Zimbabwe’s bond notes introduction, a setback for property sector

If the market perception on Zimbabwe’s bond notes remains negative, Morris Hove, CEO of Property 101 foresees an increase in buyers to hedge in property particularly residential sector.

HARARE - The decision by Reserve Bank of Zimbabwe (RBZ) to introduce a local currency known as "bond notes", equivalent to the US dollar, is set to have a major effect on the country’s real estate industry.

Without giving a specific date, the Central Bank Governor John Mangudya announced last week the bond notes will be in circulation before end of October, sparking fears of a potential repeat of the excessive money printing that led to hyperinflation several years ago.

The introduction has aggravated tensions between the Zimbabwean government and the public already outraged by worsening economic crisis and corruption.

The country, led by President Robert Mugabe, adopted the US dollar and South African rand in 2009 after inflation - which peaked at 231 million percent - rendered the local dollar worthless.

The Bank hopes that the cash injection will boost exports, benefit local businesses and ease the suffering of Zimbabwe's poor population.

Meanwhile, Africa Property News.com has learnt that property players in the country, have warned that the surrogate currency will have an impact on the country's property market.

"After the announcement, questions were raised on the legality of the currency and whether or not the move made good economic sense," said Morris Hove, CEO of Property 101, a locally based property services company.

Hove, who is in the United States for a property market investiment road show which started in Dubai, says most real estate firms in the country have been complaining about sellers withdrawing their mandates.

"I believe that's a short term reactionary problem. In the long run there will always be buyers and sellers in the market whether there are bond notes or we are still using the U.S. Dollar,” he said.

Hove believes if the market perception on bond notes remains negative, he foresees an increase in buyers to hedge in property particularly residential.

He also expects the increase in buyers will cause an upward pressure in prices in a market already lacking in inventory.

"I would like to call that era a 'bidding war'. From the sellers point of view unless it’s necessary to sell the pool of sellers should shrink turning the market into a serious sellers’ market,” Hove says.

However the introduction of bond notes still favours diaspora investing back in the country.

According to the Governor, the new changes will not affect diaspora's remittances where their pay-outs and utilization shall continue to be in the recipients’ currency of choice as free funds in line with existing policy. Secondly, foreign investment flows and external loan disbursements which shall not be subject to the apportionment criteria as outlined by the RBZ.

"In my view the exciting part is the foreign exchange priority list guidelines which were obviously put to promote efficient utilization of foreign currency. These guidelines will be used by banks in distributing foreign currency towards competing demands and property becomes the winner particularly for foreign investors,” Hove says.

Mangudya has been fighting a losing battle to persuade Zimbabweans that these notes won’t go the same way as Zimbabwe’s pre-2008 bearer cheques did.