Property returns: Fact from fiction

97

Leonita Mhishi

THERE is perhaps no investment that captures the Zimbabwean imagination quite like prop­erty. For generations, families have regarded land and buildings as the ultimate store of wealth. Parents urge their children to “buy a stand first.” Diaspora workers sacrifice for years to build homes they hope will become lasting assets. Young profes­sionals dream of owning rental properties that will generate passive income long after they retire.

The belief is almost universal: property never loses value.

But does the mathematics support this widely accepted assumption?

The answer is more nuanced than many Zimba­bweans would like to admit. While property remains one of the country’s most resilient investment class­es, the real returns are often hidden behind emotion, social status and unrealistic expectations. Investors who fail to understand the numbers may discover too late that owning property does not automatically translate into creating wealth.

Zimbabwe’s property market is unique. Unlike many developed economies where mortgage financ­ing dominates housing purchases, much of Zimba­bwe’s market is driven by cash buyers. Diaspora remittances, mining proceeds, agriculture, informal business earnings and institutional investors contin­ue to fuel demand for residential and commercial property. According to market observations, diaspo­ra buyers have become one of the strongest drivers of demand in Harare’s residential market, helping sustain prices even during periods of economic un­certainty.

This has helped property maintain its reputation as a hedge against inflation and currency instability.

However, investors often confuse asset preserva­tion with investment performance.

Keeping wealth intact is important. Growing wealth is even better. The difference lies in under­standing return on investment.

Many first-time investors look only at monthly rent. If a house earns US$600 every month, it ap­pears to be an excellent investment. Yet that figure tells only a small part of the story.

Suppose an investor purchases a house for US$180 000 that generates US$600 monthly in rent. Annual rental income amounts to US$7 200. Before celebrating, maintenance costs, municipal rates, insurance, vacancy periods, repairs, agent commissions and occasional legal costs must all be deducted.

Even assuming minimal expenses, the net rent­al yield may fall below five percent annually. That changes the investment conversation completely.

Market data suggests that gross residential rent­al yields vary significantly depending on location. Some Harare suburbs currently produce gross rental yields averaging between six and 10 percent, while higher-density or lower-priced locations may pro­duce stronger percentage returns because acqui­sition costs are lower. Crowdsourced market data even suggests gross yields exceeding 10 percent in parts of Harare, although actual realised returns de­pend heavily on occupancy, maintenance and pur­chase price.

The distinction between gross and net yield mat­ters enormously. Gross yield assumes every month is fully occupied and ignores expenses. Net yield re­flects the money that actually reaches the investor’s pocket.

Many investors never calculate the latter. In­stead, they focus on the comforting knowledge that they “own property.”

Zimbabwe’s economic environment makes this calculation even more important. Housing costs have been among the contributors to inflationary pressures in recent years, meaning maintenance materials, labour and municipal charges continue rising.

A roof replacement today costs considerably more than it did five years ago. Painting a house is no longer a minor expense. Plumbing repairs can erase months of rental income.

These realities are rarely discussed during fam­ily conversations encouraging relatives to invest in bricks and mortar.

Yet the story is not entirely pessimistic.

Property offers another form of return that rental income alone cannot explain.Capital appreciation.

Many homeowners who bought houses or stands a decade ago have witnessed substantial increases in property values. Reports indicate that Harare house prices have risen sharply over the past five years, supported by limited quality housing supply, grow­ing diaspora demand and the continued preference for real assets over financial assets.

Capital growth is where fortunes are often made. Someone who purchased a stand for US$20 000 several years ago and now owns land worth US$60 000 may have generated a stronger return than an­other investor collecting modest rental income from an expensive property.

Timing matters. Location matters even more. Zimbabwe’s expanding suburbs illustrate this reality perfectly.

Areas once dismissed as too far from the city have become thriving residential communities after roads, schools, shopping centres and utilities fol­lowed population growth. Infrastructure transforms land values.

Investors who recognise these trends early often outperform those who simply chase fashionable suburbs.

Commercial property presents another interest­ing opportunity. Warehousing and logistics facilities have become increasingly attractive as Zimbabwe’s informal economy continues expanding. Some mar­ket reports estimate rental yields in this segment reaching double digits, outperforming many resi­dential investments.

The lesson is simple. Not every property invest­ment should be residential.

Unfortunately, many Zimbabweans invest emo­tionally rather than strategically. Building the big­gest house in the neighbourhood may satisfy per­sonal pride but may not maximise financial returns. A luxury home occupied by its owner generates no rental income.

It may appreciate over time. But unless it is even­tually sold or rented, the investment remains largely dormant.

This is where wealth-building and lifestyle choices diverge. Both have value. They are simply different objectives.

Another overlooked factor is liquidity. Selling shares listed on the Zimbabwe Stock Exchange can take days. Selling a house may take months. Some­times years. Property is an excellent long-term asset precisely because it is illiquid.

That characteristic discourages impulsive selling but also limits financial flexibility during emergen­cies. Investors should therefore avoid placing every available dollar into real estate. Diversification re­mains essential. Successful investors rarely rely on a single asset class.

They combine property with equities, mon­ey market investments, businesses and other in­come-generating opportunities. Property becomes one pillar of wealth rather than the entire structure.

Zimbabwe’s evolving financial landscape also deserves attention. The government’s efforts to improve land tenure security, including issuing title deeds to qualifying farmers, are expected to strengthen property rights and improve access to fi­nance by making land more bankable.

Greater certainty over ownership generally in­creases investor confidence. It also creates opportu­nities for using property as collateral for productive investment instead of simply holding it as dormant wealth.

Perhaps the greatest misconception surrounding property investing is the assumption that every prop­erty is automatically a good investment. It is not. A poorly located house bought at an inflated price can produce disappointing returns for decades.

Conversely, an ordinary apartment in the right lo­cation with reliable tenants may quietly outperform far more expensive homes. The maths always wins.

Before purchasing property, investors should ask straightforward questions. What is the expected an­nual rental yield? What maintenance costs are likely over the next five years? How long do comparable properties remain vacant? How quickly have prices appreciated historically? What infrastructure devel­opments are planned nearby?

If these questions cannot be answered confident­ly, emotion may be replacing analysis.

Zimbabwe’s property market will almost cer­tainly remain attractive because real assets continue providing reassurance in an economy that has ex­perienced repeated episodes of currency instability. Property offers psychological comfort that paper assets sometimes cannot.

But reassurance alone does not create wealth. Disciplined investing does.

For Zimbabweans seeking financial indepen­dence, property should neither be worshipped nor dismissed. It should be analysed with the same rigour applied to any other investment. Rental in­come should be measured. Expenses should be tracked. Capital growth should be estimated conser­vatively rather than optimistically.

The country’s most successful property investors are rarely those who own the largest houses. They are the ones who understand the numbers behind ev­ery purchase. In the end, wealth is not built by col­lecting properties. It is built by collecting profitable decisions.

And in Zimbabwe’s evolving real estate market, that distinction may prove to be the most valuable investment lesson of all.

l Mhishi is the principal registered estate agent at HSP Realty and can be reached at +263 772 329 569 or via email at leonita@hsp.