Real estate and the liquidity crunch

Jaqueline Sande
The introduction of the United States dollar brought about stability into the country’s real estate industry following a hectic period of hyper-inflation. The pre 2008 hyper-inflationary environment left many homeless as the value of their properties vanished overnight having disposed their properties in the local currency whose value was uncertain as it kept being devalued.

THE current liquidity crunch has brought back memories of the pre 2008 era where properties, investments and savings were lost due to hyper –inflation and the subsequent dollarisation.

Offshore payments
The United States dollar has all but disappeared from the economy, leav­ing people to rely heavily on electronic transactions and plastic money. In real estate, it has become a seller’s market, as those disposing of their properties are now determining the pace of the market.

In spite of the fact that this has been pronounced to be illegal, most ssellers are now demanding offshore payments for their properties.

It is very difficult for the government to control or detect this where parties are in agreement.

However payments made offshore have their own complications. It may compromise the rights of both par­ties where there is a dispute amongst the parties.

Whilst the transaction was con­cluded in Zimbabwe, it may be diffi­cult to enforce any judgment to recover funds which are in another jurisdic­tion.

Typical of Zimbabweans, the demand for offshore payments has become a sort of fad, even though sometimes the seller has never been outside Zimbabwe and has no inten­tions of ever residing outside Zimba­bwe.

Most people are oblivious of the complexities of multi-jurisdiction transactions in terms of application of law, determination of which courts have jurisdiction to hear the disputes and enforcement of any judgments.

Hard cash
It has now also become common to hear the term “hard cash” in the real estate industry. Sellers often prefer strictly United States dollars.

Buyers of properties amounting to hundreds of thousands of dollars are expected to pay for those houses in hard cash.

Only in Zimbabwe! Where else is one expected to pay for such huge transac­tions in hard cash? Not to mention the inherent dangers in such a transaction.

Carrying huge amounts of cash is a huge risk and all the money could be lost at once. Secondly in such transac­tions, money often exchanges hands before the property is transferred into the buyer’s name.

Ordinarily, the purchase price is to be kept in the conveyancer’s bank account until the title deed is passed in favour of the buyer. This is to secure both the buyer and the Seller’s inter­ests.

This protection is removed when parties opt to transact in cash thus exposing either party to the danger of being duped either of their money or their property.

Investing in real estate outside Zimbabwe
Yet some have opted to dispose of their properties in Zimbabwe in order to buy properties in other countries.

This is a good option for those who are well versed with the countries in which they are investing in or are prob­ably also residing in those countries. But for those people who are normally resident in Zimbabwe this is not advis­able.

Managing a property locally can be difficult and even more so when the property is outside Zimbabwe. Sec­ondly, it may make sense to invest in real estate outside the country when one is amassing a big portfolio of prop­erties not just a single property.

In the event of one’s demise, one’s beneficiaries might also find it diffi­cult to manage, access and dispose of properties which are situated in other countries.

Furthermore, the current liquid­ity crunch does not really affect the value of properties in the long term. Real estate is a long term investment, when the situation normalises owners will retain the value of their properties.

Therefore it is not recommended to sell for the purposes of investing in real estate in other countries unless if one actually resides in that country and is conversant with its laws in respect of real estate.

Adjusted pricing
There are those who have local debts and obligations to settle and have cho­sen to sell using the electronic mode of payments. This is a way safer mode of transacting.

However this category of sellers often fears under- valuing their prop­erties owing to the multi-tiered pricing system prevailing at the moment. The local transfer prices are often pegged higher than the hard cash and offshore prices.

This creates a distortion as the price is still pegged in United States dol­lars and can sound ridiculously high. Property valuators tend to reject these prices as being distorted.

This is a catch twenty two situation for both parties. How do they find middle ground? Furthermore one who buys the property for this dis­torted price may be reluctant to sell when the situation normalises as they may appear to be making a loss.

This has happened before when the country first dollarised, prices were ridiculously high but as soon as the situation settled, losses were taken.

Mortgage bond
The mortgage bond is the least acceptable mode of payment for properties at the moment. To their credit, banks have not ceased issuing out mortgage bonds, in fact these are now more readily available than ever to those who qualify.

However, banks are not efficient in processing the mortgage bonds with the process taking anything between 21 days and 90 days.

Given the current uncertain period we are in, Sellers cannot afford to wait that long as they may end up losing out in a transaction completely.

It is recommended that banks reduce their processing times to at most two weeks in order for this mode of pay­ment to gain acceptance in the market once again.

This is not 2008
It is crucial to point out that this is not 2008, the country is not going through hyper-inflation and the dan­ger of the entire value of a house being wiped out are very slim. Rather the country is facing a liquidity crunch as the country is operating without a currency.

It is a seller’s market and the buyers are on the losing end since properties have become generally overpriced due to fear and speculation.

An influencing factor is the black-market rate. Will it rise, will it fall is a crucial question in determin­ing whether the price should increase or drop. But generally speaking at the moment, prices are on the high side.

Hard cash and offshore payments are difficult to come by for the ordi­nary Zimbabwean.

The market may end up forcing Sell­ers to drop such requirements and opt for electronic transfers which are easily available on the market.

Improved efficiency in the process­ing of mortgage bonds and transfer of property will result in increased move­ment in the real estate industry.

This requires a shift in the way the local authorities, Zimra and the Deeds Registry’s office conducts its business in order to improve efficiency.

  • Jaqueline Sande is a lawyer, she is also the managing director for Simuka Realtors (Pvt) Ltd

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