The real estate market is dying because of the bleeding currency

BY MELODY CHIKONO

The Institute of Chartered Accountants of Zimbabwe (Icaz) says there is capacity in the domestic market to carry out property valuations in Zimbabwean dollars.

However, exchange rate volatility and high inflation forced the market to opt for US dollar pegged trades to preserve value.

Currency fragilities have returned to haunt Zimbabwe’s accounting profession some 13 years after the country decommissioned its currency, which had been overtaken by 500 billion percent hyperinflation in 2008, according to estimates by the International Monetary Fund (IMF). ).

The country prematurely reintroduced the unit in 2014 following a biting cash crisis, but it has had no respite, depreciating at a frightening rate last year on the black market.

Last week, standard company reported that a cross-section of accountants doubted the validity of financial statements following a new wave of hyperinflation and monetary decimation.

The Zimbabwean dollar depreciated to $127.4 on the FX auction floor this week from $1:124 last week.

This week’s rate was well below parallel market rates of up to US$1:240.

While inflation has slowed from 839% in July 2020 to 66.1% currently, experts say business planning remains difficult.

In an interview with businessdigestIcaz technical director Owen Mavengere said accountants faced a sea of ​​problems as they struggled to navigate the complexities of the exchange rate.

He said conversations around determining an appropriate exchange rate had always been overshadowed by the need to comply with International Accounting Standard (IAS) 21.

The standard deals with the effects of changes in exchange rates.

In addition, there is International Financial Reporting Standard 13, which deals with fair value measurement and requires accountants to use appropriate exchange rates to determine the value of properties.

However, the Icaz boss said the current issues reflect the challenges facing property investors in all markets.

“Generally speaking, there are enough inputs to enable valuation in one of two major currencies, namely the Zimbabwean dollar or the US dollar,” Mavengere said.


Icaz Technical Manager Owen Mavengere

“Furthermore, a valuation determined in one currency and converted into another additional risk factors which ideally are not relevant when determining the fair value of an asset and are therefore likely to lead to a misleading valuation.

“As a result, one would simply prefer that their valuation be done in their reporting currency.

“Currency changes have had effects on the housing market, but in my opinion the biggest concern has been inflation or the perceptions surrounding it.

“Most sellers have a preference for the US dollar, which is believed to be more stable, over the local currency due to inflation concerns.” he added.

The accounting profession has sweated over what rates to accept in Zimbabwe, where currency values ​​have been skewed by the black market and hyperinflation.

Several approaches have been used in real estate appraisals.

Yet this issue has made comparability and legal compliance difficult, resulting in the need to find a solution that does not violate international standards.

“By the way, valuations are not absolute and are based on a number of assumptions, even in other economies. Therefore, local concerns are mostly similar to global concerns. The main problem is that the implied rates differ from the official rates,” Mavengere said.

“Current challenges should not deter (investors) from investing in real estate. You just have to be content with the value versus the likely returns and capital appreciation in the future.

“Covid-19 is the one that has really shaken up the real estate market since we are in the process of reviewing the whole model around large office buildings. In general, I think now is the best time to invest in Zimbabwe, whether it is properties or shares on the Zimbabwe Stock Exchange or the Victoria Falls Stock Exchange after doing your own due diligence,” did he declare.

Mavengere said there were concerns about loss of value in local currency transactions.

However, there were still sales in Zimbabwean dollars, albeit at implied rates.