Rich Bob, Poor Bob…

Private Property South Africa
Gina Schoeman

While browsing through the various residential property websites (a habit

engrained in me like concrete), I came across a well-known establishment

promoting property in Harare, Zimbabwe. According to this agency, political

stability will return to the country and property prices will surge. I

immediately thought back to a Private Property interview I took part in with

Robert Kiyosaki (author of Rich Dad, Poor Dad); Kiyosaki stated that a

particular country he'd be interested in for property investment would be, none

other than, Zimbabwe. But then again, that was last year…

Given the current events of today, would Robert Kiyosaki be as supportive of

property in Zimbabwe as he was last year when visiting South Africa? I decided

to give one of the property agencies a call to find out their present thoughts

on house prices; I'll admit that quite ironically, the physical address of the

agency somewhat sums up the political structure of the country: 73A (The) Robert

Mugabe Way.

The Robert Mugabe Way

Zimbabwe has received mass amounts of attention following its super-depressed

economic crisis; inflation levels have increased quicker than a firecracker on a

short fuse, hard currency is experiencing its own personal famine, and

agricultural output (not to mention employment numbers) remains highly

discouraging.

I debated the use of data (whether official or unofficial) for fear that by the

time it is published the level may have increased, or decreased, tenfold.

However, it is probably safe to say that, if inflation ends in '000, and demand

and supply are more mismatched than some Hollywood couples, the situation may be

aptly referred to as 'bleak'.

I have made use of official data, as reported by the Reserve Bank of

Zimbabwe, I-Net Bridge and the International Monetary Fund. But please bear in

mind that the black market gains momentum each day and that the unofficial

numbers can differ largely from the official data.

According to IMF estimates, the official consumer inflation rate is estimated to

finish above 6000% in 2008. According to the Reserve Bank of Zimbabwe, the

published figure for the lending rate is well above 600%. Add to this a currency

as volatile as a keg of dynamite, and one wonders if the entire economy will

ever explode. Given these economic indicators as mentioned, what has happened to

house prices?

Although Zimbabwe lacks a formal index for the trend in house prices, we can

use some basic assumptions to draw a high-level view. Thereafter, readers can

assess their personal risk appetite and draw a conclusion as to whether they are

willing take the risk to buy up land north of our border. (Don't be mistaken!

Despite the doom and gloom stemming from Zimbabwe, evidence shows that some

individuals have already begun to invest in Zimbabwe, albeit at a slow rate.)

Zimbabwe House Prices

Residential property sales have remained relatively steady. This is largely

due to a limited stock of housing, and speculators attempting to hedge against

inflation. According to KnightFrank, the average price for a 4 bedroom house in

a good location (such as Ballantyne Park) is roughly Zim$5.25 billion (which,

given the official exchange rate on 17 July 2007, would equal ZAR150 million).

As crazy as these prices may appear, when compared to a candle that sells for

Zim$120 000, it suddenly appears rather relative to the entire pricing system.

Like all property markets, location influences the price. A good location

(such as the example above) will cater to those few citizens that continue to

live lavishly in the present day conditions. Other areas, such as Bulawayo,

average roughly Zim$700 million (which would equate to ZAR20 million). It is

interesting to consider the black market rate of the Zimbabwe Dollar. The

official exchange rate to the US Dollar is pegged at $250, however, before

Robert Mugabe imposed the 50% price cut throughout the economy in July, the

black market rate was fetching up to Zim$200 000 per US Dollar. Now, it sits

somewhere around the level of Zim$100 000 per US Dollar. Using these black

market rates it must be considered how difficult it would be (never mind illegal

and therefore dangerous) for an individual to get this amount of foreign

currency into the country in order to take part in the black market.

In line with a decline in housing stock, rental yields have also increased

(along with everything else). For the past couple of months, landlords have had

to increase their rates by anywhere between 300% - 500%; some even demand rental

yields in the form of foreign currency and/or consumer goods, such as fuel,

paraffin or meat. But since the government imposed a rent freeze on 18 June

2007, we can expect that landlords will come under serious strain (and it's not

as if they weren't previously).

And finally…

The difficulty lies in the fact that Zimbabwe is faced with a situation where

the valuation of assets, such as houses, are difficult to assess given the

current turn of events. I placed a few phone calls to various investors I know

and almost all of them said that they would consider purchasing property in

Zimbabwe as an investment. The general belief is that the basic market

fundamentals (such as stable inflation, money supply and trade) will one day

improve - that demand will once again flourish and property will become very

valuable. Although, the greatest concern is how much time it may take to get to

that point.

I remember Robert Kiyosaki saying that day, "…a great property manager is more

important to me than the real estate". I also remember Robert Mugabe, once

saying that, "…we are no longer going to ask for the land, but we are going to

take it without negotiating".

Do you think this meets the reasonable expectation of 'a great property

manager'?

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