden f lats in good areas like Avondale, Greendale, upper avenues and Newlands giving you a return of US$1 000/month each. d.Five one bedroomed flats in Harare’s city centre/ surrounding areas (avenues) giving you a return of monthly rentals of US$450/month each. Though purchasing five one=bedroomed flats would seem on face value good buys, one point to consider
TYPES OF INVESTMENT PROPERTY
UNITS
are levies which vary from block to block. High density residential properties are still outperforming low to medium density properties, though a thorough background knowledge is required as some areas are suffering from electricity and water shortages, thus affecting the rental incomes. A safe bet would be two garden flats with a combined value of US$200 000. Though the returns are slightly lower than those of high density areas, because of apparent proximity to the city centre they enjoy better water and electricity services and the ability to attract middle income groups whose default rate is much lower than those found in high density areas.
PURCHASE PRICE
MONTHLY RENTAL
Low Density: 3-4 Beds
1
US$200 000
$1200
Suburbia: 2 Bed Garden
2
US$200 000
$2000
CBD: 1- Bed Flat
5
US$200 000
$2250
High Density: 3-4 - Beds
5
US$200 000
$2000
Do you have a burning property investment question you need advice on? If so, post it on ASK THE EXPERTS on www.reimag.co.zw or email editorial@reimag.co.zw
6
1st Quarter 2013 Zimbabwean Real Estate Investor
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BOOK REVIEW Building Wealth through Investment Property By Dolf de Roos
Building Wealth through Investment Property tells you everything that you need to know to secure your personal financial independence and it does so in a very simple, easy to follow way without any of the financial jargon. The building wealth strategy outlined in this book is not complicated. It offers a reliable path to riches in ten years or even less by investing in residential property and using the equity in your own home. You don’t need heaps of money to get started - it may cost less than $100 per week!
diverting some of your short-term income into longterm asset building. This book is the culmination of 20 years of research and experience in property investment, so you will be learning first hand how to build wealth through investment property.
Price: $15.00
The aim of this book is to show you how to build wealth through long- term investment in residential rental property. In essence, this is achieved by
Real Estate Riches By Dolf de Roos
Dolf de Roos realised at a young age that most of the rich made (and kept) their wealth through real estate. Armed with that knowledge he worked hard and earned money without ever receiving a pay slip or a salary from an employer. What allowed him to do it was real estate! In this book, De Roos shows why investing in property is so astoundingly simple and lucrative. Ever wish you had the time for a one-on-one, in-person seminar led by a world authority on real estate prosperity?
techniques designed for novice and seasoned real estate investors. Real Estate Riches can provide practical steps to financial prosperity through property.
Price: $16.95
With Real Estate Riches, investment guru Dolf de Roos demonstrates field-tested strategies and insider
Commercial Real Estate Investing By Dolf de Roos
Dolf de Roos’s Commercial Real Estate Investing reveals all the differences between residential and commercial investing and shows you how to make a bundle. De Roos explores the different sectors — retail, office space, industrial, hospitality or specialist — to help you discover which is right for you. He shares key insights on finding tenants and avoiding vacancies, financing large investments, managing property, setting a tax-smart corporate structure, and taking full advantage of tax breaks and making the jump from residential investing to high-profit commercial properties. Millions of people are investing in real estate, but few ever consider the moneymaking potential of commercial properties. Perhaps they think it's too expensive or too complicated to get into. Whatever the reason thousands of successful
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1st Quarter 2013 Zimbabwean Real Estate INVESTOR
residential investors never take the next step to real estate profits. In Commercial Real Estate Investing, veteran investor and author Dolf de Roos explains all the ins and outs of commercial investing and shows you how to take your investing game to the next level. He explores every sector—including retail, office, and industrial—and provides the expert insight you need to choose the right investment area for you. He explains all the key differences between residential and commercial investing and provides all the tools and strategies you need.
Price: $24.95
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MASTER INVESTOR
BY NEALE PETERSEN
You Too Can Make A Fortune In Real Estate DOLF DE ROOS TELLS YOU HOW
D
olf de Roos is synonymous with the real estate investment industry. He is well-known in South Africa for the property seminars he has conducted there and for his investment tours. He is well known too for his eight bestselling books, his property education programmes and property management software and his mentoring programmes, which have had a major impact on the lives of thousands of people around the world, including many South Africans. Worldwide and in South Africa many so-called property gurus have tried to replicate his model, many of them not even investors themselves but salesmen making money off property sales and related services. Dolf has presented his model in more than 26 countries. He has shared the stage with Jim Rohn and Mark Victor Hansen and has worked with Tony Robbins on Wealth Mastery. He presents an interfaculty of Trump University, where many of its programmes are backed by Dolf ’s strategies. He is Professor of 10
U & T at the University of North Dakota and a faculty of the Texas University. Dolf began investing as an undergraduate student while studying for a Ph.D in electrical and electronic engineering at the University of Canterbury in New Zealand. W hat sepa rates h im f rom t he ot her international so-called gurus is that he walks the talk. He has always been an active investor, building his portfolio. Born in New Zealand and raised in Australia and Europe, Dolf is now based in Phoenix, Arizona, in the United States, which he believes is the best area in the world to invest in real estate. However, he does not only invest in his country of residence but also internationally. He owns multiple types of real estate in commercial and residential property. His book Real Estate Riches was a New York Times and Wall Street Journal bestseller and formed part of the successful Rich Dad Poor Dad series. He regularly conducts seminars, investment tours and education events throughout the world, including in the United
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
States, Australia, New Zealand, Europe, Middle East, Asia and South Africa. Dolf, who was back in South Africa last November, also visited Zimbabwe, where he addressed a seminar organised by Zimbabwean Real Estate Investor. REIM caught up with Dolf to get an update on where real estate is today and whether it is still a good investment. Dolf has been investing in real estate for decades. He shows people from all walks of life how to find great deals and make great profits in real estate. His proven tactics, quick and easy tips and investment prowess can turn even the novice investor into a pro. Dolf ’s claim to fame is that he has never had a "real" job in his life, because the real estate he invested in pays him far better. Few people can truly affirm that their wealth is built on real estate. As such, Dolf inspires entrepreneurs with his psychology of wealth. Dolf is mainly associated with investing in residential property, because this is the field most people are interested in and want to learn about. However, his personal interest and the www.reimag.co.zw
majority of his own real estate investments are in commercial property. He believes that his book about investing in commercial property is the best book that he has written. T he sec ret of com merc ia l prop er t y investment, he says, is to know how to convert an ordinary building into an extraordinary income generator by increasing its value multiple times and by increasing the value of the rental income. Dolf says you can’t do that with residential propert y or w ith standard commercia l property. He therefore buys property with a twist, including fish and chip shops, dairies, vineyards, veterinary surgeries, convenience stores, barber shops, strip malls, light industrial facilities, car paint facilities, funeral parlours and selective office and storage facilities. One must know how, he says, to acquire an empty building and fill it with tenants. He believes that doing nothing is more risky than doing something. The global financial crisis has brought about massive opportunities in the US, particularly in Phoenix, Arizona, and in Las Vegas, Nevada, which boast higher population growth and capital growth than the national average and are the best performing property markets in the US. These markets have attracted massive interest and investment from Brazil, China, Canada, Australia and New Zealand, because the properties have low price points. Many Australians have come to the US to implement fix-and-f lip strategies, buying low and selling in about four or five months to spin quick cash. Some investors made instant profits of $20 000 to $40 000, using the strategy to build cash flow, as they have no capital reserves. Of course, they faced a different problem when they had to fork out tax on the capital gain. Dolf still swears by the buy-and-hold strategy, noting that it is a lot harder to flip in the current market as prices are rising by, for example, 10% per month in Phoenix. Property prices plummeted in both Las Vegas and Phoenix, as a result of the global financial crisis. Little new housing stock has come onto the market because replacement costs are high. With a growing population, more people are living together including newly married couples who continue to live with their parents. This is in part due to foreclosures and poor credit records but when the economy turns www.reimag.co.zw
many of these people will want their own homes and demand will soar. Dolf names Phoenix and Las Vegas as the top two performing cities over the last 45 years. He says that single-family homes are the best bet over the long term because they hold value and are easier to manage, compared to communal living properties where multiple tenants can create disharmony. However, Dolf advises investors to look for properties with a twist or that offer the potential to add value, such as properties with big bathrooms or space to build a garage. Small details make a big difference, so Dolf suggests investing a little in the less costly improvements that make a better first impression, such as a fresh coat of paint or a new front door. The opportunities Dolf always invests where there is good population growth. He also saves by going green. For example, he has just converted the lighting in a commercial building from general incandescent and fluorescent to low cost solar technology low energy lighting. The conversion cost $7 000, but thanks to a $6 200 subsidy the net cost amounted to only $800, with an annual saving of $1 000 a year. In addition, the excess power can be sold back to an electrical company By using paint that ref lects 98% of heat radiation, energy consumption can be further reduced by 30%. There are many other energy efficiency methods investors can offer tenants that give massive value over the long term. Dolf advises it is wise to buy at least one offshore property in the US now, saying that the low price points that currently exist will never be repeated in this lifetime. Single family homes are available at the lowest prices ever seen. Dolf says the Las Vegas jackpots are not in the casinos but in the suburbs! Vegas offers a low cost of living, low taxes, a warm climate, great food and entertainment. As a result, new residents are pouring in from around the country. Dolf's life philosophy is simple, but powerful: "Life is what you make it. The only meaning in life is the meaning we give things."
RESOURCES Dolf de Roos www.dolfderoos.com
extra digital video content
Dolf de Roos PERSONAL STATISTICS AGE: 54 MARITAL STATUS: Single CHILDREN: One daughter, Bella
CLOSE-UP MENTORS: One of Dolf’s great mentors is Buckminster Fuller, who was an extremely creative person and a serial overachiever. As an American philosopher, systems theorist, architect, engineer, author, designer, inventor and futurist, he had a pervasive influence on the world, creating a host of inventions, patents, books, critical paths and inspired initiatives to change the world into a better place. Dolf's other mentors include legendary personal development specialists Dennis Waitley, Jim Rohn and Zig Ziglar. WHAT ARE YOU READING AT THE MOMENT? “Sovereign Individual” by Lord Rees Moggs and James Davidson is an example of a book that made a massive impact on him. WHAT IS YOUR LIFE MOTTO? Dolf lives by his motto: "It is not who is right, but what is right" and he believes that you do right through your actions. Charm might strike the sight but merit wins the soul.
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
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INVESTOR INTELLIGENCE
BY MENNARD CHEKAYI
COVER S
TORY
Real Estate Market Data Will Invigorate The Property Industry An urgent call for centralized data to expand economic growth
Z
imbabwe can be rated second to South Africa in the Sub-Saharan Africa and SADC regions in terms of infrastructural layout. However, the growth of the infrastructure and real estate sector has been lower than that of donor-funded economies such as Mozambique and Angola and surplus ringing countries like Swaziland. W hen emerging from recession, as in Zimbabwe’s case, the priority in economic transformation is infrastructure and real estate development. Investment in this area is therefore of paramount importance for economic and social development. Property, alternatively called real estate, is a fundamental asset in an investment portfolio. Over the past years, investors in the local real estate market were passionate about real estate as an investment.
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The pre-economic meltdown period was characterised by aggressive investment across a number of real estate products, such as office, retail and hotel, as well as residential. In sharp contrast, the decade long economic recession brought retrogressive developments in the real estate market, characterised by mortgage rationing, decreased asset quality, shortage of construction inputs, increased idle construction projects and an emergence of ineligible real estate dealers. Though property, amidst the economic crisis, was an attractive hedge against inflation, the sector recorded negative growth of -36.4% at the end of 2008. It is against this background that commercial and residential real estate will continue their emergence as major investment asset classes, as real estate is primarily an income investment. Many factors affect the real estate business,
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
particularly in emerging economies. These include but are not limited to real income levels, interest rates, stability and growth in the financial services sector, real value in pension funds, economic policies and foreign direct inflows. Players in the real estate market should focus on building value through real estate development, as it is more stable than buying and selling properties, which is affected by cyclical changes in the economy such as inf lation levels, interest rates and real disposable incomes. In order to inf luence the dynamics, taste and direction of investment in the real estate industry, there is need for persistent research and information management to facilitate guided and informed investment decisions. Decisions in real estate companies should be shaped by a real estate information data bank
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derived from statistical analysis, economic modelling, computations and projections. This should translate into downstream benefits for stakeholders such as individual and corporate investors, insurance companies, pension f unds, bu i ld ing societ ies and government institutions. In Zimbabwe, real estate market investors are mostly guided by impulse, driven primarily by historical data rather than structured up-todate information. The multi-currency regime spearheaded an economy-wide recovery that saw the resurgence of positive performance in the real estate sector, which recorded 2% annual growth in 2009, signalling positive sector prospects. The recovery, driven primarily by rising
although remaining below regional levels of 15%. Despite a relatively positive trend in the local and global economy, the local real estate market continued to struggle for positive momentum into the second quarter of 2011, with growth levels dropping below 1% as office rentals in many commercial properties in the country’s central business districts remained beyond the reach of most companies. Lack of credit growth, due to f iscal and monetar y authorities keeping an eye on f ighting signs of inf lation, saw bank s incapable of supplying affordable finance to support re-investment and new real estate developments. Recent developments in real estate investment
have predominantly been in the food, fashion and electronic retail sectors, with most other sectors trailing because of unsustainable business. However, the investment is rather lacklustre. Authorities have approved poor quality construction in the city centre of Harare that does not reflect the level of business that could be achieved from that location. Minimum grades on real estate investment in the commercial sector must be enforced, as they are vital for high-value progress in the real estate market. The Central Statistics Office, housed in the Ministry of Finance, delivers generalised and brief data and information on economic
"Players in the real estate market should be more focused on building value through real estate development as it is more stable than buying and selling of properties which is highly affected by cyclical changes in the economy such as inflation levels, interest rates, real disposable income etc." construction activity and increased demand for commercial property, generated 2% annual growth. The foreign currency inf lux brought the whole economy to life and contributed to GDP growth. Firming real estate demand fuelled a general increase in real estate prices, rental growth and yields. A report by MMC Capital showed that real estate market yields rose from around 5% in 2009 to 9% by half way through 2010, www.reimag.co.zw
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
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INVESTOR INTELLIGENCE segments. It does not have and is not planning to start a housing price index and/or a time series of any major price developments. From 2004, the Reserve Bank of Zimbabwe has initiated and driven several concerted efforts to attract investment, especially in the real estate sector, from Zimbabweans living abroad. No material inflows were recorded, as there was no data on investment return projections, historical data or such variables as capitalisation rates, rentals, escalation rates, building costs index, land values and operating costs for the non-residential real estate market. A number of analysts contend that the envisaged growth from the anticipated inflows into the real estate market would, if realised, have outperformed the country’s GDP growth by far, as the sector is usually a store-value destination for investors in hyperinflation episodes. Availability of information on the local real estate market is poor. Information is exclusive and elitist in its accessibility. With tools like rea l estate databases, demographic data on house and office seekers, construction projects and other relevant statistics, South Africa has attracted real estate investors who seek to invest in a real estate sector that is well-researched and has known risks in the short and medium-term. Information makes it possible for investors to evaluate the risk-return profiles in contrast to competing markets. Better understanding about investment fundamentals in both the real estate and capital markets concerning which properties offer
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the best value in terms of capital growth and income will see the industry thrive. Nationally, we are trying to promote the nation as a brand; hence, it is of paramount importance that we have readily available investment-related information. T he i nv e s t ment c om mu n it y i s s t i l l questioning Zimbabwe’s real estate rights and political stability. It is envisaged that
data availability will guide investors towards Zimbabwe, once they can quantify the returns on the real estate market and compare them with the corresponding political and legal risk. We want to give ourselves the chance to have investors pause, think and consider Zimbabwe in general and the real estate market in particular as a destination for their funds. The dilemma is not unique to Zimbabwe.
Graph Below - National income pricing Gross
Rental
Price
Rental
Income
(USD/m )
Yield
Tax
Angola
n.a
n.a
n.a
n.a
n.a
n.a
Botswana
n.a
n.a
4.2%
5.0%
25.0%
****
Lesotho
n.a
n.a
n.a
n.a
n.a
**
Madagascar
676.0
7.38%
n.a
n.a
n.a
n.a
Mozambique
n.a
n.a
n.a
n.a
n.a
n.a
Namibia
n.a
n.a
16.06%
n.a
***
Swaziland
n.a
n.a
n.a
n.a
n.a
n.a
4,444.7
7.47%
7.23%
11.16%
4.0%
**
Zambia
n.a
n.a
n.a
n.a
n.a
n.a
Zimbabwe
n.a
n.a
n.a
n.a
n.a
n.a
Country
South Africa
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
2
n.a
Roundtrip Cost
Capital
Buy-to-
Buying
Gains Tax
let Income Rating
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The whole of Africa is a ‘closed’ market when it comes to real estate investment data, housing price indices and building costs time series. Such lack of data has seen only a trickle of capital flow into the continent, with Zimbabwe among the least favoured recipients and South Africa the most favoured destination. The table on the previous page demonstrates how the global investment community is starved of data in the African world, causing it to pay little attention to some very profitable markets.
"Nationally, we are trying to promote the nation as a brand; hence, it is of paramount importance that we have readily available investmentrelated information. " It is incorrect to conclude that this lack of data means that there are no worthwhile investment vehicles in the corresponding real estate market. A number of independent researchers, as well as several research arms of real estate management institutions operating in this region, do have some sort of data. The predicament is the sharing of the data. Nearly all research is primarily for a company’s strategic decision-making and its incumbent clientele only. Issues of corporate espionage crop up should one decide to make the data public
A collection of experts representing the African Centre for Economic Transformation (ACE T) gat hered in Ita ly recent ly to ‘deliberate ways and means of bringing about the transformation of Africa’s economies – as speedily as possible. These gurus, a number of whom are from countries which have gone through amazing economic transformation over the last 20 years, collectively agreed on the following points: n Transformation is never accidental. You have to really want it and be prepared to work for it. n A lot about transformation has to do with individual and national mindset;. Should the mindset remain the same, one can forget about transformation or even change. There should be a burning desire to change, to transform and this desire must come from within. n Poverty is not a genetic condition. It is a set of factors producing an outcome. If the factors are altered, the outcome will change. n There is no single key for transformation to take place. There are many aspects, including shifting economies from being producers of low-value primary products to higher value industrialisation. n It is not the presence or absence of resources that makes nations great but the spirit, determination and skills of the people.
While these sound like the usual motivational and change management mantras, they hold true for our economy, in particular the property sector. The nations we seek to model ourselves around, such as Malaysia, China, Singapore, Taiwan and Brazil, all embraced these values, albeit realising them through different and unique policy frameworks and growth models. Making use of what resources they had, these nations progressed from being mining or agrarian economies to becoming manufacturers and labour exporters. They positioned themselves for wealth creation. Behind this growth was a dramatic structural transformation, in particular rapid urbanisation and industrialisation, driven by players in the property sector. Government involvement in the market has not created sound conditions for fast real estate investment. According to the World Bank’s Doing Business Directory of 2011, it takes 31 days to register real estate in Zimbabwe, which ranks it 82 out of 183 countries, a poor rank for a market with immeasurable potential. Further, government’s indigenisation laws continue to weigh on investor sentiment and restrict real estate trading. Established laws relating to private real estate are unclear when it comes to dividing lines of
Change of Mindset The overall goal is to see the nation achieving a sustained 7% economic growth, which obv iou sly requ i re s a s er iou s m i nd s et and practice transformation for all. The Zimbabwean property sector is in urgent need of such transformation. Transformation for the purpose of this discussion will be def ined as the process whereby, for example, raw cotton is picked and put through a process that ends in a beautiful fabric. It is a complete and total transformation from one state to the other so that the finished state is unrecognisable as the same substance as was seen in the primary state. www.reimag.co.zw
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
15
INVESTOR INTELLIGENCE
"Commercial real estate development in Zimbabwe has a stronger preference for and is skewed towards Harare’s CBD. The capital city remains the target market for most investors because it is perceived to be less risky for speculative development. " 16
ownership between private players and the state, creating tough market conditions. Capital f low into the local real estate market has largely depended on the extent of enforcement of private real estate regulations. Rather than focusing on undeserved gains for the state, public policy should seek to bolster the prospects for real estate investment projects, examining the strategies that mitigate risk and improve growth. The landlord/tenant relationship was a fundamental issue in the 2010-2011 business year, as rental levels took up an irrational proportion of turnover. Average rental rates in the first quarter of 2011 decreased slightly compared with Q4/2010. Occupancy rates in Q1/2011 also decreased slightly compared with Q4/2010, particularly in major shopping centres, including HighGlen and Avondale, as tenants complained about exorbitant rent bills. Real estate valuation has further strained market relationships. Valuation has been based on a comparative rather than an absolute basis, which see properties priced above their intrinsic values. The need for skilled and expert personnel to close this gap is urgent. It is our argument that collecting, collating and publishing real estate and ancillar y investment information will stimulate positive interest in the property sector, which should translate into direct investment. We advocate a paradigm shift in the whole sector. We want to stimulate and offer a platform upon which Zimbabwe will succeed in creating a Housing Price Index in the mid-
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
term and have information such as prime rentals and yields become public data. The diversification and geographical spread of commercial real estate in the local real estate market is relatively poor. Commercial real estate development in Zimbabwe has been concentrated in Harare’s central business district. The capital city remains the target market for most investors, because it is perceived to be the least risky for speculative development. Low investor appetite for acquiring or constructing off ice real estate in other locations has been due to the unwillingness of local businesses to spread their operations to potential markets. The expected level of net income return on their investment in these areas has failed to justify tying money up in these rather neglected markets. The pattern and diversity of investment in the years ahead will depend on the extent to which business activity attracts entrepreneurial real estate companies to fund new investments or increase their portfolio holdings in less concentrated markets and the rate at which local mortgage markets are able to normalise. As with all other financial markets (stock, money, bonds, Exchange Traded Funds), the proposed collated real estate information, including trends, indexes and other data, would be public information. However, the interpretation of this data and decisions made by individuals or corporates would remain their own private matter or between the real estate agency and its clients. Low barriers to entry into the residential and commercial real estate market have led to the emergence of a large number of small but errant agencies. The Estate Agents Council of Zimbabwe reportedly closed down 20 agencies for illegal business activity. Lack of transparent real estate dealership has meant high risk in real estate investment in the local economy, making the local real estate market less attractive for investors. Poor corporate governance and a weak legal framework have exposed the sector to poor regulation, monitoring and control. It is a sad reality that the lagging local real estate market is characterised by little differentiation and innovation. Until our market diversif ies sources of funding, in the form of real estate financing vehicles such as Real Estate Investment Trusts (REITs), Commercial Mortgage www.reimag.co.zw
Backed Securities (CMBS) and Real Estate Opportunity Funds (REOFs), real estate investment in Zimbabwe will not match contemporary real estate markets elsewhere. Other markets exhibit greater f lexibility, w it h i nd i r e c t r e a l e s t ate i nv e s t ment products available and efficient performance benchmarking data. All of this is needed to make our market a high investment asset class. Astute and concise construction and real estate data will go a long way towards creating a beacon for Africa and stimulating significant investment in the property sector. It will extensively offset the negative impact of indigenisation misconceptions and ineffective country brand management, especially on those Zimbabweans who yearn to return to their heritage with something to show for their hard labour. Zimbabwe needs to turn what she has into a comparative advantage and position herself for wealth creation for the majority and not just a particular segment of the population. We have land, enviable natural resources and a fast improving technological base to which there is ever greater accessibility. The state plays a central role in co-ordinating the industrialisation policy, which I would think the Zimbabwean government has done through the Medium Term Plan. The private sector will now have to have ‘first movers’ or ‘pioneers’ to establish value-added products and services, learn and introduce new skills, build and deliver new infrastructure, and establish new financial systems and products to provide access to capital. No lone entity can coordinate these changes.
www.reimag.co.zw
State incentives such as ta x-breaks and co-financing would encourage ‘first movers’. Asset and Value Creation The challenge is now for property sector players to harness the resources they have and team up with banks and asset management companies to create value addition instruments and asset classes. An asset class that comes to mind is shopping malls. Zimbabwe currently has shopping centres (by international standards). The demand for such shopping areas is far outstripping supply, especially in the central business district. As this is a commercial real estate class, it is then advisable to create either Property Loan Stock or Real Estate Investment Funds which will invest in the retail sector. As time goes by, these may then be diversified into other types of property as returns even out. Individualism, elitism and the uncoordinated disarray that characterises our sector seriously impede the development of such asset classes. Our call is for all stakeholders to embrace and induce transformation of self and ultimately the sector to achieve the envisaged massive growth.
"Zimbabwe needs to turn what she has into comparative advantage and position herself for wealth creation for the majority. We have land, enviable natural resources, and a fast improving technological base to which there is even greater accessibility."
We need leaders to create asset classes and help shift pension funds from the stock exchange to a long-term and competitive total return property sector. We advocate that property sector players assure the state that they are ready to meet the demand that rapid urbanisation will create.
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
17
www.rawson.co.za/harare
Residential Property Specialists passion Since 1982, passion has been at the centre of the Rawson Properties philosophy – not just a passion for property, but a passion for the people we serve. Inspired by our founder Bill Rawson and embraced by our team of agents and experts, it is this passion which drives everything we do, from ensuring that our service stands out, to making your property stand out.
vision
To become the Estate Agency and Valuer of choice in Africa.
mission
Our business is to help people buy and sell property, lease property and to carry out professional property valuations. In doing this, we put our heart into their homes: we deal in home not houses. This is a people-oriented business and we appreciate that our clients are dealing in dreams. They are investing in lifestyles: we are sensitively aware of this and realise that buying a home is one of the most important transactions in any person's life.
by choosing Rawson, you will be choosing Members of The Estate Agents Council of Zimbabwe; The Real Estate Institute of Zimbabwe; The Valuers Council of Zimbabwe and The Institute of Estate Agents of South Africa (IEASA) Expertise that extends to all aspects of property - sales, letting, development, auctioneering, valuations and consumer advice One of the only estate agency groups with an accredited Training Academy, training venues and full-time staff Qualified, proficient and professional agents who have passed all compulsory training examinations. Our comprehensive service package – tailored to every seller’s needs, with the ultimate goal of selling your home at the best price, in the shortest time, with the least inconvenience to you Vast exposure to your property nationally and internationally, through our extensive marketing and advertising avenues A national referral network with a dedicated Referral Centre matching up buyers and sellers on a daily basis An expert who provides a professional rental service to landlords, ensuring that you get the maximum return on your investment and the peace of mind that your property is managed well and being looked after by reliable tenants.
at Rawson we understand Your agent represents both you and your property and therefore directly influences potential buyers’ purchasing experiences. Choose carefully. Be cautious of the over-eager agent who promises you the highest price or the lowest commission. Rather choose the agent with the credentials and the track record to prove it.
195 Samora Machel Avenue, (Btwn GMB & East 24), Eastlea, Harare Tel: 04-775003/775130, 0772 913 481 or e-mail: harare@rawsonproperties.com, richard.zim@rawsonproperties.com www.rawson.co.za/harare
inside
RESIDENTIAL
Where To Invest See It. Love It. Buy It Buy Or Build?
20 22 30
INFRASTRUCTURAL GROWTH Zimbabwe’s level of infrastructure growth is the same as that of neighbouring South Africa, PTA Bank president Mr Admassu Yilma Tadesse said in Harare recently. Mr Tadesse told delegates to the ZimBuild Infrastructure Financing Conference that this was reflected in the country’s fixed capital formation figures, which he said were looking “pretty good”. Gross fixed capital formation (GFCF) is a macro-economic concept used in official national accounts to statistically measure the value of acquisition of new or existing fixed assets by the Government and the private sector. It is a component of the expenditure on Gross Domestic Product, showing how much in new value addition in the economy is invested rather than consumed. “Zimbabwe’s fixed capital formation has significantly increased from around 15 percent in 2009 to about 22 percent today, which compares very well with that of South Africa,” he said. An ideal situation is that fixed capital formation should be around 30 percent. Mr Tadesse noted that the public sector had boosted its contribution to the fixed capital formation since 2009, while that of the private sector had declined during the same period. “Fixed capital formation in the country has largely been driven by the public sector, as we are seeing a lot of investment coming through from the public sector," he said.
PROPERTY IS THE WAY FORWARD
INVEST IN ZIMBABWE
At the present it is difficult for most people to plan sufficiently for life after retirement because of the myriad of challenges due to liquidity constraints in the economy. On the other hand, societal and cultural evolution compounded by economic empowerment has resulted in many abandoned mansions as the would-be beneficiaries move on to universities or elsewhere to start their own journey in life leaving the parents alone in the home. Wealth, according to Buckminster Fuller, is “ a person’s ability to survive so many number of days forward”. By this he meant one’s ability to maintain one's lifestyle after one's main source of income has been removed. The common line of thinking is all real estate is an asset rather than a liability. An asset is that which adds money into your pocket and a liability is something that takes money from your pocket.
South African Trade and Industry Deputy Minister Elizabeth Thabethe has called on businesses to invest in Zimbabwe, saying there were vast opportunities in the neighbouring country. Thabethe was in Zimbabwe as part of the department of trade and industry Investment and Trade Initiative (ITI), together with a 45-person business delegation. “Zimbabwe has been carrying out economic and structural reforms, which have improved economic performance and sustained growth. Since 2009, Zimbabwe has had positive growth rates above 5% per annum, reaching 5.9% in 2010,” Thabethe said. She was speaking on the first day of the ITI at a business seminar attended by over 250 business people at the Rainbow Towers Hotel in Harare. The deputy minister said investment in the development of infrastructure in Zimbabwe would have a high rate of return as it would lead to increased demand for manufactured and capital equipment. Zimbabwean Deputy Minister of Economic Planning and Investment Promotion, Dr Samuel Undenge, said government had launched the medium term economic plan aimed at growing, stabilising and transforming the Zimbabwean economy, making it easier for foreign companies to invest in the country and establish partnerships with Zimbabwean companies.
www.reimag.co.zw
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
19
GETTING STARTED
Want To Know Where To Invest Sought after areas revealed
H
ouse price rises continue to be led by newer properties in sought after areas. Some of these rises were as much as 30% in the last half of 2010 and first half of 2011. Nonetheless, protracted liquidity constraints and prices are still being driven by replacement or building costs which can be as much as $1,100/m2 for low density suburb houses. The majority of residential home purchases are self-funded, due to the absence of long-term credit. Thin mortgage finance volumes have been recorded, generally at a prohibitive average interest rate of 15% per annum for a 10-year period. Employer-assisted mortgage loans dominated the market in the first half of 2011. A large chunk of these salary-based mortgages are below $60,000. With an average loan-to-value ratio of 75%, these mortgages have stimulated activity in the low and medium-value sector of the housing market. The availability of mortgage loans for premium and high-value house purchases is limited due to the high risk of mortgage defaults. Low value properties, for the purposes of this article, are properties valued at below $80,000. Medium value properties are those valued at between $80,000 and $180,000, while high value properties are properties valued at between $180,000 and $300 000. Premium properties are valued at above $300,000. The resultant low activity in accommodation purchases, has led to high demand for rental properties, although relatively low salary levels limit the prospects for rental growth. Rentals Residential investors buying to let who enter the market at the top end tend to find the going tough due to lower returns compared to those that can be obtained at the lower end of the 20
market and punitive mortgage repayments, if they finance the purchase with mortgage finance.Affordability issues are also forcing a lot of potential first-time homeowners to rent rather than buy. The summed up effect is the shortage of rental accommodation in many areas in Harare. The positive aspect of this is the potential upside for investors who hang on to properties in the low end or want to add new stock to their portfolios. Upmarket properties in the plush suburbs of Harare, typically priced from $250,000, are no longer the place to invest in. According to industry experts and our source at CBZ Bank’s Home Loans Division, if one wants to make money from rental income over the next three to five years one has no choice but to consider the cheaper end of the market – affordable high density houses or sectional title apartments typically ranging up to $50,000 inclusive of purchase costs. Abel Chigeza, General Manager of Real Estate Services as well as Principal Agent of Paradise HouseGroup, and HouseGroup Manager Elizabeth Ndlovu confirmed that there is a serious shortage of rental accommodation in Harare priced between $250 and $450 per month, especially in places close to the central business district, such as the Avenues area, Cranborne and Warren Park. Mr Chigeza said home investors in possession of rental units in that price bracket can easily achieve upwards of 16% gross income yields (annual rental as a percentage of buying price). This is a high and lucrative return compared to the 9% to 12% yields obtainable from properties priced at more than $200,000. One might wonder where to find buy-to-let stock for less than $50,000. Mr Chigeza says the answer to that question is in good high-density suburbs, especially those that are close to the city
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
BY MENNARD CHEKAYI centre, such as Sunningdale and Warren Park. However, he says finding a unit in these areas is a tall order. One may be left with no choice but to look further away from the city centre. Proper t ies in Glenv iew, Glen Nora h, Kuwadzana and Kambuzuma may prove to be good buys. The Avenues is also a good area to buy in, if one can acquire stock from a wellmaintained block of flats, as these are becoming few and far between. Economist Isaac Kwesu agrees that buy-to-let investors must focus more on the cheaper end of the market. “The lower you buy, the better the returns,” he said. He further advises that home investors should focus on units or stocks not exceeding $50,000 – either in high density suburbs or rundown medium or low densit y suburbs that have good turnaround potential, such as Braeside and St Martin’s. This turnaround potential is based on close proximity to the central business district and associated and anticipated inner-city renewal. The big set-back with high value properties, besides affordability challenges and a contracted market, are the high maintenance cost, given the extras they come with, such as swimming pools and gardens. An average insurance cost of $1,200 per annum is also a significant upkeep cost. Ashley Mataka, General Manager of Bard Real Estate (Bulawayo), advises investors to opt for rundowns if they buy in high value areas like Borrowdale, Mount Pleasant and Bulawayo’s Hillside, as these will earn good capital growth. He also makes a good observation that high valued properties located close to areas of high activity or economic value, such as the University of Zimbabwe, Sam Levy’s Village and Chisipite or Newlands Shopping Centre, command higher rentals and competitive yields. The disadvantage however lies in high entry charges, so the effect becomes a zero-sum. House price growth Propert y managers are in agreement that many owners are still incredibly naïve about the dangers of renting out a home in our environment. The 2007-2008 rampant financial and environmental indiscipline by wheelingand-dealing ‘agents’ has increased the negative attitude of many home owners towards the concept of agent-managed properties. They often agree to a minimal rent from friends of friends or family in the mistaken belief that this is safer. Many homeowners have inherited substantial bills for unpaid services and found themselves with statutory tenants who cost a fortune in time and money to evict. www.reimag.co.zw
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FINDING STARTED GETTING
See It. Love It. Buy It The art of buying property
BY MENNARD CHEKAYI pair of red shoes. You go to the mall. At the first shoe store you find a fabulous pair of red shoes. You try them on. They fit perfectly. They are glamorous, priced right, too. Do you buy them? Of course not! You go to every other store in the mall trying on red shoes until you are ready to drop from exhaustion. Then you return to the first store and buy those red shoes. Do not shop for a home this way. When you find the perfect home, buy it. Making an Inventory Bring a digital camera and begin each series of photos with a close-up of the house number to identify where each group of home photos starts and ends. Take copious notes of unusual features, colours and design elements.
I
t’s not uncommon for a first-time home buyer to say to me: “Gosh, just last week I called you about buying a home and now I’m in escrow! How did this happen so fast?” The answer is it didn’t. First-time home buyers start the search long before most even realise it. Here’s what you can expect from your home shopping experience. First hurdle You should buy a home. That’s what you’ve been hearing from friends and family, right? So, by now you have likely already weighed the benefits and decided that home ownership is the best decision for you. That’s a major hurdle now passed. You are focused and certain. Good. Search Parameters Almost 80% of all home searches today begin on the Internet. With just a few clicks of the mouse, home buyers can search through hundreds of online listings, view virtual tours and sort through dozens of photographs and aerial shots of neighbourhoods and homes. You’ve probably defined your goals and have a pretty good idea of the type of home and neighbourhood you want. By the time you reach your real estate agent’s office, you are halfway to home ownership. 22
How Long Should It Take? In seller’s markets, I often show only one home. After all, how many homes does one family need? A few buyers will look for years, but buyers who do that aren’t motivated. A motivated buyer will find a home within two weeks. Most of my buyers find a home within two days. Good real estate agents will listen to your wants and needs and arrange to show only those homes that fit your particular parameters. Your agent should preview homes before showing them to you. How Many Homes Should You See? Studies show that your memory dramatically improves after consumption of carbs and slows upon consuming sugar. So, lay off the soft drinks and have a hearty meal of carbs before venturing out to tour homes. The average number of homes that I show to a buyer in one day is seven. Any more than that and the brain is on overload. Therefore, don’t expect to see 20 or 30 homes. Although it’s physically possible to do so, you probably will not remember specific details about any of them. The “Red Shoes” Experience Women will relate to this. Say, you need a new
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
Note the home’s surroundings Pay attention to the home’s surroundings. What is next door? Do two-storey homes tower over your single storey? Do you like the location? Is it near a park or a power plant? Rate each property Immediately after leaving, rate each home on a scale of 1 to 10, with 10 being the highest. View top choices a second time before buying that first home. After touring homes for a few days, you will probably instinctively know which one or two homes you would like to buy. Ask to see them again. You will see them with different eyes and notice elements that were overlooked the first time you went round them. At this point, your agent should call the listing agents to find out more about the sellers’ motivation and to double-check that an offer hasn’t come in, making sure these homes are still available to purchase. Making the Selection I’ll let you in on a little secret. I generally know which home a buyer is going to choose. I suspect most other agents operate the same way. It’s an intuition. But I make it a practice not to steer buyers, and I insist that buyers choose the home without interference from me. It’s not my choice to make. Real estate agents are required, however, to point out defects and should help buyers feel confident that the home selected meets their search parameters. www.reimag.co.zw
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MANAGING
BY KOOS DU TOIT
Treat Your Tenants Like Customers
Ensure long-term success
P
rofessional property investors recognise that their tenants are, in fact, their customers. As in any business, the risk of “bad” customers must be managed professionally and proactively. Most business owners can tell a story or two about unscrupulous customers, for example those who damage the property, open packages or break goods; those who do not pay their accounts; and those who write fraudulent cheques or pay with counterfeit money. It is a well-known and common business risk. Professional business owners simply put in place systems to manage the risk – for example by posting signs holding clients liable for damages to the property or the goods; or by reserving the right to refuse entry; or by not accepting cheques; or by requiring a deposit or insisting on cash on delivery. Delinquent tenants Similarly, property investors face a well-known and common risk of delinquent tenants. We have all heard the stories of tenants having a braai in the bedroom, smashing holes in the walls and managing to break heav y-duty ceramic bathroom fittings. We have all heard too of tenants who delay or skip their rental and utility payments and those who simply squat, refusing to vacate the property. Taking a professional approach, property investors, just like other business owners, put systems in place to manage the risk. Essentially, property investors have two options when it comes to tenant management. They can appoint a rental management company to screen, place and manage the tenant or they can acquire the tools and knowledge required to manage a tenant in a similarly professional manner. This entails keeping up-to-date with the continuously changing legislation, thoroughly 24
screening each potential tenant before signing an up-to-date and water-tight lease agreement and taking swift action when a default or breach occurs. The efficient approach Opting to appoint a rental management agent is, of course, the most efficient approach. A reputable rental management agent has the expertise, experience and resources to deliver a professional service to both the investor and the tenant, at a very reasonable fee – usually 8 - 10% of the rental, which should ideally be covered by the rental charged. The hands-on approach However, some property investors prefer a hands-on approach. It is certainly an option, provided that an investor is willing to put in the time and effort to do so professionally. By simply following a specific process and taking a few simple steps, investors can significantly reduce the risk of ending up with a bad tenant in the first place and manage a tenant in a fair and profitable manner Plan B Whichever option a property investor selects, proper risk management demands a Plan B, which is simply -insurance. Professional property investors must ensure that they have the right property insurance in place. This does not mean simply accepting the
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
homeowner's insurance offered by the finance institution which granted the bond. It means ensuring that the policy makes provision for the fact that the property is rented out, provides cover for damages caused by a tenant and even compensates for the loss of rental following a catastrophe such as a fire or flood that renders the property uninhabitable. Implement the solutions Appointing a rental management company and obtaining the right insurance are just some of the risk management solutions that have evolved over the years as property experts identified and refined the best ways to mitigate, manage and even eliminate risk – as experts do in every business sector. Professional property investors do not have to create risk management systems or test them through trial and error – they already exist, created by experienced property investment experts. All that remains for professional property investors to do is to implement these widely available and often surprisingly affordable risk management solutions. These not only significantly reduce the tenant risks property investors face but also exponentially increase the probability of business success.
RESOURCES P3 Property Group www.hope.co.za
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FINANCING
BY FRANCIS CHINJEKURE
Financial Innovation Is The Key
Time to revive the property sector
T
he property market in Zimbabwe has not been spared the liquidity challenges affecting the economy. Prospective property buyers presently do not have adequate financial resources to purchase houses and upmarket properties for cash. Traditionally, people used to access funds through mortgage loans to buy houses or build them. Nowadays, where available, options for mortgages are expensive and beyond the reach of several million Zimbabweans who require houses as a basic necessity. One is left wondering why, with this sizeable number of would-be customers, investors are still reluctant to make huge investments in this sector. Innovation remains the answer to Zimbabwe’s liquidity crisis. New products to support mortgage product suppliers such as building societies, banks and property developers are urgently required to encourage further property development, which will deepen and broaden Zimbabwean financial markets. However, little is happening on the property market, as some institutions are reluctant to provide mortgage loans in these hard times. The few institutions that are managing to provide mortgage funds are drastically reducing the mortgage period from the traditional 25 to 30 years to between five and 10 years. The low incomes people are currently earning are not able to sustain and service the stringent terms, conditions and requirements attached to these loans. Poor performance in the property sector in Zimbabwe can therefore be attributed to the lack of guarantees that borrowers will be able 26
to meet their mortgage repayments if they take up the offered mortgage loans. This leaves the market with few players. It goes without saying that, with the current volatile economic conditions, lenders need an assurance that a mortgage loan applicant will survive lay-offs, redundancy and involuntary job losses. They need an assurance that, should the borrower lose his/her job this will not lead to a default on mortgage payments. Some form of mortgage protection is needed to restore confidence in the property market. To help improve the status quo and make the property market lucrative to available investors there is a need for smart financial innovations that can help guarantee investors and lenders that their funds are in good hands with such investments. Credit insurance in the form of job loss mortgage protection is one such innovation. Credit insurance offers coverage that provides for repayment of specific debts such as a mortgage or loan or a specific credit card balance in the event of the policyholder’s death, disability or involuntary job loss. In other words, the contract insures the debtor for the benefit of a specific creditor. The principal types of credit insurance include credit life, credit disability and job loss insurance. Credit Life Credit life insurance pays off all or some of a loan or mortgage if you die. Although most credit life policies pay off the entire outstanding balance, some policies may have cap limits.
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
Credit Disability Mortgage disability and credit disability insurance makes your mortgage or loan payments for you, if you become ill or injured and, as a result, are unable to work. Job Loss Job loss or involuntary unemployment insurance pays your minimum loan or mortgage payment for a specified period of time if you lose your job. You must be laid off or fired from your job (unless misconduct was the reason you were dismissed) to make a claim. Can insurance bring confidence to the property sector? No-one should think that everything is alright with the economy — it certainly is not. The improvements that have occurred are minor. A lot still needs to be done to ensure a bright future for everyone. There is good reason to be hopeful about the future but nobody can ever be sure about what the future holds. In times of uncertainty having a safety add-on to your homeowner’s insurance that covers job loss can be reassuring for both the creditor and the debtor. Job loss insurance helps build a pool of funds that can be used to cater for the worstcase scenario in the property sector. It is one solution to the problem of uncertainty during an economically turbulent time. It helps give borrowers peace of mind, after signing a mortgage loan agreement. It also assures investors that if the ship sinks, their funds will not do the same and they will be able to retain part, if not all, of their investment. www.reimag.co.zw
IMPROVING
BY KAAREN NYENGA
Add value to your property Painting Does Wonders
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e all want the million dollar finishes and the awe struck looks when people come into our properties but many people make the mistake of purchasing ae st het ic piece s sepa rately w it h l it t le consideration of how they will look at the end all put together. “Usually for investment properties less is more,” says Laura Tofts from Artisan, who provides insight on the attractive durable paints available in Zimbabwe. Investors may obtain real returns through maintenance, when they have a well-fitted property that is reasonably priced. Provided they keep up the maintenance, they will save costs in the long run. Laura highlighted the importance and significance of just a lick of paint to give the property a new feel. "Not only does keeping your property exterior and interior walls clean and in good condition make you feel good when you come home but it also gives a good impression to potential buyers. That thousand dollar paint job could make an impression that earns you thousands," she said. She offered the following tips and comments: Preparation of different substrates before painting is important. Always sand surfaces to create a key for the top coats to bond with. Priming is vital. Shortcuts lead to expensive problems! n Seventy percent of problems associated with painting are not the fault of the paint. Surveys show that it is only 2% of the time that paint fails, while 70% of the time the problem is attributable to the applicator. The other 28% of the time it is the environment that is to blame. n Weather: In Zimbabwe we almost always have perfect conditions for painting but in mid-winter 28
perfect painting times are between 10am and 4pm. If the weather is too cold, water-based paint will freeze and crack. In summer try to follow the shade. If it is too hot the paint may blister. n Wood: If painting new wood you may need to apply ‘Knot Seal’ if there are knots in the wood. If you do not, resin may come out of the wood, causing the paint to peel. Then apply ‘Pink Wood Primer’ and undercoat, if using enamel paint, which is usually the case with wood. Very old wood can be cleaned and restored with ‘Removal Simple Wash’ or ‘Weathered Wood Restorer’. It should then be primed and painted.It is advisable to prime these with plaster primer then apply your topcoats. Use undercoat and enamel when working on Supa Woods. n Metal: New metal, like galvanised iron sheets, has a coating applied to it so it can be easily stacked and transported from the factory. This coating can be removed with a 'Galvanized Iron Cleaner’. If the metal is greasy and dirty there is a Plascon water-based metal ‘Degreaser and Cleaner’ that can be used to clean it. n Rust on Metal: There are a few Plascon products that remove rust such a Removal Rust Remover or Metal Care Rust Converter-andPrimer in-One. n Primers: With galvanized sheeting you may use ‘Galvanised Iron Primer’. On mild steel, galvanized iron and aluminium you may use ‘Red-Oxide Primer’, which etches into the metal surface creating a key for the top coats to bond to. n Gutters: Most gutters are galvanized iron, so one needs to prime them before painting them. With PVC gutters there is need to sand them to create a key and then apply undercoat and top coat. Alternatively one may use ‘Tile and Melamine Primer’ and then apply the top coat.
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
n Cement-based Plaster Finishes: Walls are seldom finished perfectly but there is a wonderful product called ‘Terraco’, which is a ready mixed skimming filler that smoothens walls perfectly, dries fast and does not need a primer, so you can paint straight onto it. n If your walls have been plastered well, then you will need to apply ‘Plaster Primer’ and then your topcoats. If you do not use a good plaster primer then do not use any at all – a new wall will suck the water out of the paint and it will then shrink and peel. n Previously Painted Walls: It is recommended you use a bonding agent on walls that have been painted before, preferably ‘Cemcrete Cembond’. This is a good quality affordable bonding agent that is mixed with water. Just apply one coat on the surface to be painted. A bonding liquid is also available. If you do not use a bonding agent, in most cases the new paint will not bond to the old paint and will shrink and peel. Cembond may also be used as a bonding agent before painting roofs – it has excellent adhesion qualities. n Phinoset, Plaster Boards and Ceiling Boards: These can be primed with ‘Plaster Primer”. On ceiling boards where there are nails, apply a universal undercoat before the plaster primer so they will not rust. n Polystyrene Boards or Cornices: Do not apply solvent-based paints as the polystyrene disintegrates. Use water based products.
RESOURCES Seef Properties www.seef.co.zw
www.reimag.co.zw
GETTING STARTED
BY KAREN NYENGA
Buy Or Build? Which one is best for you?
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any people in Zimbabwe face the question of whether to buy a home for renovation or to build a house from scratch, as they compare the costs of purchase to the cost of building. The cost of building can vary significantly depending on the materials used, the workman hired (the cost is likely to be higher if not completed by an experienced professional), lack of knowledge and over capitalisation – what may look good to you may not entirely recoup the same in value when the property is marketed for sale (certain areas have ceilings on prices buyers are willing to pay). Costs for building in Zimbabwe have been affected by the lack of materials locally and the increase in imported inputs. With the resurgence of the local manufacturing industry, local product consumers should be able to make price comparisons. Hopefully such competition will assist in making quality products more affordable. Ryan Kennaird, a partner in Wild & Kennaird Construction, provides an insight into the process as well as a few general tips pertaining to saving that valuable dollar.
Building Costs This is a sensitive subject as building costs vary greatly. Costs vary due to a number of factors, most importantly the type of finish. A qualified Architect and Quantity Surveyor should be approached before undertaking any construction project. These professionals will be able to advise on cost cutting procedures before putting the project out to tender with construction companies.Building costs are currently in the region of $1,000/sqm. However it is advisable to obtain at least 3 quotes from registered construction companies In many cases people underestimate the costs involved in building. As a result, when the costs mount and the task ahead still seems insurmountable many people take shortcuts by purchasing inferior products or using unskilled labour. That usually negatively affects the price of the property once it is on the market. When the property’s value is assessed it will be lower if the work is of poor quality or the products are of inferior quality. Waterproofing is critical Due to unprecedented water supply interruptions, 30
it is estimated that 3 in 10 houses suffer a flooding incident every three months, while 2 in 10 are said to suffer the same thing more than twice in three months. Furthermore, over the last few years Zimbabwe, especially Harare, has seen the proliferation of suburbs in marshlands. These issues have resulted in many a property owner battling with f looding, dampness and waterproof ing issues. Adrian Joscelyne, a specialist in coloured cement screed finishes, nat ural stone tiles, cladding and cement waterproof ing, shared his industr y based knowledge on making the finished product more attractive and the materials longer lasting.
Waterproofing n There is a product called Permastop. It is an amazing cement waterproofer. It works through the hydration action in cement, growing crystals to form a watertight barrier. It is great for sealing reservoirs, concrete decks and parapet walls. n Problem with Rising Damp: This is where the Damp Course (DPC) that is used to stop water from rising up into a wall has become ineffective, allowing water to get into the walls, causing bubbling of skimming and paint and weakening of plaster. This can be sorted out with Silicon Seal, which is injected just above where the DPC is, forming a watertight barrier for any damp rising. Wall, Floor and Other Cemcrete Products n Stipple Crete: This is similar to cemwash. It is a cement based paint which is applied with a block brush or a roller. It gives a rustic finish that increases in strength with time. This product has been proved to last for 30 years, whereas paint only lasts for up to 7 years. Another advantage is it is cheaper to apply than paint. n Cretecote: This is a coloured cement floor finish that can be applied on almost any substrate. It costs from $12/sqm to apply, is quick to put down and has a beautiful finish. Only 2mm thick, the latex and cement gives a hard lasting finish. n Cembond: This is a keying agent. It can be primed onto tiles and then plastered with no problem with keying. n Flexibond: This is a latex product that can harden cement. It can be used as a bonding agent when screening or tiling. Flexibond can be used to do thin levelling screeds, which normally
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would not be possible with normal mixtures. n Sealants: There is a great range of sealants to finish a floor in either mat or gloss or to harden, protect, waterproof or lift out colour!.
Natural Stone Products There are natural stone products in marble, granite, traver tine, qua r tzite, lavastone, sandstone or slate. Cladding is still new in Zimbabwe. It gives the effect that a house or column has been built in the product that is cladding it, giving the house an age old strong feel to it. Natural stone tiles, unlike synthetic coverings, are unique, giving a highly durable finish with a timeless quality that never goes out of style. These are general ideas one may use to complement the property when improving it, but as indicated, it is advisable to work with professionals who know what they are doing and who can advise on cost effective ways to obtain quality products for the home they want to improve and add value to. When deciding whether to buy, build or renovate, there are many pros and cons to consider. It is a personal choice as to how you would like to improve your property and whether to buy or build. You may find a home with most features and choose to “customise” the rest. You may find a property in the right area but not of the right specifications. You may find land or your dream home in one search. However, work with those who are in the business to help the dream become a reality without the nightmares.
RESOURCES Seef Properties www.seef.co.zw
www.reimag.co.zw
EVERY BRICK COUNTS Building the future takes time, commitment and teamwork. Just like any building, it takes a lot of different materials to construct. You will need a foundation, walls and a roof to make it complete. We have come together to build a sustainable future for all in the construction industry.
ZIM BUILD is the leading exchange platform for the Infrastructure, Building, Construction and Allied Trades in the Built Environment in Zimbabwe. Network/Develop Business Contacts | Launch new products and services | Keep abreast of industry developments | Establish a higher profile Featuring: • Contractors • Construction Industry Professionals • Manufacturers and Distributors of Building Materials • Enablers - Land Owners, Developers, Financiers and Infrastructure Providers • Research and Development Organisations • Construction Tools and Equipment
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0713 799 855 | 0713 799 866 | 0775 140 244, 0775 140 245 | 0775 140 244, 0775 140 245 (04) 785 918, 785 919 | enquiries@marketplace.co.zw www.zimbuild.co.zw
sw SELLING
BY PHINIAS TAFA
Going...Going...Gone! Strategies for selling residential properties
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iven so many “for sale” properties on the market, successfully selling your property takes more than just a listing in the properties for sale pages of the dailies. Happenings in the estate agent sector confirm that selling your property is not as easy as it looks. According to the Estate Agents' Council, the first year drop out range is estimated at 50% and this demonstrates that many estate agents are not as successful as they could be. PROPERTY INVESTORS SHOULD ONLY SELL FOR THREE REASONS WHICH ARE: l Negative cash flows associated with distressed properties l Better opportunities elsewhere l Need to fund other commitments You must always prepare your exit, even before you commit to your entrance. Reselling is not something to learn later when you have to “get out now”, but is something that must be considered at the entry stage. Accordingly there are five basic things that a property investor must do when exiting an investment.
Preparation for marketing This basically means getting the property ready for the market. Understanding the pertinent aspects of the property will help position the property in a competitive position. The following must be considered: 1.1. Review Important Documentation These must be from the time you purchased the property, or beyond. Included may be old valuation reports (important for the property performance measurement), agreement of sale, improvement receipts. Collect and put aside the documents that will be of current or relevant value for marketing purposes. Then make copies and return the originals to safe keeping to avoid losing them. 1.2. Sale Package This basically means presenting your home to the market. This activity has a great bearing in determining the final amount realisable from the property. Let it be as detailed as it can be. 32
There must not be any room for doubt in it. As a visual society, photos of the property and it’s neighbourhood and aerial views will enhance the potential buyer’s understanding and appreciation of the property. Remember to provide critical information like gross income, net operating income, cash flow, operating costs and vacancy rates in operating costs and vacancy rates in easy-to-understand spreadsheets. Comparisons with the sale price of other properties, will help you get a good price for your property.
maximise proceeds. Sellers should always take cognisance of the prevailing market forces. A market with strong forces will easily catch-up with an overpriced property, even if it means waiting a bit. However in a weak market, with low demand as a result of a poor performing economy, overpricing will make the property hard to sell and eventually the seller will get much less . The buyer must always be made to believe that he is getting more value in ‘this’ deal than elsewhere.
1.3 Required Disclosure As a seller you want a risk free transaction. As such disclose all you feel the other party must know about the property. The law also imposes a duty to disclose on the party of the seller, and buyer as well.
3. MARKETING ACTIVITIES 3.1 Announcement to Database Listings The first advertisment of new opportunities should always be directed to your suitable list of buyers – which must be ever-growing all the time. These should be people whom you have established strong relationships with through one-on-one meetings, previous successful dealings or regular communication that makes you believe that such people will be you next clients.
2. MARKET RESEARCH, ESTABLISHMENT OF MARKETING AND PRICING STRATEGY 2.1 Market Research and Planning A comprehensive market analysis must be undertaken, consider the factual information of the property and also comparable properties. Research recent sales, available listings, and other dynamics in the relevant market. The whole idea is to establish a realistic selling plan. 2.2 Market Strategy The aim here is to identify and establish the different choices in successfully marketing the property. Consider your marketing budget, what form of listing – print and/or electronic, whether the services of an estate agent are required. Also look closely at the risk tolerance levels as this will determine the final selling price. How quick must the sale be? What are the external push and pull factors with regards to the property. 2.3 Pricing Strategy The initial asking price may make or break the deal. Whilst overpricing may kill the market’s enthusiasm. Under pricing will make the buyer the winner at the seller’s expense. Correct pricing as determined at stage 2.1 above will give the property a decent market time and
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4. CONCLUSION It is paramount to always remember that to get a good sale, the seller, plus his agent must always monitor the pulse of the market on a daily basis so as to analyse performance of subject property. There must always be some feedback on the selling process. Remember that people are always looking for a bargain and using the correct wording will make your property grab buyers attention.It is of paramount importance that one gets a mentor, a person of good standing who is in the know when it comes to the property market trends, performance and developments to guide you on your way to selling your property.
RESOURCES Paradise Property Group www.paradisepg.co.zw
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STRATEGIES
BY PHINIAS TAFA
THE INTELLIGENT MIND Residential Real Estate Investment
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esidential Real Estate Investment (RREI) gives you the chance to be creative, to find a niche where competition does not have an edge over you in terms of knowledge, better contracts, strong ties or a deeper skill set.
There is no one particular path to success that is applicable to everyone. That kind of thinking is false for a number of reasons. n Firstly there is no single aspect of residential investment in which everybody can be a winner. As has been pointed out in a number of “get rich fast books”, there would not be enough cheap or forced sale deals on the market if everyone tried to specialise in buying repossessed properties. n Secondly, there are many different ways of achieving success. Though residential real estate is often considered a single market, it is in reality a very fragmented sector. That is reason for excitement. This fragmentation is spatial and sectoral in nature. In Zimbabwe a residential investor may deliberately choose properties in a particular town or city or pick a property on the basis of suburban density levels – high, medium or low density – or may invest in flats as opposed to free standing houses. A good place to start is by identifying what you don’t want. Repossessed or foreclosed properties, for instance. are not my type of investment. I can’t imagine myself moving around and snapping up homes that 34
were taken away from distressed families. No! To succeed in RREI you must take into account three paramount factors: the people, the property and the deal or transaction (the PPD). The cardinal rule is to be involved in the process. After getting the details right adapt them to your current environment. The People The people basically create the market. They are the ones who pay the rentals and determine how high they can be. They are the potential purchasers when the time to exit comes. Consider their priorities – is it cluster or noncluster, security or a particular locality? Their priorities will determine the kind of property you invest in, the features you put in and the finishings you develop. Segment your intended markets into different and specific groups. Profiling the different groups will present you with information critical to your decision making. Another people issue is that of the people whose expertise you can make use of. Investing in real estate is all about identifying and mitigating risk. It is thus crucial to surround oneself with knowledgeable legal, market and technical due diligence experts. Quantity surveyors will set out every single potential cost that may arise in the course of the deal. Your own valuer will advise on actual market value. Your own agent will assist with negotiations. Use your own lawyer in the deal.
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The Property Location, location, location This sounds like a chorus now but you can’t talk about a good residential property investment without mentioning it. Property investments are all about supply and demand. There are people who own properties in places that are cheap and shoddy, serviced by run down road infrastructure and experiencing serious power cuts, yet they make a good amount of money from them because they are cheap. Their properties are never empty. The critical element here is to avoid voids or periods when no rent is being earned. One is guaranteed a winner if one buys residential property in a location where there is constant demand but supply is limited. Harare’s avenues area, for instance, has a limited supply of residential accommodation because residential space is sharing with commercial space and there is a lack of space for new building. However, we cannot all buy in town centres. We have to look at areas that our budgets can afford. The critical issue is to look at the possibilities deal by deal and proceed step by step. Some buyers may f irst look into an area they think has great potential and then pick a property. Others will consider the property and what it offers before considering its location. Either way, the basic rule is that if there are aspects that you don’t like about the property, the person that you will try to rent or sell the property to won’t like those aspects either. You need to use good commonsense and fundamental good judgement. Negative landmarks in close proximity, such as dumping sites, graveyards and noisy and busy roads must be avoided, as they will putoff your potential buyers or provide them with bargaining muscle. Condition This refers to the property’s state of repair. If a general inspection is unsatisfactory, then a structural survey may be called for in order to identify any structural weaknesses. In the same way that a mechanical inspection of a motor vehicle may uncover serious engine faults, even though the vehicle’s body looks sexy, a structural survey may unearth serous issues such as cracks, defective roofs and substandard engineering works. This is important, especially with multistorey buildings. Smaller issues also need to www.reimag.co.zw
be checked, such as the age of electrical and plumbing fittings, how secure the locks are and other issues that have the potential to cost money and chew into the cash-flow. My advice is to go for a property that requires cosmetic touch-ups rather than serious renovations, unless it’s a major bargain you cannot afford to lose. Jason Lee defines cosmetic improvements as improvements that can be done on a reasonable budget and completed within a short time so that income can be earned fast. Such cosmetic improvements include modernising kitchens and bathrooms, laying new f loors, installing new light f ittings, painting and redecorating the interior and exterior walls and landscaping the garden. Major structural changes, such as pulling down walls and constructing new ones to increase room sizes, may present a serious nightmare when the contractor gives his quotation and starts his job. Research the locality Your tenants and potential buyers will eventually know how good or bad the area really is, so you must be ahead of the game by doing your own research into the locality. This knowledge will give an indication of the tenant or buyer profile that is realistic for that location. It will have a bearing on whether your rental income or final exit price may be improved or compromised. Are the amenities that exist or are lacking amenities that really benefit the community? Always avoid over-developing a property, as the ultimate price or rental determination is the locality or area. Putting state-of the-art security and top dollar finishings in a high density property may not significantly alter or increase the rent to be earned. It is important to ascertain the position with regards to utility bills payment, particularly in the present environment where some people have built up huge utility debts. Municipal rates and bills are not a serious issue where the seller receives payment after transfer, because utility arrears will be paid from the selling price. They become an issue where the purchase price is paid before transfer. You may have a rude awakening to discover, after paying the purchase price in full, that there are huge bills owing and the seller becomes uncooperative when asked to settle them. You must always www.reimag.co.zw
make sure the previous owner clears his baggage in so far as electricity, municipal rates and other utility bills are concerned. The Deal Seasoned propert y investors argue that most of the profit in property transactions is determined at purchase. Thus an investor’s best bet is an advantageous entry point. Price, terms and conditions This basically refers to the total money to be paid, including all ancillary costs such as transfer fees, and the mode of payment. Bargain as low as you can. Make sure the terms are as favourable as possible. Do not break your back, especially in cash deals. Even where you have secured mortgage finance make sure you are using a profitable model strategy so that you avoid what all investors fear most – repossession. If you are fortunate enough to have different financing options, make sure you are familiar with all the pros and cons. When considering the property’s value, never rely on what a seller or his agent tells you. They will always inflate the property’s value. So this is what you do – research, research, research! Look at all the properties for sale in the area around the one you like. Make comparisons to obtain a general impression of the true market value. Never allow yourself to be hurried. If you miss a deal another is knocking, and knocking very loud. An important tip is to look for a motivated seller, such as someone who needs to fund a project or has lost a job and risks having the property repossessed. The more motivated your seller is the better for you as that motivation becomes your bargain opportunity. Although it is difficult to do so, always try to find out the reason why the seller is selling. The sellers might be in a tight spot. Don’t forget that you might actually be doing them a favour and relieving them of a burden by purchasing their property. Tax efficiency Before you plunge headlong into a deal, talk to residential property experts to find out the tax implications of your potential investment. If you are entering the buy to let market, you must be aware that the rental you receive is taxable in line with your tax band. Don’t forget capital gains tax is due on the sale of any property other than your principal residence.
Exit strategy When you invest in any property, always remember that one day you might want to dispose of it. If not properly planned, this may cost you time and money. Before you finalise your decision, determine how and when you may disinvest at a profit. Consider the future, the period you would want to hold onto the property for and the possible exit price. Try to predict the state of the economy, employment and interest rates, as they can all affect your total monetary gains should you sell. For example when the market takes an upward shift, as it is doing at the moment, this can improve your returns significantly. However, when the market takes a tumble, it could leave you with serious exposure if you have substantial debts. Bright Prospects The Zimbabwean residential market provides a more lucrative investment opportunity than most people realise or believe both locally and internationally. Thanks to the cash economy that has been prevailing for the last decade, most of the homes are non-mortgaged as they were purchased for cash. Since there have not been many serious residential projects over the last 10 years in Zimbabwe, rentals and selling prices have continued to steadily rise as people stampede for the old stock. This presents a huge opportunity for major residential project investors, both on the rental and capital front. Welcome to the Zimbabwean residential sector. Happy and intelligent investment. Actual life in RREI consider the following: • What are the milestones, pitfalls and rewards? • How do I make an impact? • Changes of challenges and opportunities over time • Turning your product (property) into a commodity (price) • When and how to add value?
RESOURCES Paradise Property Group www.paradisepg.co.zw
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
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COMMERCIAL
Managing Acquiring Your Business Market View
MURRAY & ROBERTS PROFIT
INDUSTRIAL DEVELOPMENT
SHARE THE MINING WEALTH
HAMILTON PROPERTY DISPUTE
Murray & Roberts (Zimbabwe) Ltd posted a prof it before tax of US$1.6 million in the year to June 30 2012, after a re-evaluation of its investment property portfolio. The US$1.6 million prof it before ta x included fair value gains to the tune of US$1.3 million in the company’s investment property portfolio, which shows that its operating margins were comparatively lower compared to the same period last year. Fair
Mining in Zimbabwe is an issue that provokes anger, joy and sometimes disappointment. From structural h istor ica l inequa l it ies to postindependence d ispropor t ionate wealth distribution, the combination has been explosive and divisive. This has stirred a minerals race spurred by disillusionment over lack of sufficient and swift action to cause change that guarantees an equitable sharing of wealth from minerals, which is a finite resource, in modern Zimbabwe.
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value of investment property is the price at which the property could be exchanged between knowledgeable w i l l ing pa r ties in a rm’s leng th transactions, and gain or loss arising from a change in the fair value of investment property is recognised in profit or loss. The company’s total revenue amounted to US$43 million, which was a 2.7 percent increase compared to the same period last year.
Participants in this race are many and indiscriminate starting with the “makorokoza” to the political bigwigs and then, from an opposite direction, the internationa l conglomerate. Concern has also centred around the absence of an env ironment that creates equal opportunities for equal participation in the mining sector by previously excluded and disadvantaged groups such as women and the youth, constit uting 52 percent and 60 percent of Zimbabwe’s population, respectively.
T he Indust r ia l Development Corporation of Zimbabwe Limited has recorded 34.7 percent growth in revenue from US$113.8 million in 2010 to US$153.3 million during the year ended December 31, 2011. According to financial results released by the group, gross profit was US$32 million up from US$19.6 million in 2010. Net current assets or technical solvency was positive at US$17.8 million, but liquidity remained tight
The High Court has granted an order to place Hamilton Property Holdings, o w ne d b y b u s i ne s s m a n Fr a n k Buyanga, under provisional judicial management. Mr Knowledge Hofisi of Aurifin Capital was appointed the provisional judicial manager. This is the culmination of a High Court application filed by Ritem, a company t hat acqu i red a proper t y f rom Hamilton Properties in which the occupant is disputing having sold the property in question to Mr Buyanga’s company.
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due to slow paying institutional debtors. The group operationa l profit before interest, impairment, retrenchment and exchange loss provisions turned around from a loss of US$16.3 million in 2010 to a profit of US$1.4 million on the back of increased revenue and reduced overheads. However, despite this the group suffered a loss after interest of US$10.44 million.
Hamilton Property Holdings has been embroiled in legal battles with its clients over allegedly irregular transactions. When contacted for comment, Mr Hof isi said it was premat ure for him to comment because he had just “embarked on an information gathering process”. “Yes, I can confirm that the High Court has granted an order for Hamilton Prop er t ie s to b e pl aced u nder provisional judicial management," he said.
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37
MANAGING
BY JOHN ROBINSON
Guarantee Your Financial Success Make sure your commercial building is hot property
D
espite the f luctuating economy and current rental trends, there are factors that remain constant when tenants select rental property: cost, location and the faรงade of your building. But there are a few other factors that also influence the decision-making process. Among the most prominent of these are security and parking. Security matters Given the national crime statistics it is obvious that a tenant will endeavour to secure a rental property with adequate security features, something that becomes even more important if it involves a family and children. When it comes to property investments, an unsafe building is a potential deal breaker for tenants. Does the property have an alarm system and an armed response unit contracted to respond in an emergency? How secure is the neighbourhood? Security is always important for tenants. Landlords would benefit from ensuring that they offer a secure rental. Crime is not the only thing tenants consider. The safety of structures on the property can be equally important. Tenants will be deterred by what are considered to be hazardous 38
structures. These could include such things as loose railings, obvious electrical problems and unprotected and unfenced drop-offs. It is certainly in the best interest of the landlord to address such hazards before inviting tenants for viewings. Proper parking Parking is another critical consideration for tenants, whether the building is a free-standing house or a complex. Studies have shown that one of the top 10 features buyers look for when purchasing a property is a garage or secure offstreet parking. Tenants are no different. Adding a parking area to your rental property is a sensible idea and a worthy investment. As a matter of fact, the value such a space adds to your property can outweigh the cost of building it. Therefore, if you do not have offstreet parking at your rental property already, consider adding a garage or secure undercover parking. Tenants are all too aware that cars can easily be damaged when parked on the side of the street. Cars coming down the street misjudge the distance and can take off a side view mirror or swipe the car causing major damage. Parking a car within a secure property or garage can prevent vandals from smashing
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
the car window to steal a radio or prevent the car from being keyed or the tyres from being stolen. Even just pulling a car into a driveway or parking bay will make it less noticeable to car thieves. A car thief has to take a greater risk going onto a property to steal a car than taking it right off the street. These are issues a potential tenant will consider when deciding on the suitability of your property. Many insurance companies have special rates for customers who can park their cars in lock up garages or at least behind a lockable gate as opposed to parking on the street. This makes a property with a lock up garage more appealing to tenants as it allows them to save on their insurance rates or at the very least maintain their current rate. In most cases security measures and the availability of parking are within the control of the landlord, which means that you can enhance the viability of your rental property and secure your investment by providing these. While the location of a commercial property remains of key importance, the appearance of the building plays a signif icant role in attracting and retaining tenants, due to the perceived desirability of the venue. It is common that a perfectly commercially www.reimag.co.zw
viable building develops vacancies because of problems created by a defunct façade or a façade that does not possess what is seen as a ‘timeless design’. For example, buildings in an office park with a particular theme may become dated over time as architectural trends change. Factors that impact negatively on the desirability of a commercial property include: n cracks in the masonry n leaks in roofs, around windows etc.; n safet y issues, such as loose plaster or brickwork n old-fashioned appearance; nthe building does not keep abreast with green requirements; n the exterior of the building does not complement or keep pace with modern interiors, which are constantly upgraded or modernised, as tenants move in and out of buildings. This is especially noticeable in areas where new buildings are being constructed and defunct facades of existing and older buildings are highlighted in stark contrast to the more modern structures. Masonry facade refurbishment through cladding can be achieved using a plethora of materials from ceramic extruded profiles and large format porcelain sheets to composite recycled plastic and aluminium panels or even concrete. Each material provides its own U-value, which is the measurement of the material’s insulation capabilities. Depending on the f ixing detail, when utilising a sub-frame system to clad an existing building an air barrier is formed between the old facade and the new material. This lowers the heat gain through the facade fabric, which in turn raises the insulation properties of the facade. This reduces the load on the HVAC (heating, ventilation and air-conditioning) plant to regulate temperatures within the building. These air barriers may also be ventilated, thereby advancing the insulation further. Ma ny of t he se s y stems c a n be premanufactured in modules off-site and installed at a fraction of the time a conventional type facade would take to be erected. Enclosing the building is always on the programmes critical path. Besides the time gain, it reduces any disruption or inconvenience www.reimag.co.zw
to tenants. This is crucial when renovating, as there are probably user tenants who are at work behind the existing facade. Should a panel be damaged, it can simply be replaced without a string of mixed discipline contractors being required. Some of these systems claim to be 'self cleaning' but these treatments tend to be more effective in higher rainfall areas. Some suppliers provide CAD (computer aided design) detailing services in-house, which are included in their rates, as achieving neat jointing and corners and low wastage can be tricky. Facade cladding may also provide a solution to high level moisture ingress. To be doubly sure one can prepare or spray seal the deteriorating existing masonry prior to cladding. Some older buildings may have experienced consolidation settlement cracks in their infancy and been showing them ever since. Cladding conceals these. Expansion movement in long runs may be reduced by insulating the wall. Any cracks can be monitored further from the inside. Some of the lighter weight systems can even be installed using patented heavy-duty Velcrolike strips. Regardless of which system is used, it's advisable that a facade engineer is approached first to confirm height and specific wind loads prior to detail selection. Besides increasing the performance of the existing building, and reducing effective time on site, cladding an outdated building can ‘transport’ it from the previous century and bring it up to date with current trends. Many new buildings exhibit these systems because they make sense and are the way environmentally conscious developers are moving. Naturally, the initial outlay is offset by the savings achieved in consumption and
maintenance bills in the longer term. Proper design and execution of a new facade can contribute greatly to repositioning an existing building and add value to your asset. Trust Properties has experienced a marked increase in achievable rentals because of the redesign of the facades of properties, more specifically in regard to office blocks. Increasingly landlords, asset managers and tenants in some countries are embarking on a holistic property portfolio greening strategy in order to reap the full financial benefits relating to all aspects which impact on the environment. These include categories such as water management, recycling of materials, materials used when refurbishing a building, active awareness management, among others. More and more these role players are looking to their property managers to provide them with a one-stop solution involving not only energy management but also action plans in regard to other categories which have an impact on the environment. In response to the rapidly growing need, Trust Properties, in consultation with Energy Partners Consulting, has formulated a comprehensive but simple ‘green strategy’ involving 18 categories which impact on the environment. The practica l aspect of this strateg y culminates in an electronic and user-friendly initiatives chart, which enables the user to find action steps, linked to a specific category. Furthermore, to assist with the applicable intervention, each action step can be evaluated in terms of expertise required, costs involved and benefits to the landlord, the occupier of the space and the environment. In addition, the initiatives chart can either be used to assess an individual building or a portfolio of properties.
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
39
LISTED PROPERTY
BY MENNARD CHEKAYI
New Property Fund Listed Economy geared for recovery
A
new Zimbabwean propert y fund, Ascendant Property Fund, was listed recently with just under 100 000 square metres of commercial real estate valued at more than $40 million. The fund is acquiring 15 properties from corporate vendors in three major cities, namely Harare, where the bulk of properties will be situated, Bulawayo and Gweru. Although it is a closed fund, with no new investment currently sought, it is likely to have future appeal for South African and international investors seeking exposure to African markets with higher yields and rental growth rates than those experienced in home markets. Kura Chihota, Chief Executive of Ascendant Property Fund, explained that the fund’s portfolio is initially comprising mainly industrial and mixed-use properties. Off ice properties are targeted and retail development opportunities will be pursued. Already, two development sites are under feasibility assessment. Due to the fund being Zimbabwean-owned and invested, the current liquidity challenges 40
in the country are likely to provide a window of opportunity to acquire quality assets in the short to medium-term at lower prices than could be acquired elsewhere in Southern Africa. With the economy set to grow on the back of growing political stability, there are real and promising opportunities available in Zimbabwe. Ascendant Property Fund is among the first movers already taking advantage of these opportunities. The Zimbabwean economy grew by an average 9.3% in 2011, as it continued to bounce back after a decade of economic decline. Treasur y estimates predicted that the economy would expand further in 2012 on the back of increased output from the mines and farms, if the political climate remained stable. Nevertheless, unemployment levels are high – some put the unemployment figure at nearing 80%, although official figures are much lower. The uncertain political climate ensures that few investors currently consider investing in property in the country. Could this be the right time to invest in Zimbabwe? As the economy slowly recovers,
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
estate agents operating in Zimbabwe are confident that the property market is set to be buoyant. Investor appetite and confidence is renewed. According to the Knight Frank Africa Report in 2011, global economic slowdown affected the levels of international investment in Africa but overseas investors continue to see opportunities for property development in Africa. The report indicated that the majority of house purchases in Zimbabwe are self-funded, resulting in buyers being able to dictate terms. This is because there is little credit available and a limited number of financial institutions are offering mortgage finance. Mr Chihota noted the key attribute of the Ascendant Property Fund portfolio was strong cash f low generated by quality leases from listed companies as tenants. “Our vision is to grow the fund by acquiring commercial property assets from companies looking to raise funds from selling assets. Retail assets will be purchased and developed in line with income growth and demographic distribution,” he said. www.reimag.co.zw
RETAIL
Stay ahead of the competition
BY CULLUM JOHNSTON
In difficult trading conditions, shopping centres must do all they can to ensure they remain ahead of competitors. Here are some tips for surviving tough times. The correct mix of tenants is all important This is borne out by evidence that, while many retailers continue to battle in the wake of the recession, apparel retailers have reported positive results. Thus, shopping centres that count fashion retailers amongst their tenants can expect to enjoy the knock-on benefits. The same holds true for centres that play host to grocery retailers. Such centres can expect to do especially well over the festive season, when these retailers should enjoy brisk business. Let me entertain you While the presence of these retailers is a great aid in terms of attracting customers, factors such as the newness of the centre and the excitement factor must also be considered. Cent res t hat have a n enter ta inment component a lready have a competitive advantage. Cinemas and skating rinks will do much to draw crowds, especially families looking for ways to keep their children occupied. www.reimag.co.zw
For this reason, it’s also wise to implement a holiday activity programme. The centre should take care to ensure this is well publicised – there’s no point in creating a child-friendly spectacle if no one knows about it. What's my age again? Also, centres should consider the demographics in the catchment areas they serve. If the surrounding community is made up of older people whose children have long since moved on to establish their own households, the centre is not required to cater for the ‘mall rat’ generation which loves spending time at the shops. The family lifecycle is a key factor when it comes to deciding your tenant mix and entertainment offerings. Back to basics Something else to bear in mind is how the centre fits into the lifestyle of customers. Many shoppers today prefer to stock up on necessities as they need them, rather than do one large
monthly shop. This is particularly true of neighbourhood centres. This means that people shop more but spend less. Such shopping patterns should inform both the type of goods available and how they are displayed. It is critical that such centres are always stocked with basic essentials and items that are in high demand. Often, people go shopping solely to purchase such products, so maintaining a good store will ensure repeat visits. On the other hand, if shoppers are disappointed one time too many, they will take their custom elsewhere. A number of new centres are opening in areas that appear to be already saturated with mall options. There’s no question that such centres will take market share from each other – so, again, the answer lies in securing a tenant mix that speaks directly to the community’s shopping needs. Shopping centres need to keep up with the times, both in terms of aesthetics and the tenants they present to consumers.
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
41
ACQUIRING
BY ANGIE REDMOND
Find The Right Place For Your Business Should you rent or buy? F
inding the right spot for your business is key to your success. If customers can find your place of business easily, you won’t have to work as hard to drive traffic to your doorstep. This means you have to conduct some demographic research. You need to identify who your customers are, where they live and work, and where they typically go to find the type of product or service you’re offering. The question of whether to rent or buy commercial space is an important one. The availability of property for rent or purchase will determine your location to some extent. The right choice varies from one business to another. Here are some questions to consider: What can you afford? When you lease or rent a property, you pay a monthly fee that covers the rental of the space and, in some cases, a portion of the utilities. When you buy a property, a sizeable down payment is required, along with utility bills, property tax and ongoing maintenance cost. 42
Before you decide which is the way to go, ask yourself the following questions: n Have you considered all the costs of each option? n Can your business afford to use potential cash flow funds as a down payment? n Will this investment help your business grow over time? How long are you staying? Give some thought to how long you expect to be at the location where you plan to set up shop. Do you expect your operation to grow over time, requiring more space for staff, inventory or production? Leasing gives you the flexibility to relocate without incurring significant cost. It may be a better choice if you think you’ll only be at a particular location for a short time. If you are certain that your business won’t experience any dramatic growth and that there are benefits to establishing yourself in one location to build awareness and customer loyalty, then purchasing a property may be your best bet.
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
What do the experts recommend? As with any big decision, it’s always best to seek the advice of professionals and your support network. Speak to a commercial realtor about property costs and market conditions. An accountant can help you weigh the financial pros and cons of each option. If you need financing, a financial advisor can help you determine what is available. Taking the time to assess your options will help you make the best decision for your business. Owners of all businesses but particularly those which are small and medium size, says Bill Rawson, Chairman of the Rawson property group, regularly ask him one question: “Is it a good idea to buy one’s own premises or should I continue to rent?” The answer, says Rawson, is almost always “buy”. This is particularly true and appropriate r ight now, espec ia l ly i f t he proper t y contemplated is a residential building, which has been rezoned to have commercial rights. The only proviso, he says, is that the deal should be seen as a long-term one, i.e. the buyer should plan to hold the property in his own name for at least five years. www.reimag.co.zw
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MARKET VIEW
BY NOAH PASHAPA
Time For Change Ethics in the property industry
N
ame one individual who does not seek self-interest in the pursuit of business opportunities and done deals? This question was reportedly asked by a well known Zimbabwean political scientist cum politician when a South African Broadcasting Corporation interviewer had suggested that his political career had been characterised by opportunism and self-interest. The struggle between the powerful human tendency towards self-interest on the one hand and the pursuit of virtues such as integrity and self-sacrifice on the other is one that is faced daily, not only in politics but in most industries including Real Estate. The only time human beings consistently commit themselves to doing the right things, the right way, for the right reasons is when they have trained and conditioned themselves to habitually think, choose and act in ways that are informed and inspired by virtues such as truthfulness, honesty and transparency. 44
Sadly, many real estate-related legal battles presided over by our courts and many verbal complaints and reports coming out of the real estate industry today indicate that the majority of agents providing services in this industry seem to instinctively and continually do the wrong things, thereby repeatedly taking advantage of sellers and buyers. M a ny of t he s e a gent s have e volved management systems and a business culture characterised by habits that do not prioritise the needs of sellers and buyers. This has resulted in sellers and buyers being continually ‘ripped off ’ by many real estate agents. As in politics and many other spheres of business activity, many real estate agents ignore or abandon the responsibility to act in ethical ways (i.e. doing the right things for the right reasons in the right way) while preferring to adopt a standard that requires them to do what is ‘legal’ even if sellers and buyers are treated unfairly or taken advantage of.
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
For example, because it is not against the law to receive ‘thank you gifts’, many agents subtly make these gifts a condition for making transactional possibilities accessible to the seller or buyer. When such a ‘kickback culture’ becomes endemic, as could well be the case today, then layers of ‘kickback-recipients’ from both the selling and purchasing camps are often involved in transactions in which the sellers and buyers bear the brunt and ‘pay the price’. Because it is not illegal for the agent to take money from sellers or buyers, all the while knowing that the said money would promote the agent’s interests and not those of the sellers or buyers within a specif ied time period, many real estate agents adopt this unethical practice. Because it is not illegal to f lag ‘dummy bidders’ or ‘double-quote’ a price to sellers and another to buyers, agents adopt these unethical practices aimed at manipulating and fleecing www.reimag.co.zw
sellers and buyers. Such unethical yet ‘legal’ practices effectively defraud unsuspecting buyers and sellers of huge amounts of money without them realising it. It wou ld be interest ing to see what results would emerge from an independent commission of inquiry into amounts of money lost by sellers and buyers to real estate agents in this way. Many agents will insist that what is really important is to ensure they work with systems that guarantee observance of the laws of the land. They will either selectively ignore or totally abandon ethical concerns such as integrity, trustworthiness, truthfulness and transparency in the best interests of the seller or buyer. Most buyers and sellers do not have the knowledge to protect themselves from being taken advantage of by unethical agents and end up being ‘ripped-off’ or ‘exploited’. In his book on personal ethics entitled ‘Character is Destiny – The Value of Personal Ethics in Everyday Life’, Professor Russell Gough, says: "Being ethical is never just a matter of being a good rule-follower. It's exceedingly more than that. Rules and laws by their very nature usually prescribe, at best, only minimum standards of ethical behaviour."
Ignoring and/or abandoning ethical concerns beyond guaranteeing observance of the laws of the land governing real estate transactions has resulted in many agents failing to sustain longterm relationships with clients who have been hurt by their unethical practices. Sadly, many agents do not really care for repeat business and would rather view clients as 'one-off' opportunities. Once a client has been ‘ripped-off ’ or ‘exploited’ by an agent, in the signing and payment involved in a transaction, there is no room for hitting back’ at the agent by withholding patronage, as a supermarket shopper might do by withholding his/her patronage if mistreated. Many agents need to put ethics back into their transacting culture if they are to win back the trust that their former clients have withdrawn in protest against their unethical and often exploitative yet legal processes and systems. Though evidence abounds of ‘exploited’ and or ‘ripped-off’ buyers and sellers, few real estate agents will be honest enough to own up to such shortcomings and to assume responsibility that leads to ‘ethical-transformation’ in the industry. Real estate agents who lead, manage and coordinate real estate self-regulatory national bodies or associations are unlikely to play
the role of ‘whistle-blower’ on fellow agents or be the ones to warn sellers and buyers of such ‘hazards’ associated with the real estate industry. Such ‘advocacy-monitoring’ roles are likely to be provided by independent watchdog bodies such as consumer councils and anticorruption commissions. The Centre for Leadership Excellence, which this writer coordinates, offers basic studies of ethics as well as training and coaching in transformational business leadership. Conventional real estate study programmes and courses that this writer is aware of do not yet incorporate such studies in ethics. Since ethics is good business and because agents and other service providers in this industry require teaching and training in order to develop ethical conduct, it is important that the industry prioritises and invests in such training. Putting ethics back into the real estate sector can only propel this industry into yet unknown dynamism and growth.
RESOURCES Centre For Leadership Excellence
HOT SPOTS
BY PHINIAS TAFA
Investment Hot Spots Revealed
We show you returns
T
here is still strong demand throughout all sectors of the Zimbabwean real estate industry, with the residential sector remaining the largest market. While the biggest buying class is still first time home-owners, investment buyers have grown in number. Pricing and returns distortions have been exacerbated by lack of new stock and new propert y developments throughout the nation. Consequently, low cost developments, particularly on in-fill land located adjacent or close to already established suburbs, such as Glen View (Harare), Entumbane (Bulawayo), Chikanga (Mutare) and Mkoba (Gweru), and within close proximity to all social amenities have proved to be the best investment in terms of returns as demonstrated in the table below. As the recovery of the Zimbabwean economy continues slowly, the manufacturing sector, especially the agro-processing subsector, is still struggling with capacity utilisations and job creation is still insignificant. Consequently the larger populace has turned to small retail businesses in order to eke out a living. That is reflected in the large demand for retail space within the urban centres, especially for the 30 – 75sqm shops. Over the last t wo years the downtown CBD areas of most urban centres have been transformed from old mixed-use buildings to multi-tenanted retail malls. Location
COST (US$/sqm) Land
Building
High Density
20
Medium Density Low Density
Â
46
The mammoth growth of the small retail businesses in Zimbabwe and the mounting need to formalise operations resulted in accentuated demand for retail space, which pressured redundant property owners into renovating
premises to lease out or sell outright. The simplified model for a typical mixed-use (office and retail building) used to support the renovate-lease/sell rationale being used is illustrated in the table below.
Before Renovations
After Renovations
Building Value
Envisaged Building value
$450,000
Gross Lettable Area 1,000sqm
Achievable Gross Lettable Area
2,500sqm
Utilisation
60% office, 45% retail
Utilisation
100% retail
Rentals
$2.75/sqm office, $4.00/sqm retail
Rentals
$22.50/sqm
Default Rate
10%
Operational Costs
Operational Costs
Insurance
up to $650 quarterly
Insurance
up to $500 quarterly
Utilities
$10.50/sqm office, $9.40/sqm retail
Utilities
$9.40/sqm retail
Maintenance Costs
$500/month
Maintenance Costs
$125/month
Returns
Returns
Gross Income Returns (leasing)
21.7% (annual)
Gross Income Return (leasing) 17.75% (annual)
Net Income Return*
19%
Net Income Return
Capital Growth
-7.7%
Capital Growth
4.5%
Total Returns
9.0%
Total Returns*
19.65%
*Tenants pay for utilities over-and-above rentals
Â
15.15%
*ex-Default rate
Nominal Returns (US$)
Returns (%)
Rental/month
Selling Price
Income
Capital
Total
150
500
45,000
23%
71%
94%
23
150
750
85,000
13%
18%
31%
45
55
2,500
220,000
17%
26%
43%
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
www.reimag.co.zw
Mashonaland Holdings Limited Charter House 9 000 sq m Gross Lettable Area
ZB Life Towers 16 000 sq m Gross Lettable Area
ZB Centre Harare – 11 000 sq m Bulawayo – 2 000 sq m Mutare – 850 sq m Gross Lettable Area
Chiyedza House 10 000 sq m Gross Lettable Area
Leaders in real estate investment…… The first property company to list on the Zimbabwe Stock Exchange, Mashonaland Holdings boasts a quality and diverse property base both geographically and by sector.
Property Investment & Development Commercial & Industrial accommodation. 12th Floor ZB Life Towers, 77 Jason Moyo Avenue,P O Box 717, Harare Tel : 253600 / 1 705806 / 7 0772 158 056 / 060 0868 3000 470 / 475 Email: MashAdmin@masholdings.co.zw
CORPORATE PROFILE
BY PHINIAS TAFA
Funding Housing Development In Africa
exemption from exchange controls. The company’s activities have been funded mainly from equity resources and medium term borrowings of US$50million and US$20 million, respectively. Shelter Afrique continues to derive its mission from the mandate given it by its founding fathers at inception, which is principally to become a powerful instrument for the mobilisation of financial and technical resources to be deployed for funding housing development in Africa. Its vision is to be the leading player in strategic partnership among key stakeholders for the efficient delivery of real estate and other related services in Africa. Shelter Afrique uses its distinct presence and competitive advantage to create value-added products to enhance the development of the real estate sector, with a view to improving the living environment and facilitating the achievement of the goal of housing for all.
Housing for all
S
helter Afrique was established in 1982 by African governments, the African Development Bank (ADB), AfricaReinsurance and CDC with the mandate to mobilise resources for housing development in Africa. The Company came into existence against the background of the acute housing shortages prevalent in most African countries and the urgent need for African governments therefore to pool resources to tackle the problems. In the words of the founding fathers, the company was to “mobilise capital from which loan and equity resources can be made available to national housing development institutions in Africa for approved schemes". 48
Operational activities commenced in 1985. Since then Shelter Afrique has developed a robust portfolio of projects and activities, acquired substantial operational experience and established itself as a credible housing finance institution. Shelter Afrique derives its legal status from the Constituent Charter agreed to by its shareholders at inception. In Kenya the company operates under the Shelter Afrique Act of 1995, an Act of the Parliament of the Republic of Kenya. It also signed a Headquarters Agreement with the government of Kenya which grants the company certain privileges and immunities, including protection against seizure of assets, tax exemptions and
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
It seeks to achieve this mission through: n provision and expansion of sources of affordable and sustainable financial resources available for housing programmes; n collaborative partnerships with all actors in the shelter delivery process; n adoption of sound management practices that emphasise superior performance, teamwork and continuous improvement in services; n sharing of information on the best means of providing quality shelter. Shelter Afrique believes that building a house, builds a family and a nation. Residential Real Estate The programme entails the identification, appraisal, structuring and f inancing of residential estates conceived by either private or public sector developers for outright sale or rental to individuals and families. Most of the projects implemented by the company, since its inception, fall under this programme. The company has the expertise to execute this programme. It has a competitive advantage in this area, since many local banks are not www.reimag.co.zw
actively involved in construction financing. Support is given to small and medium-size developers to encourage their involvement in housing delivery. The programme targets housing development for all income categories, including single and multi-family homes provided they meet the company’s lending criteria. Rental housing projects, including students' hostels, that provide affordable housing are eligible for funding. Social Housing Shelter Afrique recognises that the majority of African populations in need of housing are in the low income categories and that some require special housing programmes to be able to live in decent accommodation. It also appreciates that market solutions and funds may not be suitable for this kind of housing, for which there is a huge demand in member countries. In line with the millennium development goals, Shelter Afrique proposes establishing special housing programmes in collaboration with development partners and member governments to promote access by the poor and low income groups to affordable housing and infrastructure services. Finance Shelter Afrique provides mortgage financing, including securitisation, generally through lines of credit to housing finance institutions and off balance financing arrangements with other institutions. As has been widely accepted, countries with viable housing financing systems tend to have vibrant housing markets. Housing being a capital intensive and longterm investment is better procured through long-term funding. Availability of mortgage finance will improve affordability and therefore demand for Shelter A frique real estate services. Shelter Afrique seeks cost effective strategies for providing assistance to housing finance institutions in member countries and for improving liquidity in the housing sector. It seeks to develop and implement programmes that will encourage mortgage securitisation in member countries. Trade Financing for Building Materials There is tremendous potential for Shelter Afrique to operate in the shorter end of the www.reimag.co.zw
market through provision of trade finance products such as invoice discounting, short term credits, forfaiting and working capital to exporters and importers of building materials. Shelter Afrique proposes to undertake in-depth studies in this area and work closely with already well established institutions such as Afreximbank to develop this product. Commercial Real Estate The company also considers commercial developments such as offices, shopping centres, schools, furnished apartments and other developments within a residential estate that complement and improve the marketability of its housing projects. Shelter Afrique can, where necessar y, finance stand alone commercial real estate that provides for higher returns and portfolio diversification. Shelter Afrique endeavours to syndicate the participation of other financiers in such projects.
"There is also a heightened level of urgency on the part of governments to address urban problems." Contractor Support Service The company’s contractor support service enables it to provide short –term financial assistance to contractors involved in housing and related projects. Such assistance includes provision of a performance bond, advance payment guarantee and short-term financing to enable contractors, among other things, to fulfil their contracts. The company in each country works closely with local banks and non-bank f inancial institutions, such as insurance companies, to deliver these services. This should improve its value retention in the value chain in the housing sector. Infrastructure Development Africa is currently the fastest urbanising continent in the world, with an annual urban growth rate of 4.5% - 5.0%. Nearly 40 % of Africans now live in cities. This is expected to increase to 50% in the next 25 years, if
current trends continue. Cities in Africa contribute about 60% of the continent’s gross domestic product (GDP). The rapid growth in urban population is not commensurately matched by an increase in the provision of infrastructure services, housing or shelter in these cities. The result is an acute shortage of decent and affordable housing and a poor living environment. It has been estimated that the total urban population and the urbanised areas in SubSaharan Africa can be expected to increase threefold and the flow of persons and urban goods and services increase tenfold by 2025. Consequently, it is essential to develop a new vision of the African city as a place of innovation, wealth creation and capital accumulation rather than, as it has tended to be seen, as a place of poverty and all kinds of depravity. Despite the urgency of the urban problem and the recognised importance of the cities in economic development, African cities and towns are yet to be managed efficiently with a view to meeting the needs of residents and those who interact with the urban areas. Urban management encompasses, among other things needed to ensure sustainable development, planning, infrastructure services, housing, legal and institutional frameworks, governance, financial planning and management. Those responsible for managing urban areas – mainly local, municipal and central government agencies and institutions – have been unable to properly identify, anticipate and address the problems of these areas in innovative ways. More of ten t ha n not, t he leg a l a nd institutional frameworks, as well as the governance structures in place are either inadequate or outdated for managing both existing and new settlement areas. Many have identified the issue of capacity in all its forms – governance, institutional, technical, financial and management among others – as the greatest impediment to urban development.
RESOURCES Shelter Afrique www.shelterafrique.org
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
49
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WHAT IS DEVELOPMENT?
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Property development is generally t he improvement or add it ion of va lue on a proper t y t h rough eit her sub-d iv id ing, bu i ld ing or remodel ing for t he pu r poses of sel l ing. Peter Jack son of t he Urban Development Instit ute of Australia def ines it as a f inancial risk with respect to the purchase, construction, marketing and selling of real property. R e a l prop er t y i n t h is i nst a nc e ranges from individual residential property to mega malls or buildings in the Central Business District. The f irst real risk sometimes is a
Tr a de b e t w e en Z i mb a b w e a nd Indonesia continues to grow with more than 25 local business people hav ing pa r t icipated last yea r at t he 27t h ed it ion of t he Ja k a r ta International Expo. In 2011 only 15 Zimbabweans showcased their pro duc t s at one of t he world ’s biggest trade fairs in Jakarta while 10 Indonesians exhibited at last yea r s ed it ion of t he Zi mbabwe International Trade Fair. The weeklong expo ran from October 15 to 21. More than 8,0 0 0 buyers and exhibitors from around the world showcased their products.Speaking
complete failure to understand the local economy. It is easy to be carried away by the collection of different f igures or statistics of people who supposedly will want to either rent out or buy i nto t h e d e v e l o p m e nt w it ho ut f i rst conduct ing a feasibi l it y study on current sells and pricing of similar developments. W here de velopment is a imed at renta l income, a calculation or estimation of percentage of defaulting tenants within target bracket is helpful in getting a clearer picture of the time frame of return.
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to The Herald after a meeting with the business people prior to their departure, Indonesian Ambassador to Zimbabwe Mr Eddy Poer wana said the increase in the number was encouraging. “We are taking more than 25 Zimbabweans to Indonesia last year as compared to previous yea r ’s 15. We have received a n of fer f rom ou r G ov er n ment to bring Zimbabweans who can buy Indonesian products. The idea is to link Zimbabwean business people with their Indonesian counterparts for them to form business synergies."
AFRICA IS THE FUTURE More t ha n 3 0 0 deleg ate s f rom across A frica attended Southern Africa’s largest project management con ference , wh ic h w a s he ld i n Johannesburg last year. The theme of the conference, which is held bi-annually by Project Management South Africa, was Next Generation Project Ma nagement. Project Management Institute of Zimbabwe Chief Executive Peter Banda and executive board member Thandekile Chibanda represented Zimbabwe at the three-day conference Cap e Tow n-ba sed i ndep endent political analyst Mr Daniel Silke made startling revelations about how t he A f r ica n cont inent w i l l i n f luenc e t he d i r e c t ion of t he global economy. Ten years ago the A f r ica n cont inent was bra nded a hopeless continent by the
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Economist magazine but by 2050 it is predicted that 25 percent of the world population will live in Africa signalling an impending migration of populations from the West, East and EU to Africa. Up to 50 percent of the A frican population is people under the age of 24 while 500 million Africans are in the middle class, representing a g i a nt ma rk et for t he world ’s technology-based products ranging from iPhones to trendy automobiles. Rural to urban migration remained a challenge not only in Africa but in the rest of the world, with over f i v e m i l l ion p e o p l e e s t i m a t e d to be m ig rat i ng to c it ie s e ver y month globally putting a strain on project plans for local authorities in delivery of basic services such as water and energy.
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SOUTH AFRICAN MARKET
BY MARNA VAN DER WALT
Challenges & Opportunities
The South African Commercial Market
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s we begin 2013, it was evident that various challenges remain. With an eye on concerns raised in regard to global economies, coupled with economic constraints experienced by local consumers, the commercial property market in South Africa remains under pressure. During 2011, the gradual recovery of the economy, although at a slower pace than anticipated, had a positive effect on disposable income, which ref lected in positive retail growth. In 2012, however, it was increasingly apparent that the massive increases in electricity tariffs, coupled with increases in fuel prices, rates and taxes, were affecting marginal tenants’ ability to meet monthly financial obligations. Retail Sector Resilient While such cost pressures continue to impact on consumers, the South African retail sector in general has remained resilient as shoppers continue to seek value for money. The trend towards discounted goods or those which offer the best value for money is increasingly evident, particularly as consumers demonstrate a willingness and growing ability to manage debt, which is positive, as is the fact that interest rates have held stable at historically low levels. Although discretionary spend is still under 52
pressure, the retail categories of household goods, textiles, pharmaceuticals and apparel remain well supported. I n s elec t ive no de s a nd i n e xc lu sive environments where there is a sustainable flow of consumers and continued spend, such as in the redeveloped, prime-located Sandton City, which is situated within easy reach of the Gautrain, retail sales are performing well. Despite the fact that retailers also have to contend with the pressures of rising operational and utility costs, coupled with affordability of space, it has proved possible, through proactive management, to keep vacancy levels at regional shopping centres managed by JHI Properties low, at below four percent, while sales turnover at these centres increased on average by seven percent over the past year. JHI manages more than 2.2 million square metres of retail space in Southern Africa, comprising some 240 shopping centres. Attention to Tenants' Needs Through ongoing attention to the specific needs of retail tenants and ensuring the right tenants are placed in a preferred position, with the right size, layout and design, and taking into account the tenant mix in regard to consumer spend and behaviour, these shopping centres have consistently achieved good sales. Energ y saving methods are constantly
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being explored in order to curb costs. Inverter approaches to energ y supply, as well as additional water storage tanks, are options being actively considered. Renewed Capital Investment Fu r t her posit ive new s is t he renewed capital investment in retail. The extension of Greenstone Shopping Centre near the Edenvale central business district in Gauteng has been successf u l ly completed, w ith approximately 6 400 square metres fully let and opened in December 2011. Driven to a large extent by the launch of a new Edgars store, which has proved a major drawcard for shoppers, and coupled with the remix and relocation of stores, this project has paid off and the centre is performing well. Industrial Demand Rising JHI Properties reports that enquiries for industrial space, particularly for larger, better quality industrial premises from 1 500 square metres upwards are on the increase, particularly for warehousing and distribution. This is combined with a general growing demand for industrial property. In addition to convenient location, users are seeking good power capacity and access for loading within a secure complex or area. General aesthetics are also playing a role in their decision. www.reimag.co.zw
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MARKET OVERVIEW Office Space Solutions In the office market, amid concerns regarding vacancy levels, we are seeing that landlords and developers who have a ‘tenant-centric’ attitude and deliver quality business solutions which pass on savings to tenants will continue to thrive and grow. Landlords are more f lexible in making concessions to retain tenants, who are currently more price-sensitive and educated with regard to the property market and current trading conditions. Increased vacancy levels in general have placed pressure on rentals. Because of this, nominal rentals have remained static for some time. The transactions which are being concluded are often conducted by large corporates repositioning themselves or consolidating operations in order to achieve increased efficiencies in the long term. Sector Under Pressure On the whole, however, the market is nowhere near the activity levels pre-2008. Businesses remain under pressure from increasing input costs and tighter margins. As a result, instead of embarking on a costly relocation, many are choosing to remain in their premises and renegotiate favourable terms for lease renewals. Positively, there are grow th nodes in various regions around the country which present an increasingly positive outlook and opportunity. Braamfontein: A Vibrant Node Rapidly emerging as a vibrant growth node, Braamfontein, in Johannesburg’s inner city, is experiencing a surge in demand for property. This area is undergoing a significant turnaround. The escalating demand for property is not so much from an institutional or corporate tenant aspect but more in regard to realising the potential for the entire development profile of the area, which is becoming transformed into a highly appealing, eclectic mix. This trend towards revitalisation comes on the back of demand for and supply of student accommodation, with old buildings being converted and redeveloped, and is driven by an almost insatiable demand for such accommodation from students attending Wits University and Johannesburg University, as well as a host of other educational institutions in the area. 54
Companies proactive in providing such accommodation for students include South Point and International Housing Solutions. The latter has awarded JHI Residential a contract to manage 10 buildings in the Braamfontein area. As a spinoff to this regeneration, there is an inf lux of other businesses and activities in the area, such as entertainment venues and coffee shops.
this will be set at R100 per tonne of carbon dioxide, creating a carbon tax bill of around R45 billion a year, based on South Africa’s current carbon emissions. It is estimated that the property sector will be responsible for approximately 23 percent of the carbon tax bill, which will affect all parties involved in this sector from construction to investors, contractors, landlords and tenants.
Transport Issues Tr a ns p or t is s ue s a re a l s o i mp ac t i n g increasingly on the commercial property market in regard to choice of location, with the Gautrain stations a key positive factor. The opening of the Gautrain routes, as well as the continued implementation of the BRT routes, has increased demand for properties in close proximity to the stations and the BRT routes. The opening of the Sandton Gautrain station has opened up the Sandton retail precinct to a wider consumer market to the north, which now has easier access.
Listed Property Strong On a positive note, listed properties continue to outperform other asset classes, despite the fact that growth is lower than in previous years, making it an attractive investment which is underlined by the number of new listed property companies that entered the market during the past year.
Legislative Issues With regard to legislation, the Consumer Protection Act is changing the leasing landscape, with landlords preferring to enter into a lease with companies rather than private individuals, who can effectively exit lease agreements with a notice period of 20 working days. In addition, the planned implementation of carbon tax will have a significant impact on the property sector, with early indications that
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Opportunities to Explore In order to retain existing tenants and attract new tenants and due to the continued rise in utilities costs and rates, property owners will need to give more attention to the greening of their buildings. In addition, the decision of some listed companies not to invest in areas where there are low-quality municipal services may open the door for smaller investors to acquire quality properties.
RESOURCES JHI www.jhi.co za
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INVESTING IN SOUTH AFRICA
BY JAMES COLBY
The Importance of Financial Literacy in South African Investments Opportunities await you
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outh African Finance Minister Pravin Gordhan launched a strong attack on financial institutions, which he referred to as “greedy monsters” that put profits before the well-being of the people they are supposed to serve. He referred mainly to the economic meltdown in 2008 but failed to mention the current crises being created by short-term and unsecured lending. It appears that lenders are favouring “fast” money. These credit lines are characterised by high interest rates (reaching up to 60% per annum) for unsecured loans repayable over shorter periods which range from 3 months to 5 years. In comparison, a bond repayment period is usually extended over 20 years, with interest rates currently ranging between 9% and 12% per annum. Recent statistics reveal that the 56
rand value of unsecured lending is on an equal par with that of secured lending. With some 2.2 million South Africans in need of a home, it is a concern that mortgage approvals rose by a mere 4% in the past two years. This stands in stark contrast to unsecured lending which rose by 54% over the same period. “We are unsure how the National Credit Act and ‘risky’ lending policies are applied,” says Meyer De Waal of My Budget Fitness, who introduced the Home Owner Property Education School as a service to prospective buyers to improve their chances of obtaining home loan finance. Attendees are shown how to improve their credit rating and affordability. They learn how to increase cash flow by reducing monthly credit commitments through hands on education and training.
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"We regularly encounter clients who have unsecured loans that are 4 to 5 times larger than their monthly salary. Prospective buyers who are over indebted with unsecured loans will quite often find their home loans declined. "It appears that, since the introduction of the NCA, the general public is not necessarily receiving more protection against reckless lending but rather just faster ways of obtaining debt, as lending institutions have developed advanced technology to expedite the approval of an unsecured loan," Mr De Waal said. One recent example is a client whose home loan was declined due to debt impairment and over-indebtedness. Joe (not his real name) borrowed R9,000 from A Bank to pay back a loan taken out from C Bank 2 months ago. The loan from the first bank was a 4 month loan and cost him R2,400 per month. When Joe realised that he was struggling to www.reimag.co.zw
pay the R2,400 per month, he then took out a new loan of R9,000 with another bank, with a repayment period of 8 months, which costs him R1,600 per month. His new monthly repayment is now less than the first loan but in effect the new loan will cost him R12,800 in interest over and above the capital of R9,000 that has to be paid back by the end of the loan term. It will come as no surprise if he borrows a larger amount after 8 months to pay back the balance then due, says Mr De Waal. The rapid increase in unsecured lending increases the debt burden and has a negative effect on the credit profile of the people who are most desperate to own their own home, those who want to buy a house in the price range between R250,000 and R600,000. In the current “affordable home loan” market, for every 1,000 interested buyers, a property developer can expect to convert an average of only 40 into home owners. If you visit your bank or work through a mortgage originator you will find that banks are in an extensive campaign to out-do their competitors to provide more attractive banking packages. However with interest rates being the lowest in many years, in the affordable home loan market more that 65% of all home loan applications are still turned down. Property developers say that they have to sell the same house three times before the bank will approve the buyer for a home loan. The lack of affordability to service the required bond repayments and impaired credit behaviour appears to be the main reason why bonds are declined in the affordable market, such being the case with household incomes below R16 000 per month. Yet these same people are being given unsecured loans of up to R230 ,000. “We deal with declined applications on a daily basis,” says Mr De Waal, who conducted a study over the past four years to show why home loans are declined. He then decided to offer a service to prospective buyers by guiding them through the basic steps on how to buy a home. We realised we needed to introduce education and budget behaviour, which started the concept of ‘Home Owners' Property Education School’. "In the School we show the prospective buyer how to buy a home with reference to the A B C principle, focusing on Affordability, Behaviour and Caste, the latter being the property and or deposit offered as security if required. The home ownership education for the www.reimag.co.zw
prospective buyer is supported by Setsmol, a company specialising in home ownership education for clients of Standard Bank, ABSA, FNB, and Anglo Mines. “The service and experience of Setsmol, which has been involved in home ownership education for more than 10 years, is invaluable,” says Mr De Waal, “as Setsmol has trainers throughout South Africa and can perform the training in most of the official languages.” Mr De Waal said E- Learning, which was recently introduced through the collaboration of another group, expands the service and enables the participant to work through a series of webbased training modules in support of the home ownership education. He says it was realised there was need to enable a client who participates in the education programme to change his credit spending behaviour. "First we discuss the goal of the client and then work out a plan to reach the goal. The goal of the client is usually linked to the purchase price of the property the client wants to buy. "With the client’s collaboration we then analyse and capture the client’s monthly budget and debt exposure through a Budget Calculator.
"The search for mortgage finance by a prospective home owner may start with online research on how to obtain a home loan, as some websites offer home loans even to “blacklisted” customers. " A revised budget will be prepared for the client with the aim of meeting his goal. “Not each goal and time period will be the same as each client has different debt exposure, income and surplus funds that we can work with,” said Mr De Waal. The client usually participates for a period of 6 months or longer in the programme and receives mentorship and education on a regular and structured basis. Gustav Zwiegelaar, of SA Home Loans, uses a simple analogy to illustrate the three basic requirements of a successful home loan application. These are incorporated into the school curriculum to illustrate the basic principles of a credit decision to prospective buyers so as to help them meet the credit requirements of lending institutions. It is called the A B C of a Home Loan application.
SO WHAT ARE THEY? A – AFFORDABILITY A savvy home loan provider must look at all f inancial responsibilities and commitments and see whether there will be sufficient net income to meet these as well as repay a home loan and have a surplus for unforeseen circumstances. This is done by scrutinising bank account statements and salary advices as well as personal credit reports. B – BEHAVIOUR Home loan providers look at how potential clients honour other credit agreements, such as clothing accounts, vehicle purchase agreements, service agreements and so on. This is also obtained from an independent credit report. Specific behaviour is often reflected in bank statements. This may be in the form of good credit balances on the one hand, or returned debit orders on the other. C – CASTLE OR HOUSE Gustav is taking some literary licence here – we know your home is your castle. There has to be sufficient value in the property to at least meet the value of the loan, and preferably a little more. As such the availability of a deposit may improve your chances of obtaining a home loan. However, some banks do offer 100 % loans, depending on your credit and risk portfolio. Gustav says: “If I had money for every time I have been told that there is so much value in an applicant’s property and we can just take it back if the repayments are not made, well, you can guess the rest. "The truth is that we are not in the business of taking and selling homes. We don’t want to. It is important that all three factors are satisfied in order to extend a loan. That is simply a responsible approach."
RESOURCES Oosthuizen & Co www.oostcoco.za
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FINDING
BY REDMOND BYANGIE JACQUES DU TOIT
The Price Is Right Property prices in South Africa
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n t he f i r st qua r ter of 2 01 2 , of f ice vacancy rates in South Africa remained stagnant, leading to unimpressive rental performances. The only rentals that could muster any growth at all were those in Pretoria decentralised (+0,5%). Market rentals in Johannesburg decentralised remained at the same level they were at a year ago, while those in Cape Town (-1%) and Durban decentralised (-2%) contracted slightly. Weaknesses in the manufacturing and retail sectors — the two support pillars of the industrial property market — are likely to continue to place a lid on demand and, consequently, on rental growth. In the first quarter of 2012, only the Central Witwatersrand (at a growth of +10%) was able to buck the trend of poor yearly growth in rentals. In other major industrial conurbations, such as the East Rand (+3%), Durban (+0,5%), the Cape Peninsula (-1%) and Port Elizabeth (-2%) rentals either showed poor growth or contracted 58
when compared to a year ago. On the residential front, the report reveals that nationally rentals on flats and houses grew by 5% and 4% respectively, while those on town houses lagged behind at only 1%. House prices showed mild yearly contractions for the first six months of 2012. This, notes Erwin Rode, is the largest contraction recorded since the 1980s. “House prices last signif icantly def lated during the first half of 2009, after which they rebounded,” he said. He elaborates: “Even amid the uncertain economic times, property investors refused to panic and this was in part due to the fact that, despite an upward trend since 2008, nonresidential vacancy rates are still below their early 21st century highs.” A property’s vacancy rate has a direct impact on the perceived risk to its potential income. This will in turn affect the required income return (capitalisation rate) at which investors will be willing to trade property.
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RESOURCES ABSA Bank www.absa.co.za www.reimag.co.zw
inside
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TUKU THE ICON
MUSIC NEWS
EVENTS
Sung u ra musicia n A l ick Macheso continues to inspire a lot of young artistes. The latest is Baba Manyeruke’s former g uitarist and keyboardist, Herbert Majeke. Majeke and his Takashinga Stars outfit have come up with an explosive sixtrack album that is set to cause a stir in sungura music circles. Listening to the album, one can be forgiven for mistaking it as the work of a giant like Macheso himself; through the ingenious way that Majeke weaves his beat and lyrics. But this does not mean that Majeke is a copycat, in fact he is far from it as he does his own thing in a very creative and refreshing way. The sound quality on the album is top notch thanks to the assistance that Majeke got from Harare’s leading sound systems dealer, Hardsound Pro Audio, who supplied him with some of the equipment he used in recording the album. The album — which was engineered and produced by veteran Peter Muparutsa — kicks off with the track “Masango” in which the musician advocates for the preservation of the environment.
Zimbabwe a nd Za mbia w i l l host the United Nations World Tourism Organisation general assembly as part of President Mugabe’s dream to showcase the countr y as a world of wonders, Tourism and Hospita lit y Industr y Minister Walter Mzembi said. Speaking during a public lecture at the University of Zimbabwe, Minister Mzembi said Zimbabwe would exploit the honour bestowed upon it to develop Victoria Falls to international levels. Minister Mzembi said Government had set aside more than 1 200 hectares of land to develop permanent structures that would increase tourist arrivals in Zimbabwe. Zimbabwe expects more than three million arrivals this year. The target is expected to exceed the 15 million targeted for 2015 after the UNWTO general assembly in August next year.
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Achieve Your Dreams Don't Hold Back Be A Success Rules For Investing
The colossal embodiment of a realisation of the Zimbabwean dream and arguably Zimbabwe’s most prized “export” to the rest of the world, mega musician Oliver Mtukudzi has turned 60, and what a remarkable musical journey the icon has travelled. Tuku, as he is affectionately known by his legion of fans, said he was not motivated to become a musician but was born a musician. “My music, according to my mother, who knew me the longest, started the day I was born. She tells me that my birth cry was the best composition ever for her and when she told me this, I felt I was a musician then," says Tuku. After starting his career backed by the Wagon Wheels decades ago, Tuku has used his gravelly voice as a magic wand to transform those “wagon wheels” to jet wings as he f lies into the music history books. Today, Mtukudzi, known for his compact compositions, characterised by a shifting tapestry of plunking guitars, hoarse lead vocals intermittently spiced with sharp pricking backing vocals and a cross rhythm of the African drum, has become an icon.
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PSYCHOLOGY
BY OBERT TANYANYIWA
Achieve Your Dreams Embrace the art of growth
A
l most ever yone d rea ms. A l most everyone longs to achieve those dreams. Yet few people translate their dreams into reality. Almost everyone remains with the longing for something better unfulfilled. Almost everyone has that desire. Yet few people have managed to unlock and walk through the doors that are preventing them achieving their dream and gone on to embrace it. What keeps people dreaming w ithout achiev ing? W hat keeps people longing for success and not realising it? It is an unwillingness to grow. Growth is essentially an increase, positive movement or more precisely expansion. It requires investment in yourself, in others and in the future. Invest in Yourself Investing in yourself begins by investing in your mind. The mind carries within it the world you are going to live in. If your mind drives you into a world of impossibility, then you’re sure to find things impossible. If it shows you a man of failure, then you’ll surely become one. Everything that passes through your mind is picked up and acted upon by you, whether it be positive or negative. By keeping focused and concentrating your mind on the things you want, you will find that you will attain them quicker and easier than ever before. You must, writes Jim Rohn, constantly ask yourself these questions: Who am I around? What are they doing to me? What have they got me reading? What have they got me saying? Where do they have me going? What do they have me thinking and, most importantly, what do they have me becoming? Then ask yourself 60
the big question: Is that okay? Beliefs about yourself are formed based on the people surrounding you and the familiarity with what's close to you. As one writer put it: “You may succeed if nobody else believes in you but you will never succeed if you don’t believe in yourself.” Africa’s history is often seen as characterised by a failure to conquer its dark areas. Dark areas are areas of ignorance and reluctance. By acquiring information on areas that matter most to you, whether through reading a book, enrolling for relevant training, attending a seminar or simply making a phone call, it becomes easy to strengthen your strengths, weaken your weaknesses and intrinsically identify at once the opportunities hidden in the challenges we face. Conquering our dark areas makes us discover what we are worth, the things we should no longer accept and tolerate in life, all the things we should forgo and all the negatives that we must constantly outgrow. Invest in Others People’s destinies have not only been found in places but also in people. One area that most financial investors have missed is the willingness to invest in people. Human beings carry inexhaustible power, more than stocks can hold. People communicate; stocks do not. People grow; stocks do not. People think; stocks don’t. If then people’s destinies are also in people, how many of us have failed to find fulfilment simply because we did not invest in others? How much have we lost from stock market crashes when instead we could have taken responsibility for the potential in other people
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starved of opportunities that we could have created? What gain, what profit have we made from large corporations when other people’s dreams are suffocating as we waste out countless breaths? The sad story of Africa has its roots in selfcentredness and greed. Successful people, says Brian Tracy, are always looking for opportunities to help others. It is a shame that our continent has preserved a legacy that has not woken up to this call. It is only when we begin to invest in others that we begin to grow. It is when we acknowledge their contribution that we succeed. As Antony Robbins wrote: “It is literally true that you can succeed best and quickest by helping others to succeed.” Invest in the Future Have you ever wondered why vehicle rear view mirrors are smaller than the windscreen? It reflects the greater significance of where we are going than where we are coming from. Investing in the future is having a complete understanding of why certain things happened in the past yet thinking of new and better ways to improve the way those things could be done in the future. Although the past cannot be completely discarded, what we really need to let go of are the thoughts of the losses we encountered there. More often than not our dreams become obscured by the limiting aspects of our past. I do not mean that we should forget our past because where we are today is a direct consequence of our past. Growth comes through learning to deal with the past. It comes from moving quickly on and adapting faster. If we do not adapt quickly, we might as well not adapt at all. It is impossible to control the past but it entirely possible to control the present and the future. By having a bigger picture of tomorrow than of what cannot be recovered from yesterday, you will be mastering the past rather than allowing it to master you. As Antony Robbins said: “It's not what's happening to you now or what has happened in your past that determines who you become. Rather, it's your decisions about what to focus on, what things mean to you, and what you're going to do about them that will determine your ultimate destiny.” www.reimag.co.zw
SMART MOVES
BY JOHN LLOYD
Don't Hold Back How do you handle the sting of rejection?
H
av e you he a rd of Fre d Sm it h? While attending Yale Universit y, Smith wrote a paper on the need for reliable overnight delivery in a computerised information age. His professor found the idea highly improbable and he only received a grade of C minus for his effort, but the idea remained with him. Fred started his express transport business in 1971. The young entrepreneur raised $80 million to launch Federal Express, informally known as FedEx. The delivery service began modestly with small packages and documents. On the first night of operations, a fleet of fourteen jets took off with one hundred and eighty-six packages. One plane carried only two parcels. In the first two years, the venture lost $27 million. In a short time, the company was on the verge of bankruptcy. It appeared that Fred had lost all of his investors’ money, but he succeeded in
“I think all great innovations are built on rejections.”
- Louis Ferdinand Celine
renegotiating his bank loans and was able to keep the company afloat. Smith’s professor at Yale may not have seen the need for overnight delivery, but today’s business world depends on businesses like FedEx shipping all manner of goods around the globe quickly and reliably. His story is a great example of identifying and anticipating a trend, persevering against the odds and, probably most importantly, having the ability to handle rejection. Today, FedEx Express is the world's leading express transportation provider. As of 2007, more than 290 000 FedEx staff worldwide were 62
fielding a fleet of 672 aircraft and 75 000 other vehicles, delivering nearly 8 million packages every business day, to over 220 countries. Fred Smith has amassed a vast personal fortune by enabling the world of business to deliver its goods quickly, any where in the world. Businesses seeking to reduce the costs of maintaining large inventory are increasingly adopting ‘ just in time’ delivery practices, increasing the demand for express services like FedEx. The rise of online commerce and the growth of the global economy are also contributing to the company’s growth. FedEx
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has fully capitalised on both of these trends. Around the globe, communications and transport continue to develop along the lines that the young student Fred Smith predicted in his term paper over forty years ago. Smith’s story of success is a reminder to each and every one of us that there will always be people and obstacles standing in the way of our dreams. History is littered with success stories where people have overcome adversity, negativity and rejection to achieve amazing success. Don’t ever let the moaners and groaners of this world hold you back. Go for it!
RESOURCES Brandstorm www.brandstorm.co.za
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Behind The Beauty A businesswoman and entrepreneur
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vanka Trump, a successful businesswoman and entrepreneur, is the daughter of none other than Donald Trump, the American business magnate with an estimated net worth of $ 2.9 billion. Growing up one of five children of a wellknown and respected businessman, one would perhaps expect no less than success from her or from any of the Trump children. Ivank a Tr ump today is a successf u l businesswoman and entrepreneur in her own right. As executive Vice-President of development and acquisitions for the Trump Organisation, she’s helped rebrand her father’s company into one of the few real estate firms to thrive during the recent economic downturn. In 2007, she launched Ivanka Trump Fine Jewelry, with a f lagship store on Madison Avenue in New York and placement in every fashion magazine. The enterprise is spinning off into handbag and shoe lines this year. Ivanka grew up in the penthouse of the Trump Tower, attending the best schools and travelling the world with her mother, Ivana Trump. With her unique look she made quite a name for herself in her early years with modelling contracts from big names such as Tommy Hilfiger, Versace, Marc Bouwer and Thierry Mugler. After graduating summa cum laude from the Wharton School of Finance at the University of Pennsylvania, Ivanka Trump sought to become a builder. Instead of jumping into her father’s business, she took advice from a college professor and worked for a year as a project manager for another New York real estate tycoon, Bruce 64
Ratner, at his Forest City Enterprises. Remembering her dad’s mantra that “there is no such thing as being early to a business meeting”, she showed up two hours early for her first day on the job. After a successful year at Forest Cit y, Trump moved to the family business as a vicepresident. While it might seem easy to dismiss the daunting beauty as just another rich kid, her accomplishments speak volumes about her determination and hard work. "I know people assume I could coast on what other generations have done before me," she says. "But I know I have to prove myself within the company, to my father and everyone we work with." I ask her if she is ever bothered by having to seek Daddy's approval. "No, I strive for it," she says. "I'd like to say I was bigger than needing it but I'm not. Ultimately, he is my boss and his approval validates everything I'm working on. He is a great real-estate genius. There's no doubt in my mind." Would her father fire her? Ivanka says yes. "It could be for anything. Why do people get fired? You mess up. But ultimately, worse than being fired would be to be demoted. To be diminished, him slowly taking control away because he didn't want to hurt my feelings. Like I didn't do anything bad but I didn't do anything good, either. That would be a nightmare for me," she concludes. "To have this existence of mediocrity. Everything about mediocrity kills me." Ivanka is role model for women of today. Her
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
successful, novel, The Trump Card, recounts the compelling story of her upbringing as the ultimate apprentice, the daughter of Donald and Ivana Trump. In it she shares the life lessons and hard won insights of the beauty with brains.
Lessons from Ivanka • • •
Use uncertainty to your advantage: thrive in any environment. Step up and get noticed at work: focus and efficiency will open doors. Create a strong and consistent identity: your name and reputation are your best assets.
• Know what you want: get the most out of any negotiation. • Don’t settle for mediocrity, strive for more. • Looks can only get you so far, then you need brains as well as beauty. • Don’t put all your eggs in one basket, diversify. • Don’t take anything for granted. Even with her wealth Ivanka still graduated summa cum laude.
RESOURCES Success www.success.com
www.reimag.co.zw
Be a Success If at first you don’t succeed: Then get back on that horse and try again. Failing the first time might mean it’s time to change the way you are working, don’t give up because if you give up then you will never succeed in life.
Focus and determination: If you want something bad enough you will make it happen, but you have to really want it. What drives the most successful people in the world? Their determination to succeed and their focus bring them success.
Don’t stop: Never stop looking for ways to improve, to branch out and to do something new; challenge yourself on a daily basis, the moment you stop improving yourself and your business you may as well pack it up and retire.
Live in the present and the future: With the way that technology and the modern age of living are continuously changing, you cannot afford to be left behind. Keep yourself constantly informed about new technology and things that can aid you and help you create your own success.
Birds of a feather: Birds of a feather flock together. People will judge you based on who you surround yourself with and the people around you have a large impact on you, more than you realize. So if you want to be successful and driven surround yourself with like-minded people who will aid you in your endeavors.
Exit your comfort zone: If you really want to be successful do not be scared of taking calculated risks. Nothing good comes to those who will not embrace change, a comfort zone is where you will stagnate, embrace change and don’t be scared of risk.
If it sounds too good to be true: Then it probably is, don’t believe everything you hear, do your homework and know when someone is feeding you a line. If something sounds too great to be true then the chance is that it is. Due diligence pays off.
It’s the little moments: It’s the little moments in life that make it worthwhile, don’t miss out on them. While hard work is important so is taking time to appreciate life and all it has to offer.
Waste not want not: A popular rule for women is don’t waste the pretty. In much the say way don’t waste your time. Time cannot be bought, recaptured or rewound, so don’t waste it.
Life is not fair: Life is not fair; it never will be, get used to it and get over it. People who play the blame game never get far in life
LESSONS
BY ANGIE REDMOND
Golden Rules For Investing Reap real rewards
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1
What is more important: Return on capital or return of capital? An investment is no good if it goes belly up after two and a half years, even if it has a return of 25% per annum. Make sure your capital is safe. Insure your property against earthquakes, fire and natural disasters
6
Complacency leads to insolvency. Keep your finger on the pulse of the market. Know what’s going on right now and use the information to make decisions about your investments. Deal with challenges as they arise, so if interest rates increase, budget for it.
2
If possible, fix the interest rate on your bond. While it is not always possible to fix the interest rate on your mortgage, where possible ensure you fix your interest rate, this will ensure that when interest rates rise you are not left out of pocket.
7
Maintain a harmonious relationship with your tenants, they are your bread and butter. Ensure you keep the buildings well maintained and your tenants happy. Have a clear line of communication with them and find out how to keep them happy with the premises they lease from you.
3
Property is a long-term investment, so leave your property in good hands and you can literally take a cruise and forget all about it. While a management company handles the nitty gritty, you reap the rewards of the rental income.
8
It just takes the right deal. You can make a lot of money from a single deal. When it comes to commercial real estate it is not always numbers that matter most. The more properties you own does not necessarily equate to the amount you can expect to make. A well-managed and efficient property is better than five poorly run properties.
4
Too many cooks can spoil the broth. The best way to avoid future disagreements is to go it alone. While financially it can be easier to have more than one investor, the more investors the more room for disagreements and the smaller your piece of the profits is.
9
Tenants are your base. The value of your property is based on your tenant’s ability to pay rent. If you cannot find a tenant then your building will not be worth much. Your ability to acquire a portfolio and gain value from the subsequent portfolio depends on your ability to secure stable, long- term tenants.
5
At some point litigation will become a reality, no matter how hard you try. When this becomes a reality, try to think of creative problem solving mechanisms that will allow you to either salvage what you can or exit with the least amount of profit lost.
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10
Fast money might not be honest money. Deal with ethical people. You may not make money as fast as if you deal with unscrupulous people, but it will last longer and you will feel better about it. Fair and above board dealings last and generate good business associates. www.reimag.co.zw
A Y E H ake you drive well m o t ven Dr i
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GETTING STARTED
7 Deadly Sins
Of Property Investment
T
here are a number of basic rules to keep in mind when investing in property, particularly if one is a first time buyer. These can be consolidated into seven basic do’s and don’ts. Don’t be in a hurry South African real estate executive Adrian Goslett says the first step to property investment is taking the time to do the necessary research. “Rushing into a property deal without having spent the time to complete the appropriate research could cost the buyer dearly in the long run,” he says. “As the mantra goes – knowledge is power. If a buyer has done the research he will have a greater understanding of the market and will be able to recognise an opportunity when it arises.” Don’t take the first deal on the market. Shop around. Take time to compare similar properties in an area and then see what other options are available on the market. Look at the price of the property and compare this to the value. Get an estate agent to provide a comparative market analysis of the area. Don’t ignore the location We have all heard it – location, location, location. Goslett says that the importance of buying in a prime location cannot be over emphasised. 68
“Simply put, a property in a bad location will never fetch a premium price, even in a boom period,” he said. “Choosing the right location is essential when making a property purchase. Buyers should look for areas that are in proximity to a good range of amenities. “Areas that consistently show steady growth in value are those that are near to business nodes, transport routes, good schools and shopping centres. “While rental income is important, the primary goal should be capital growth.” Don’t make assumptions Don’t take what you see at face value. It is always advisable to have a professional home inspector take a look at the property. “A professional inspector will be able to spot any problems that may otherwise go unnoticed, such as the structural integrity of the property. It may cost money to hire an inspector but this could save a lot more money for repairs in the long run,” says Goslett. Don’t do this alone Rather learn from other people’s mistakes than your own. Goslett says new buyers should have an experienced property investor as their buying mentor. “A knowledgeable property investor that has
1st Quarter 2013 Zimbabwean Real Estate INVESTOR
been in the game for some time will be able to show a new buyer the ropes and guide them through the process,” says Goslett. Keep an eye on the budget Perhaps one of the deadliest sins is not keeping track of finances and debt. According to Goslett, investors should undertake an in-depth budget and cash f low analysis in order to ascertain their accurate financial position. “Know what you can afford and what you can’t, which can be measured by completing a personal cash flow statement.” says Goslett. He adds that buyers should compare financing deals from various financial institutions before deciding to secure their home loan. Securing a loan will be an intricate part of the purchasing process. Buyers should also bear in mind that most banks still require a 10% to 30% deposit. This, coupled with the fact that a loan will increase the cost of purchasing property, makes choosing the right lender essential to ensuring a good return on investment. Proper maintenance A large element of purchasing a property is the ability to maintain the property to protect your investment. Whether the property is bought as a primary residence or as part of a rental portfolio, keeping the property in good order is a vital part of ensuring a good return on that investment. “Buyers should include maintenance costs as part of their budget and plan. They will also need to ensure they have the time or capacity to properly manage and maintain their property. “With a rental property, a management agent can be hired to make sure that all repairs and general management are taken care of,” says Goslett. Don’t put all your eggs in one basket W hen buy ing proper t y specif ica l ly for investment purposes, it is imperative to diversify your portfolio, says Goslett. This will largely minimise exposure to risk. Buyers should try to buy different kinds of properties in various areas, rather than buying a few properties in one development.
RESOURCES RE/MAX www.remax.co.za
www.reimag.co.zw
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