Inflation stifles long-term property investment: FBC

Oliver Kazunga, Senior Business Reporter
FBC Holdings says investment in the property sector has remained subdued due to lack of long-term funding by the local financial services sector.

The Zimbabwe Stock Exchange-listed group, which is heavily involved in the property sector through its subsidiary, FBC Building Society, said long-term funding was hard to get owing to inflationary pressures.

“Investments in the sector were lower as long term funding became illusive owing to inflation. Residual activity was on residential properties whilst commercial real estate suffered lack of investment due to weak demand,” FBC Holdings chairman, Mr Herbert Nkala, said in a statement accompanying the group’s financial results for the year ended December 31, 2019.

During the period under review, rental yields remained low while occupancy levels were also subdued as businesses continued to rationalise space.

However, Mr Nkala said the property sector remains one of the hedging options available in light of the inflation levels.

“The group targets to contribute to the national housing stock by developing high and medium density units in 2020,” he said.

Meanwhile, Mr Nkala said despite the group recording a profit before tax of $529,4 million and a profit after tax of $295,9 million in historical terms, the performance was in inflation adjusted, which in the primary reporting basis translates to a profit before tax of $168,8 million.

Based on the above, a loss of $363,3 million was recorded.

“The inflation adjusted loss arises mainly from the erosion in purchasing power of the group’s net monetary assets, the holding of which is inherent in the group’s main business model,” said Mr Nkala.

“This was also compounded by the incapacity to reprice products and services to match hyperinflation due to regulatory constraints that stipulate that a minimum notice period of 30 days before any banking products are repriced.”

During the period under review, the group recorded total income of $1,6 billion registering a growth of 37 percent compared to the previous year’s inflation adjusted performance.

Mr Nkala said the commendable total income was, however, counteracted by a significant monetary loss of $408,9 million compared to the previous amount of $316,5 million.

He said the amount represents the effect of inflation on net monetary assets of the group.

On the outlook, Mr Nkala noted that key economic statistics point to a weak economic environment as the country is vulnerable to exogenous and indigenous factors.

“Policy consistency and sequencing remains pivotal in turning around the economic fortunes.

“The group will continue to adapt its various business models to the environment in order to further consolidate its position in the market,” he said. — @okazunga