The Rise of Built-to-Let in Zimbabwe: A Comparative Analysis

Imagine owning a rental property that generates a steady income while you enjoy your life. Sounds too good to be true? For many investors in developed markets, this is a reality thanks to Built-to-Let properties. The era of passive income is upon us.But can this model be replicated in Zimbabwe?

This article explores the factors driving the B2L phenomenon in developed markets, the challenges faced by emerging markets, and potential opportunities for growth.

The B2L Phenomenon in Developed Markets

In developed markets such as the United Kingdom and the United States, the B2L market has flourished due to several factors:

• Lifestyle Changes: Younger generations are increasingly opting to rent rather than buy, driven by factors such as job mobility, lifestyle flexibility, and the desire to avoid the burden of homeownership. For instance, a recent study by the Office for National Statistics (ONS) found that 45% of millennials in the UK prefer renting to owning their own home.
• Investment Opportunities: B2L properties offer attractive rental yields and potential capital appreciation, making them appealing to both individual and institutional investors. In the UK, for example, the average rental yield for B2L properties in 2023 was 4.29% according to Natwest.com.
• Established Infrastructure: Developed markets have well-established property management sectors, providing investors with reliable and efficient services. This has contributed to the growth and success of the B2L market in these regions.

Challenges in Emerging Markets: The Case of Zimbabwe

Despite the potential benefits, the B2L market in Zimbabwe has faced several challenges:

Limited Tenant Demand: The relatively small middle class and economic instability in Zimbabwe have limited the demand for rental housing. According to a 2023 Zimbabwe Vulnerability Assessment Committee report (ZimVac), only 50% of Zimbabwean households are renters.

“Masvingo had 64.5 households which were tenants or lodgers. Bulawayo had 41.6 percent, Manicaland 50.9 percent, Mashonaland Central 48.6 percent, Mashonaland East 50 percent, Mashonaland West 51.4, Matabeleland North 57.8, Matabeleland South 58.4, Midlands 57.9 and Harare stood at 43.4,” reads part of the report.

The report further shows that at a national level, only 21 percent of urban households had title deeds to their properties while 13 percent owned the property but did not have title deeds.

“Bulawayo (38.3 percent) had the highest proportion of households with title deeds. Harare had the highest proportion of households without title deeds (21.8) percent,” reads the report.

• Insufficient Rental Yields: Rental yields in Zimbabwe are generally lower compared to developed markets. This is due to factors such as high property taxes, maintenance costs, and economic uncertainty.
• High Void Periods: Finding suitable tenants can be challenging, leading to higher vacancy rates and reduced rental income.
• Service Charge Costs: The costs associated with managing B2L properties, such as property taxes, insurance, and maintenance, can be significant in Zimbabwe.
• Regulatory Frameworks: The regulatory environment for B2L investments in Zimbabwe may not be as conducive as in developed markets.

Opportunities for Growth

Despite these challenges, Zimbabwe presents significant opportunities for the growth of the B2L market:

• Increasing Urbanization: The country's growing urbanization rate is driving demand for rental housing. According to UNFPA, the urban population of Zimbabwe is expected to reach 18 Million by 2030.
• Growing Middle Class: The emergence of a growing middle class is creating a new segment of potential renters who are willing to pay for quality housing.
• Changing Lifestyle Preferences: Younger generations in Zimbabwe are becoming more open to the idea of renting, particularly in urban areas.
• Government Initiatives: The government can play a crucial role in promoting the B2L market through policies such as tax incentives, affordable housing programs, and improved infrastructure.

Investor Considerations and Solutions

For investors considering B2L opportunities in Zimbabwe, it is essential to conduct thorough market research and analysis. Factors such as location, property type, rental yields, and regulatory frameworks should be carefully evaluated.

To mitigate risks and maximize returns, investors can consider the following strategies:

• Partner with Local Experts: Collaborate with experienced property managers who have a deep understanding of the local market.
• Diversify Your Portfolio: Invest in multiple properties across different locations to reduce risk.
• Consider Affordable Housing: Focus on developing affordable housing projects to cater to a wider range of tenants.
• Explore Innovative Financing Models: Explore options such as REITs (Real Estate Investment Trusts) or crowdfunding to attract a wider pool of investors.
• Leverage Technology: Utilize property management software and other technological tools to improve efficiency and reduce costs.

Conclusion

While the B2L market in Zimbabwe may face challenges, the potential for growth is significant. By addressing the underlying issues and implementing innovative solutions, Zimbabwe can attract investors and contribute to the development of a vibrant rental housing sector.