The Sunday Mail
Kura Chihota
Internationally, real estate is an important player in capital formation, the process of taking the nation’s savings, investing them in assets and producing economic activity during the construction, financing, and operation of finished real estate assets.
The 2021 Budget presented by the Finance and Economic Development Minister Professor Mthuli Ncube, has a range of impacts for three categories of participants addressed in this article in the real estate market:
1. Investors
2. Realtors
3. Tenants
This article briefly highlights the likely impacts on these categories of the pronouncements in the Budget speech.
The outright winners are the investors, who can now access capital incentives for new developments and enter tax friendly Real Estate Investment Trusts where earnings will be exempted from corporate tax subject to specific criteria.
Self-employed realtors will now face a presumptive tax of $1 million per month if their tax records are not up to date. The tenants renting properties face a US$30 per month presumptive tax.
Budget addressing the
macro-economic situation
Broadly speaking, the targeted 5 percent GDP growth rate, coupled with a 1 percent month-on-month inflation rate from 2021 in line with National Development Strategy 1 is bullish for the property market.
Real estate as an asset class does well in inflationary times as evidenced with any corporate entity holding real estate assets enjoying asset appreciation, but the real value is rental earning and steady capital growth providing total returns in excess of inflation as economic activity drives rentals and values ever higher.
If the budget projections materialise, a reversal in the growth rate for construction activity of -14 percent in 2019, -12 percent in 2020 could have an inflection point in 2020 with +7 percent in 2021 and +5 percent in 2022 growth and give real estate a place of prominence in the economy by adding construction jobs, increased rates base for municipalities with new properties to levy and new modern space for tenants to occupy.
Increased banking activity in a stable interest rate environment can breathe life into the current moribund lending to real estate sector. Whereas developed countries enjoy greater that 60 percent of the population owning the homes, they live in underpinning personal household wealth, Zimbabweans in Harare owned 29 percent of the real estate in which they lived as measured in the last census and elsewhere remain sitting with underleveraged if not “dead” capital assets with a tiny fraction of real estate assets being mortgaged or participating in the financial market. The Budget Statement shows 2,1 percent of all loans extended in Zimbabwe are mortgages and 0,4 percent lent to the construction industry.
Housing vs houses
While the budget repeatedly mentions “housing and houses” it would be apposite for the Ministry of Housing and Social Amenities to broaden the focus to understand and impact the neighbourhoods around houses and address the environmental challenges putting pressure on affordable housing.
Many housing units, even within municipal boundaries, sit on under-serviced ground with poor untarred roads, hand operated wells at the front and pit latrines at the back.
Housing as an asset class could crowd in investors without the State having to fund everything from land servicing, capacitation of municipalities and delivery of top structures.
Social housing globally is a vehicle where patient capital can be used to provide investment shelter by subsidising either the capital cost or operating costs of real estate for economically vulnerable members of society. The $912 million allocation is a start and smart partnerships could boost the bottom end of the market.
Taxing tenants and
service providers
Tax compliance is a societal obligation and broadening the tax net for all should result in an overall improvement and greater revenues to spend on social amenities.
The focused tax on SMEs place a significant administration on landlords who are expected to collect revenue on behalf of the State.
A likely impact is for tenants to rather step out of the market arrangements where they are monitored and trade “off the pavement” with attendant negative effects on pedestrian traffic flow.
The biggest proposal for real estate practitioners is the presumptive tax placed upon realtors at $1 million.
Realtors have lumpy cashflows and in the current environment, living deal by deal, they can rarely break a barrier of earning $100 000 on a regular basis monthly as a gross earning.
The Deeds office is operating on reduced staff due to Covid-19 and the surveyor general’s office operates 4 days a week, currently further impacting on sales and transfers the realtors need to earn their commissions.
Kura Chihota is the general manager of CBRE Excellerate, the Zimbabwean office of the Fortune 500 CBRE global network of 150 000 property professionals. He has 29 years of experience in real estate across SADC with 10 years as a director of listed REITS in South Africa and deputy chairman of the Johannesburg Housing Company and writes in his personal capacity. He can be contacted on [email protected] / 0718 791 700.
