Property Voids Worsen

A LISTED property concern has noted that there has been an increase in property voids on the market, saying this reflected the unstable economic environment in the country.

Mashonaland Holdings Limited said an increasing number of tenants were failing to pay rentals due to the worsening liquidity crunch and joblessness, while others were re-negotiating existing contracts for downward rental reviews.

The company’s loss position worsened to US$6 million in the full-year to September 2015 from US$27 000 on prior year due to weak rental income and falling occupancy levels.

In a statement accompanying the group’s financial results, Mashonaland Holdings chairman, Ron Mutandagayi, said revenue at US$5,9 million was 14 percent below the US$6,8 million achieved on prior year due to increasing void levels and some lease reviews in the portfolio.

Alternative income streams are being actively developed to grow the revenue base, said Mutandagayi.

The business environment was characterised by retrenchments, company closures, deflation and reduced aggregate demand. A number of firms continued to downsize their lettable space thus putting pressure on revenues and occupancy levels. Consequently, property values declined.

Property expenses at US$1,5 million from US$1,9 million last year were 19 percent below last year. These expenses represented 25 percent of income. This was largely driven by the provision for credit losses and costs relating to voids, he said.

Last year expenses represented 26 percent of income.
Total rental yield softened from seven percent in the previous year to six percent. Occupancy at 76 percent was lower than 82 percent recorded on prior year.

The collection rate over the year was 72 percent from 78 percent. Tenant default risk remained a real threat to the business.

Management will continue to actively monitor this aspect, Mutandagayi said.
Administrative expenses at US$2,1 million increased by four percent from prior year.

The resulting administrative expense to income ratio was 35 percent from 29 percent last year. The company said cost reduction measures continued to be a priority. Total expenses declined by seven percent from prior year
Many property leasing companies said it was difficult to predict what could happen in this environment and would take each month as it comes.

The property business is of a long term nature hence the need to engage tenants in ways that are beneficial both parties.

Many tenants and estate agents said there has been a marked increase in the number of tenants moving out of residential and commercial properties as they could no longer sustain current rentals. Some tenants were either in arrears for rentals or utility bills.

Mashonaland Holdings posted a net property income after administrative expenses of US$2,4 million from US$3,1 million.

This drop was due to declining revenue. As a result the ratio of net property income to total revenue dropped to 40 percent from 45 percent.

Mutandagayi said the group’s efforts to establish and obtain approval regarding the determination of opening income tax values for investment properties acquired prior the introduction of the multicurrency regime in February 2009 was concluded during the period under review.

This has enabled the group to claim capital allowances in respect of prior and current financial years. Similarly, this will also apply to the group’s income tax obligations for future periods.
There has and will continue to be additional deferred income tax recognised with respect to the temporal differences arising, he said. Fingaz