Rentals tumble after TNMC closure
Lebogang Mosikare | Friday October 27, 2017 13:10
TNMC was one of the city’s major providers of income, employment and services. The closure of TNMC therefore impacted significantly on the city’s economy. Over 700 direct employees at TNMC lost their jobs. Hundreds of employees who were employed indirectly at the mine also lost their jobs.
The former TNMC workers used to rent homes in the city and surrounding villages (Borolong, Tati Siding and Tonota).
This cumulatively affected rental prices.
But following the closure of TNMC, there are clear signs that the property market in the city and surrounding villages has taken a knock. A hypothetical study by Mmegi also suggests that there is a high vacancy rate of all property segments in the city and its surroundings.
Data and statistics from Willy Kathurima Associates (WKA), who specialise in property valuation, estate agency, property management and real estate development, and other property businesses show how the closure of TNMC has wreaked havoc on the property industry in the city.
Asan Kunda, a property expert at WKA concurred that following the world economic recession which resulted in the decline in commodity prices, the property market in Francistown has generally been in decline from 2008 as the local economy struggles to emerge from the depression.
“The situation was compounded by the closure of TNMC in October 2016 which resulted in job losses and subsequently the contraction of the disposable income in the city,” said Kunda.
The residential market was affected mainly on the top end when TNMC and other related businesses handed back in excess of 100 executive and high cost houses which caused a glut in the sector with rentals falling by as much in 40% in some instances, Kunda added.
“In general, rental and capital values across all residential sectors of the residential market have declined especially with the increase in the supply due to construction in the nearby villages of Tati Siding, Tonota and Borolong.
The commercial property market has also been in decline with rising vacancy and default levels as most tenants struggle to meet their monthly liabilities due to reduced business as most households can only afford basics,” he said.
The changes in the importation laws of essential commodities in neighbouring Zimbabwe, Kunda said, has also not helped the situation as the shoppers from that country are now spending less in Francistown.
“The industrial market has remained static with the light industrial and the Botswana Meat Commission (BMC) sites remaining popular among investors. Dumela Industrial Area has large tracks of developable land but remains unpopular due to the poor soil conditions and distance from the Central Business District of Francistown.”
Another estate agent not authorised to speak to the media said the mining bust has drastically affected the property business in the city.
The agent said as a result of the sharp falling property market, they have reduced prices of rentals at their properties.
The plan to reduce rental prices, the agent said, is paying dividends because most of their properties are now occupied.
“We used to increase our rental prices by almost 10% every year but we stopped that because the vacancy rate at our properties was exponentially increasing. Most of our tenants are now able to pay us although some are defaulting on their monthly rentals,” said the agent.
Jester Makopola, who owns Comfortable Homes, one of the reputable estate and letting agencies in the city told Mmegi that since the closure of TNMC tenants are paying almost 50% of what they were paying when the mine was still operating.
“Some of the properties we manage on behalf of homeowners stay vacant for a lengthy period because we struggle to secure tenants despite the fact that we have drastically lowered rental prices.
“There is also a lot of movement among commercial and residential tenants because they have options for cheaper rental properties elsewhere within the city and its surroundings,” she highlighted. The high vacancy rate has resulted in vandalism of some properties
under our management, Makopola asserted. “In most instances we are forced to put rental prices below a reasonable price to ensure that properties remain occupied and ultimately stay free from exposure to vandalism.”
According to Makopola, banks have also adopted a very cautious approach and are now reluctant to give mortgage loans. “Because of the economic slow down in the city and the high loan default rate, banks have been tightening their criteria for issuing loans.
After the closure of the mine, people were left with mortgages they could not afford to service that is why banks are tightening their lending criteria,” she said. Makopola said as a result of the tight lending criteria adopted by banks, they have been struggling to sell properties most notably residential houses.
“Before the closure of the mine we used to take approximately a month to sell a single housing unit. Now it takes more than that (a month). Houses are also sold at very low prices probably above 35% lower than before the closure of TMNC.” The property market maybe on a downward spiral but Makopola insists that this is the right time to buy property by those who have money. “When prices are falling they will enjoy more negotiating power and
will most probably buy houses at very low prices. They will reap the rewards of their investments when prices and the value of their properties appreciate in the near future.
Logically the depreciating property market cannot stay the same for a longer period of time,” she said. One of the banking officials in the city confirmed that banks have developed a very cautious approach with reference to giving out mortgage and personal loans.
The official did not want to be named because he does not have the authority to talk to the media.
In addition Bank of Botswana governor Moses Pelaelo recently expressed worry about the growing rate of Non Performing Loans (NPL). Pelaelo said since December 2014, NPL rose from 3.6% to 5.9 % as of July 2017.Retrenchments, coupled with subdued economic growth, are some of the reasons why the loan default rate has been on an upward trajectory since 2014.