HARARE – A diverse product portfolio with modern standards is a key asset in the property market, but remains short of guaranteeing the best results without a quality client base.
For a country like Zimbabwe, still recovering from a decade of hyper inflation and economic stagnation, tenants who are able to meet their obligations on time for a reasonable tenure are hard to come by as most people are still earning below the poverty datum line.
Even corporates, who are traditionally the good quality and less risky tenant, are having problems of their own due to acute liquidity and capital constraints as investors continue with a wait-and-see attitude, particularly due to indigenisation and general policy inconsistency.
Local companies like Pearl Properties Limited (Pearl) have resorted to evicting non-performing tenants and replacing them with those with potential to pay their rentals.
Peddy Chugunduru, Pearl general manager-administration, said last week, at the property company’s 2012 half-year results for the period to June, management was re-tenanting its space to meet running costs on the property such as insurance.
In June, Zimre Property Investments Limited (ZPI) announced plans to evict non performing tenants from its property as the company seeks to maximise rental collections going forward.
Edson Muvingi, ZPI managing director, told the company’s Annual General Meeting a lot of tenants had failed to transition from the Zimbabwe Dollar era into the current United States Dollar environment and thereby defaulting on their rentals.
“We have evicted about 137 tenants from our platform since 2007, 137 is a huge number and this is where you have possible write-offs,” Muvingi said, adding that arrears were around $1,5million.
“For as long as we not collecting more than 100 percent every month it means we are not collecting what is outstanding and we the greater risk of writin-off.”
The developments follow a market-wide outcry which prompted players, under the Estate Agents Council (EAC), to create a defaulters database as more companies and individuals struggled to meet their rental obligations.
The need for a database, EAC said, has been necessitated by the lack of bureau clearing agencies whose absence is enabling bad tenants to easily move from one estate agent to another without being tracked or honouring rental and utility bill obligations.
“Unpaid rates, water and electricity bills have created untold hardships to lessors and property managers requiring the problem be addressed at source which is upon initial vetting,” EAC said in a statement.
A bad tenant, as defined by EAC is one who habitually pays rent late or never at all and is erratic on payment of utility bills.
In a 2008 paper, real estate investment expert Tony John said big, usually national or multinational companies, are generally unlikely to default on rentals because of their strong financial backing.
“With a smaller tenant, no matter how well-intentioned or business-smart they are, there is inherently more risk. One big lawsuit, one marital split, one fraudulent employee, or some unexpected occurrence, and their business consequently, your income is under threat.”
John also argued low quality neighborhoods attract low quality tenants.
“If you have ever been a landlord before, you will understand that getting stuck with a bad tenant can be an incredibly costly endeavour. Bad tenants not only cause you to lose sleep, but can also destroy your investment,” he said.
“These tenants are likely to leave your property in poor shape upon their departure, costing you a considerable amount of money to repair, in order to get the property ready for the next tenant,” he added.
“If you have a property manager, you will also be stuck with a large marketing fee as well for placing a new tenant — one who might end up being just as bad as the last.”