Real estate agents are complaining that the three-tier pricing system in Zimbabwe is affecting the property market as it results in properties being valued at low prices. This means that real estate agents now generate low income.
The three-tier pricing system is whereby one is charged different prices for the same commodity, all based on the method of payment being used. In this case it’s the USD, bond note, EcoCash or swipe. The payment methods will differ, based on the percentage premium attached to each. Now this three-tier system has hit the real estate agents offices and is costing them significantly.
Ever since the three-tier system organically developed, properties have become expensive as prices of properties are increasing by the day. Residential stands are now sold at different prices depending on the kind of payment method one will be using, if one uses USD or bond then the payment will be less compared to one using plastic money and mobile money.
Dawn Property Consultancy General Manager, (Valuation and Advisory Services), Kudakwashe Chadambuka said prices have gone up due to the three-tier system and this has affected property market. Kudakwashe recently spoke in an interview on Capitalk FM:
Stands in Mt Hampden upper market residential area are being sold at $40 per square meter. If the payment for the same area is to be done through swipe or bond notes, it rises to $64 per square meter and has actually affected the property market. When you look at your commercial properties there are a function of the rentals that you realize from an investment, but as we speak at the moment rentals are depressed and we have a situation where rentals and capital values are not related at all, which is an abnormal situation”
The property company’s Head of Sales and Development, John Kondo complained that demand was out stripping supply and that there was a lot of liquidity in the market.
You find that the bids that actually go in the market particularly for those transaction that can be done using the RTGS or transfer, are the ones which are actually moving the prices up and contributing to this demand.”
Essentially what he said is that those who for some reason find themselves with too much money in their bank accounts have one option alone: convert that money to a more stable form as fast as possible. Buying fixed property becomes the most intuitive thing to do. As more people execute this option, the property prices go up in response to that demand.
The three-tier system pumped up steroids last year in September due to the cash crisis, as the USD was no longer in circulation like it used to be. The system was then adopted all around the country by retailers, shop owners, house owners and more.
I used to pay $100 as rent for a room, but one day my landlady called me and said if I wanted to continue paying the same amount I would have to pay it in cash. For some time I looked for the cash to give her until even the bond notes became scarce. I then figured my only option was to offer to pay using EcoCash instead.
Of course she agreed to it but only on condition that I include the “extra charges”, which would mean adding an extra $20, thus making my rent move from $100 to $120 just because I was using a different payment method. Daylight robbery, right? That’s the country that we live in.
Electronic transactions now attract +/-50% premium for goods or services rendered. Real estate agents spoke on factors affecting property value:
Market values for residential properties are a function of what similar properties have recently sold at, aspects like location, size and quality also come into play. Market values for commercial properties are a function of market rentals and yields. Looking at this market, lets split it into two – you have got an existing stock market, which is what we call your secondary market stock and then you have got a new stock that come on the market.
So with existing stock, it’s a demand and supply situation as to what the bidder is willing to pay against the asking price. But with the new stock, you realize that its actually on a cost plus margin basis of course not forgetting the VAT aspect of it, so you will find that two properties in the same locality, one being new and the other one in secondary market stock will have different prices.
Dealing with the three tier system now could not be as easy as one would think. To be honest, this is likely to continue until the country’s cash flow improves. At this rate, who knows when that will happen? The RBZ governor says no such distortions exist, if he’s in denial then who’s going to fix the distortions?
So sad to say, but real estate agents: welcome to the show.