Thinking about investing in real estate? Here's what you need to know about real estate benefits and why real estate is considered a good investment. The benefits of investing in real estate are numerous. With well-chosen assets, investors can enjoy predictable cash flow, excellent returns, tax advantages, and diversification, and it's possible to leverage real estate to build wealth.

Real estate is a rare investment vehicle. It provides people with a place to live while working as an investment.  What's more, this investment offers a very powerful wealth-building combination of returns. Real estate is a more concrete and tangible investment than something like stocks or bonds, which are essentially just pieces of paper. It can generate income through rent or lease payments, which can provide a steady stream of cash flow for investors.

Real estate can provide diversification of assets in an investment portfolio. Real estate investment gives an investor control over the property, which allows them to make improvements, change tenants or use the property for other purposes. It can appreciate in value over time, providing investors with the potential for significant capital gains.

The Zimbabwean real estate market is a volatile, with results heavily impacted by macroeconomic factors. Endogenous and external inflationary pressures continue to exert a considerable and direct impact on the local currency. This will have a detrimental impact on consumer disposable income, business profitability, and demand for commercial rental space.

The Zimbabwean government planned in 2022 to spend ZW$1 trillion (about US$1 billion) on infrastructure in 2023, economic stability is likely to materialize in five to 10 years, the interim being years of policy consolidation by government and anchoring regulators. Meanwhile, the greatest economic hurdles impacting Zimbabwe real estate are hyperinflation, currency depreciation and a dearth of long term financing, exchange rate risks and high interest rates. Most landlords are grappling with high debtor balances as many businesses have failed to consistently pay their rentals over the last few years.

The retail market has been hard hit by current economic challenges. There also seems to have been a noticeable shift to online shopping by consumers, undermining the business model employed by a large majority of landlords across the market. Again, a growing number of informal traders and vendors in cities and towns are driving traditional formal tenants out of business. In a bid to manage cost and fight competition, tenants are being forced to downsize or close, leading to excessive supply of space in the commercial lease market. With the yield ranging between 5 and 7%, Zimbabwe ranks as the lowest in SADC.

Unavailability of mortgages and high cost of borrowing in Zimbabwe has left many landlords stuck with unattractive old warehouses on the other side of the segment, driving commercial tenants to switch to owner-occupied warehouses and spaces.

Arguably, this has also been an incentive to local property investors to promote REITs to generate some liquidity from underperforming assets.

Office space market

The ongoing shift to suburban areas like Newlands, Eastlea and Milton Park is dampening the office space market in the Harare business centre for instance, and the same can be observed in other cities. Operators are converting their houses into offices to cut expenses and maintain profitability. At an average of 7%, the yield is marginally lower, translating to low cash flows relative to neighboring countries that are yielding over 9% per annum.  Meanwhile many suburban shopping malls across the country have struggled to retain the traffic they typically attract in their first few months of launch.

Residential property market

Most sellers prefer to get paid only in foreign currency due to continuous currency depreciation right at the time when the country is faced with serious foreign currency shortages.  Hope for residential property sellers is now pinned on Zimbabweans in the diaspora and those that are working in executive roles. 

Although accurately priced properties tend to sell quickly, well-informed buyers typically purchase properties at an average price of 80% below the asking price. Sellers should ensure they set realistic asking prices to avoid disappointment. As buyers are influencing asking prices, it is safe to say that it is a buyer’s market at the moment. Local residential buyers tend to look for more affordable properties and flexible payment terms, such as serviced residential stands and properties with title deeds. 

High-income earners favor residential properties that provide more comfort and security, such as luxurious homes, secured gated communities, and cluster homes. High-density buyers typically look for affordable housing options and therefore tend to buy properties in the lower price ranges. This demographic primarily consists of civil servants, mining workers, and employees who benefit from Employer Assisted Mortgage Schemes. 

Medium-density buyers include emerging entrepreneurs, farmers, young couples, miners, and business executives. Low-density buyers are typically affluent individuals seeking opulent homes that provide comfort and security. This category includes diasporans, tenderpreneurs, senior civil servants (government officials), and business executives. The price ranges for suburban properties by density are:

High-density suburbs: USD17, 000 to USD40, 000

Medium-density suburbs: USD50, 000 to USD120, 000

Low-density suburbs: USD150, 000 to USD1 million.

To achieve desired results in the Zimbabwe real estate market, individuals must make note of the following:

• To avoid overpricing, sellers should ensure they are well informed of the current market trends and property prices, as well as be on their guard against unethical Property Practitioners who manipulate property prices. 
• The lack of a standardized pricing system leaves buyers with the challenge of overpaying, while also failing to understand the importance of working exclusively with a trusted Property Practitioner. Education is key - buyers can explore a variety of expert real estate resources to equip themselves for buying property.  
• Buyers looking to invest in new developments should also be aware of a common and unfortunate trend: developers often compromise quality to reduce costs and time.
• For landlords, recovering outstanding amounts is often a challenge. Late payments and defaulting tenants are not uncommon. To combat this issue, landlords should make rental investments wisely, ensure proper vetting for prospective tenants, and plan ahead to ensure they have sufficient funds in case of unexpected issues.