MASHONALAND Holdings says Government’s decision to extend the use of US dollars for transactions in the economy up to 2030 will not significantly enhance property sector performance, as the sector requires long tenure capital beyond seven years.
Late October this year, President Mnangagwa extended the use of US dollars to calm market concerns and panic about a possible policy change in the nation’s multi-currency regime.
He announced that the Government would be maintaining the multi-currency regime for five more years from the once-earmarked 2025, a development that has been extensively cheered by sections of the business community.
The Government had set timelines for the use of the multicurrency regime, particularly the use of the US Dollar as legal tender at the end of 2025.
Apparently, the scheduled expiry of the multi-currency system in the economy was now prompting banks and financiers to be hesitant thus restricting long-term loans that stretched past the 2025 deadline to individuals and businesses. However, some still feel the extended period is not enough.
In an interview, Mashonaland Holdings managing director Gibson Mapfidza said the seven-year window was not enough to finance long-term real estate and infrastructure.
“There is still a need for the country to have a long-term position on its currency to enable matching of capital repayments to typical long-term investments such as public infrastructure and commercial real estate developments.
“The seven years window created by S.I. 218 of 2023 falls short of facilities required for long term real estate and infrastructure projects.” Mapfidza said.
He indicated that the extension of the multi-currency regime was likely going to minimise uncertainty and risk associated with the currency conversion which was looming.
Prior to the extension, mortgages if available were mostly in USD, with the tenures limited to around two years which was in line with the provisions of SI 118A of 2022 which embedded the multi-currency system until the 31st of December 2025. The decision to extend the multi-currency system was made in response to growing concerns about the stability of the Zimbabwe dollar.
The Zimbabwe dollar has been shedding overtime and many businesses and consumers are making lesser use of it. The extension of multi-currency system is expected to boost confidence in the economy and encourage investment as it will also make it easier for businesses to plan for the future and manage their finances.
“Uncertainty on currency post 2030, has a direct bearing on availability and cost of long-term capital.
Therefore it is expected that correctly priced and tenured real estate funding will remain limited” Mapfidza added.
The combination of hyperinflation and foreign exchange controls has made it very difficult for Zimbabweans to obtain mortgages. As a result, the mortgage market in Zimbabwe is very small. In 2021, the total value of mortgages outstanding was just 0,03 percent of GDP.
The Government has in the past taken some steps to improve mortgage funding.
In 2020, it launched a mortgage guarantee scheme to encourage lenders to provide mortgages. The scheme provides a guarantee of up to 50 percent of the value of a mortgage, which should make lenders more willing to lend.
However, the mortgage guarantee scheme has not been very successful so far.
In 2021, only 24 mortgages were guaranteed under the scheme. This is because lenders are still reluctant to provide mortgages due to the risk of hyperinflation and the difficulty of accessing foreign currency.
Meanwhile in its trading update for the quarter ended 30 September 2023 the company’s top line increased by 167 percent to $15, 7 billion driven by increased space absorption in the portfolio and project sales.
Revenue surged by 36 percent In USD terms from US$3, 3 million in the prior comparable period to US$4, 6 million as the group is now earning 74 percent of its revenue in foreign currency.
As a result, the group managed to offset the losses that come with Zimbabwe dollar rentals. In the same quarter, operating profit increased by 42 percent driven by the surge in revenue performance.
On its property development projects the Groups Milton Park Hospital facility is expected to start generating income under the long-term lease from January 2024.
Looking ahead Mashonalnd Holdings is set to stick with its portfolio diversification strategy as works on the Pomona Wholesale Centre is on course to be completed by the fourth quarter of 2024.