By Economist Stevenson Dhlamini
HARARE – ZIMBABWE’S rising property prices are driven by strong demand, constrained supply and limited affordable financing, making housing comparatively expensive relative to some regional markets, though policy interventions in mortgage accessibility, local material production, and infrastructure could improve affordability.
Recent reports of rising property prices reflect sector-wide trends, particularly in urban and peri-urban areas. Several interconnected factors are driving this upward movement.
Robust Demand, Mismatched Supply
Investment Haven: Real estate is increasingly perceived as a secure, long-term investment strategy, particularly in an environment with historical currency volatility. Property is considered a tangible asset that preserves and, in many cases, appreciates in value, offering a hedge against inflation.
Diaspora Remittances: A significant and growing driver of demand comes from the Zimbabwean diaspora. Remittances provide a substantial source of foreign currency, which is often channelled into property acquisition, either for personal use or as an investment for rental income. This influx of USD-denominated funds creates strong buying power.
Urbanisation and Housing Backlog: Zimbabwe faces a substantial housing backlog, estimated at over 1.2 million units. Rapid urbanisation in major cities like Harare and Bulawayo consistently outstrips new housing supply, creating a seller’s market where demand consistently exceeds available properties.
Limited Land Availability: In prime urban areas, there is a shortage of readily available and serviced land for new developments, which further constrains supply and drives up land costs, ultimately impacting final property prices.
Escalating Supply-Side Costs
Imported Raw Materials: A significant proportion of construction raw materials (e.g., steel, tiles, specialised fittings) are imported. This makes construction costs highly susceptible to global price fluctuations, currency depreciation, and import duties, directly feeding into higher property prices.
Supply Chain Bottlenecks: Inefficiencies and logistical challenges within the construction value chain contribute to increased costs and delays, pushing up the final price of developed properties.
Infrastructure Costs: Developers often bear the burden of providing essential off-site infrastructure (roads, water, sewage, and electricity) in new developments, especially in emerging suburbs. These significant costs are ultimately passed on to the buyer.
USD Premium and Limited Financing
Dollarization of the Market: Despite the introduction of the ZiG currency, a significant portion of the property market, particularly for higher-value properties, operates in US dollars. This “USD premium” means properties are priced to retain value in a stable currency, making them more expensive for those earning in local currency.
Scarcity of Affordable Mortgages: Mortgage penetration in Zimbabwe is notoriously low. High interest rates (often 15-30%), short repayment terms (3-5 years), and stringent requirements make conventional mortgage financing inaccessible for most potential buyers. This forces a reliance on cash purchases, further empowering those with access to foreign currency (including the diaspora) and driving prices beyond the reach of the average Zimbabwean.
The perception that buying or building property locally in Zimbabwe is comparatively more expensive than in many other countries in the region is largely accurate.
Several key factors contribute to this disparity:
Cash-Based Financing Model: As highlighted, the predominance of cash purchases in Zimbabwe due to limited and expensive mortgage financing is a major differentiator. In many regional countries, more robust and accessible mortgage markets with lower interest rates and longer repayment periods significantly reduce the upfront and long-term cost of property ownership. This allows for broader participation and can exert downward pressure on overall pricing.
High Cost of Borrowing: Even for the limited mortgage options available, the cost of borrowing in Zimbabwe is significantly higher than in many neighbouring countries. This translates into higher monthly repayments and a greater total cost over the loan’s lifetime, making property less affordable.
Import Dependency for Construction Materials: While many countries in the region may also import some construction materials, Zimbabwe’s reliance on imported inputs for a wide range of essential building components, coupled with higher import duties and logistical costs, drives up construction expenses. This contrasts with countries that may have more developed local manufacturing capabilities for basic materials.
Economic Volatility and Risk Premium: The Zimbabwean economy has experienced periods of significant instability and currency fluctuations. This inherent risk leads to a “risk premium” being factored into property prices and construction costs, as sellers and developers seek to protect their investments against potential devaluation or economic shocks.
Regulatory and Transactional Costs: High legal fees, transfer duties (e.g., 4% transfer duty), capital gains tax (20%), and other municipal levies can add a substantial percentage (often 10-15% or more) to the overall cost of acquiring property in Zimbabwe, potentially higher than in some regional counterparts.
Infrastructure Deficits: As mentioned, the burden of developing essential infrastructure often falls on private developers, who then pass these costs to buyers. In some regional countries, state-provided or subsidised infrastructure development can reduce the final cost of properties.
The outlook for the local property sector in Zimbabwe remains bullish in the medium term, particularly for well-located, quality properties and those catering to the diaspora market. The underlying demand for housing, fuelled by urbanisation and remittances, is expected to persist. However, the sector will likely continue to be characterised by high prices and limited affordability for the majority of the local population unless significant policy interventions are made.
To address current challenges and unlock the sector’s full potential for broader accessibility, the following policy changes would be highly beneficial:
Enhance Mortgage Market Accessibility and Affordability:
Interest Rate Reduction and Longer Tenures: The Reserve Bank of Zimbabwe and commercial banks need to work towards a stable macroeconomic environment that allows for significantly lower interest rates and extended mortgage repayment periods (e.g., 15-20 years or more).
Government-Backed Mortgage Guarantees: Implementing government-backed mortgage guarantee schemes could reduce risk for lenders and encourage them to offer more favourable terms, particularly for low- and middle-income earners.
Promote Local Currency Mortgages: While USD mortgages are prevalent, policies encouraging the development of stable ZiG-denominated mortgages with attractive terms would open up the market to a wider local demographic.
Address Supply-Side Bottlenecks and Reduce Construction Costs
Incentivize Local Production of Building Materials: Targeted tax breaks, subsidies, or investment incentives for local manufacturing of key construction materials (cement, steel, bricks, roofing) would reduce import dependency, stabilize costs, and create jobs.
Streamline Regulatory Processes and Land Allocation: Simplifying and expediting the processes for land acquisition, development approvals, and title deed issuance would reduce administrative costs and delays, encouraging more rapid development. The current system where land is often sold to “land merchants” who then inflate prices before developers acquire it needs review.
Public-Private Partnerships for Infrastructure: Increased state investment in essential off-site infrastructure (roads, water, sewerage, electricity) in new development areas, through effective public-private partnerships, would significantly reduce the cost burden on developers and, consequently, on buyers.
Targeted Affordable Housing Initiatives
State Investment in Low-Income Housing Support Schemes: Beyond just facilitating, direct state investment or significant funding support for low-income housing projects is crucial. This could involve direct construction, land provision, or subsidised financing mechanisms for affordable housing units.
Tax Incentives for Affordable Housing Developers: Provide meaningful tax breaks and concessions to developers who commit to building affordable housing units, ensuring a portion of their projects caters to lower-income segments.
Review of Capital Gains Tax and Transfer Duty: A review of these taxes, especially for primary residences or first-time buyers, could make property acquisition more affordable.
Macroeconomic Stability
Currency Stability: Continued efforts to achieve and maintain currency stability (whether ZiG or another currency) are paramount. Predictable exchange rates reduce the “risk premium” in property pricing and foster a more stable investment environment.
Controlling Inflation: Sustained efforts to control inflation will contribute to more predictable costs for construction and a more stable environment for long-term property investments. By strategically addressing these policy areas, Zimbabwe can move towards a more inclusive and sustainable property market that benefits a broader segment of its population while continuing to attract vital investment.
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