adminedition of United Kingdom-based Money Week magazine, a similar question was posed to a financial analyst whose response was in the affirmative although his main analysis and worry with property investment as a sustainable tool was with the debt leverage.
The lack of equity in the UK property market and the flagrant abuse of the mortgaged buy to let option results in property investment companies becoming bankrupt given the volatility of the contemporary financial markets, their unpredictable movements and their susceptibility to regional and international market movements.
The analyst fell short of calling a spade a spade, in that it is an accumulation of false wealth given the length of the mortgage periods with 25 years being a standard period.
This may be the position in most developed countries, but the critical question for us is, what is the position here in Zimbabwe?
We have experienced different economic and financial movements after our independence than most of our neighbours.
Our system at the moment is mostly cash based with minimum short-term loan finance available to finance either real estate or other investment modes.
One cannot carbon copy situations in other economies and pastes it to our own. A different approach in reasoning has to be applied to our specific system.
An analysis of our tradable property in the last 13 years shows that even in the worst financial periods, our property prices were consistent with inflation although sporadic opportunities were available for the financially proficient to purchase properties utilising the push factors existent at particular periods.
Such push factors in my opinion were seasonal and did not justify the wanton disregard for financial investment wisdom that resulted in some below market value sales.
It was, however, beneficial for those with foresight to accumulate assets that one may justifiably equate to gold bars.
This analysis is not premised on the investment return of principal private home.
This property although it is an investment, it is hardly utilised to take advantage of market movements through either selling or renting.
It cannot be classified strictly in the investment sense because it hardly adds money in the pocket of the owner in their lifetime.
The window for argument, however, remains open when one thinks of money saved through non-payment of rentals or liquid capital acquired through mortgaging of such property.
However, the author intends to use literary privilege not to qualify this property type as an investment.
We will compare property investment of two other modes of investment that where prevalent at the specified time.
If one looks at the accumulated wealth that was lost through savings because of the “inflation monster” we experienced in our economy which literally “ate” away years of people’s hard-earned money, it was huge.
This situation was not just particular to Zimbabwe but it has been experienced and can still be experienced by any economy in the world.
When one saves money at an interest rate, their expectation is that the rates will remain firm until they transfer it to a more sustainable investment mode.
It is surprising how banks and pension funds utilise investment monies (savings or pensions) to purchase long-term investments like real estate that offer a sustainable return on the investment that can be adjusted with inflation.
It is noteworthy that inflation must always be factored in even when it is as low as 3 percent per annum because it adversely affects the interest offered on your liquid investments regardless of the percentage it is offered at.
Zimbabweans who had foresight to purchase real estate in the post-independence years and to some extent pre-independence era are benefiting from the market-driven rental prices which remain competitive especially in the residential areas which is driven by a high demand.
There is also a huge benefit resulting from the increase in market value of most houses in old and established areas.
The same people are now reinvesting in new trends of real estate and are in positions of buying low and selling high because of the availability of liquid income accrued through rental collection.
Some areas are benefiting from rapid commercialisation increasing the property demand in such areas.
The financially savvy are selling and purchasing properties where others are hesitating to invest because of political or economic fundamentals.
Given the above it is therefore not remiss to compare real estate with gold.
With rentals demand remaining high one is assured of a good return on investment.
Vengai Madzima is a property investment consultant and writes in his personal capacity. He can be contacted on 0772468093 or email: [email protected]
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