As is the usual case in our unusual property markets, the government has yet again shot down the limping property industry. This after publishing a new set of rules to play by for the banks. Monday the 7th of May, the President of the Republic of Zimbabwe said “In order to minimise the creation of broad money that is prone to abuse for the purpose of manipulating the exchange rate for financial gains, and to allow current investigations, lending by banks to both government and the private sector is hereby suspended with immediate effect, until further notice.”
The Good Part
Taking from initial reactions from some industry professionals in the overall sense. The measures are so crazy they might actually work but this draws an interesting outlook on the property industry, inclusive of construction and the market sales end.
Well, the bullet missed the heart, that’s a plus. Most major private residential construction sites right now are funded by foreign markets. Property development companies receiving foreign credit/loan-based funding has been a popular means of funding high-end estates especially for fast turnaround sites. The Reserve Bank of Zimbabwe further clarified to say loan facilities of foreign origins are not included in the blanket ban.
The Murky
For deals involving banks, construction companies and foreign landing platforms the deal is bound to get complex. What of deals in which banks sourced financing off-shore in order to fund construction? I ask this because even loan amounts accepted but not withdrawn are covered in the blanket ban. ABC construction withdrew let’s say four thousand dollars for site preparations and left the rest of the principal amount in account. Does this mean construction is on halt?
The Reserve Bank did state that mortgage cases where interest rates and other financial terms were decided and approved before May 7 could be submitted on case-by-case basis to the RBZ for consideration. I could see this statement being extended to ABC construction’s case as time lapses but hiccups are not any markets friend.
For businesses that have a high gearing ratio as an operating necessity, operation hell is now the norm. I imagine Tongaat for example finally increasing those sugar prices in spite of their market light as the local production Kingpin, although I’ll admit I imagine there’s more taken in from outside the country than what meets the eye.
Is that light at the end of the tunnel?
It should be said though that at the end of the tunnel is light. If the government manages to arrest the run-away inflation for at least a year or two then on an investors table, the government is trying.
The market hinges on the word “temporarily” which the RBZ has used to describe possible longevity of the ban. Also, with the door open on running mortgages maybe there is hope for a broader consideration for different case types.
What the RBZ probably hinges on now is the results of the investigation which would be disappointing if the report is anything less than a book to be published or the results do not go to court.
What it looks like internationally
Imagine reading this after investing into Zimbabwe’s property market. You have your morning pick me up on the table, morning paper to start the day and you the headlines “Banking services suspended in Zimbabwe.”
Your pal Fred calls you to remind you that Zimbabwe is the wilderness of the concrete Jungle Business. I surely do not want to be you in this scenario. Businesses that do not have any form of gearing ratio within the numbers are rare in Zimbabwe, even vendors have credit management habits. In any sense, the RBZ and the government have a lot to do to calm investors and show that there’s reason to action.
A student’s conclusion
I love how Zimbabwe’s property market has held fast through the years of turmoil. Given the increased hopelessness with the state of the economy, the flashback moments to the 2005-2006 precursors to Zimbabwe’s worst economic rout. Drastic action seems to be appropriate in order to bring some sense of calm within the organised chaos. Although I’d be further disappointed if the blanket ban is lifted without actual movement on the floor. A government that makes mistakes is acceptable, a government that makes mistakes with the wallets the country relies on is not.
Growth within the industry is still below what my expectation for Zimbabwe is. The university churn out rates for the built environment is quite likely outstripping the growth of the industry. Hope remains but hope remains fickle. I do intent to post another article when the RBZ unsuspends lending which should be quite soon, check out my blog page for that article.
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