High interest rates, devaluation of the kwacha and its subsequent floatation have adversely affected the property market in Malawi, property experts say.
The experts were reacting to Knight Frank’s 2013 Africa Report which bemoans reduced industrial activities, resulting in weak demand for industrial property. This, according to the report, has resulted in stagnation of rental levels and property values.
“The currency devaluation in May 2012 has negatively affected new office development and also triggered landlords’ demands for rental increases, particularly for rentals that are not linked to the dollar.
“The construction of Gateway Mall in [Malawi’s capital] Lilongwe, which will be the largest shopping centre in Malawi, has been delayed by the recent economic uncertainty and its opening date has been shifted from February 2012, as originally planned, to sometime in 2013.
“The Blantyre Market continues to struggle with excess vacant space while there is unsatisfied demand for office space and accommodation in Lilongwe,” reads the report in part.
Justice Property managing director Allen Justine agreed with the report, saying the property market is struggling due to the country’s ailing economy.
“Due to fall of the kwacha against the dollar and the current high interest rates, people are failing to buy property.
“Previously, people running small businesses like small contractors and in stationery business would easily get loans from banks to buy property. Banks are also becoming more reluctant to give loans because of the high default rates,” said Justine.
Currently, commercial bank loan interest rates are at over 40 percent due to, among other things, the rise in Reserve Bank of Malawi (RBM) base lending rate which was hiked thrice last year to 25 percent.
RBM data on nonperforming loans corroborate Justine’s sentiments. The data show that from October 2012 to January 2013, the default rate has increased by over 37 percent.
RBM’s Monetary Policy Committee (MPC) minutes of January 5 2013 indicate that the rate of nonperforming loans stood at 7.8 percent in October 2012 and moved to 8.2 percent in November 2012.
March MPC minutes show that the number of loan defaulters surged further to 10.7 percent in January 2013.
The report by Knight Frank says so far, the retail rental market has been resilient but there are indications that activity will soon begin to slow as consumers’ purchasing power continues to be eroded by the high inflation caused by the devaluation and the free fall of the exchange rate.
“The industrial sector continues to face serious challenges in the form of electricity blackouts, leading to below capacity production. [This has in turn led] to retrenchments and the closure of some businesses,” adds the report.
The report adds that future developments in the sector are uncertain, as the effects of recent economic reforms aimed at boosting local industry are still unfolding, but the expectation is that these reforms should boost demand for logistics and warehouse properties.
Knight Frank further notes that demand in the residential sector has fallen in both the rental and sales markets, particularly in Blantyre. The Lilongwe market continues to benefit from the existence of a large expatriate community, which has traditionally influenced the linking of rents to the dollar.
The report indicates that Lilongwe has doubled property rates compared to Blantyre.
