Proceeds from rentals are always sweet, passive income. Because of that, investing in property is one of the best investments one can ever make, experts will tell you that. But, in Zimbabwe, things are not always straightforward. Over the past few years, our local currency has been eroded and is now considered unstable. This has led to providers of goods and services opting to charge in foreign currency. Landlords are no exception. Rentals are now mostly in US Dollars. We need to look at why this is so. Is charging rent in forex even legal? Is it sustainable or are poor tenants being fleeced of forex which they do not even have?
The introduction of the bond note in 2016 was meant to improve availability of cash. The authorities almost shoved it down our throats, touting it as being at par with the US dollar. And, for a few months, this was the case. However, the bond note started slipping and government was left with no choice but to formalise the interbank foreign currency exchange market. This was after we had all been urged to open Nostro FCAs which would now hold our actual foreign currency. The accounts which we had were no longer fit for this purpose. Right now, the exchange rate is around 1:2.6 while on the parallel market it is 1:3.4. Any price charged in RTGS dollars is therefore not stable. This is the reason why landlords prefer to be paid in the greenback. If they charged in RTGS dollars, landlords would have to go through the cumbersome process of reviewing rentals regularly, maybe even monthly. Surely, this would appear unfair.
The local RTGS dollar has been battered and bruised by the effects of inflation which the country currently tries to fight off. Since October 2018, inflation has been on the rise. Now at almost 60% year on year for February 2019, it is evident that the RTGS dollar will find it hard to hold its own. The cost of fuel more than doubled at the beginning of the year. Basic commodities which have also been scarce since end of last year continue to increase in prices. In order to preserve the value of their income, landlords would have to hike rentals whenever such things happen. To avoid this, they would rather just charge in foreign currency. That way, they are shielded from runaway inflation. It is the most feasible and viable thing to do although it is painful for the tenant.
As more and more landlords demand their dues in foreign currency, many have questioned whether or not this is legal. The answer to that question is not the most popular. As things stand, landlords can justifiably charge in foreign currency. We are in a multi currency system meaning that one can choose whichever currency they are comfortable with as long as they can get customers to pay them in it. And this country is not short of such customers, desperate tenants. We need to note, however, that government always has a way to stamp their authority. In January 2019, they discouraged Delta Beverages from selling beer and soft drinks in forex. However, this was based on the agreement that they would allocate them cheaper foreign currency through the Reserve Bank of Zimbabwe (RBZ). Such an arrangement is difficult to work out with landlords though. For now, unless government comes up with a new set of controls that prohibit landlords from charging in forex, the practice remains legal.
The problem with rentals being charged in foreign currency is that many Zimbabweans cannot afford them. Very few employers pay their workforce in foreign currency. International organisations like NGOs are an example. The rest do not enjoy this privilege. This means that they will always find it hard to afford rentals in forex. We need to bear in mind that it is still difficult to get forex legally. The banks and bureaux de change demand certain paperwork to justify why they should sell you forex. Paying local rentals may not be viewed as an essential and urgent forex need. On the other hand, the parallel market remains illegal. This is the place where you are guaranteed to get forex, no questions asked. It is not surprising therefore, that people still trade on the parallel market. This is despite the fact that forex there is expensive, almost unaffordable for most. Those who are fortunate enough to have relatives who send them money from their diaspora often have better access to forex. But, even the money transfer agencies are struggling to cater for their customers.
Is this sustainable?
While some landlords will smile all the way to the bank as they rake in the forex, some will not be so lucky. Finding a tenant who is willing and able to pay you in foreign currency in the current environment is very difficult. Occupancy levels may continue to dwindle as a result, especially in luxury, high end properties. Tenants will opt for just the mere basics. In this light, landlords may be shooting themselves in the foot because no one wants to build a nice house only to watch it deteriorate in value as it sits idle without any tenants to take care of it. Perhaps this is the reason why there are some landlords who quote their rentals in forex but accept RTGS dollars or other forms of payment using whatever rate might be prevailing at the time of payment. This can work. However, rentals will fluctuate in line with changing exchange rates and this is painful for tenants.
Given the above, there is need for landlords to tread carefully. Mere greed will not get you far. But the solutions to this lie with government who should deal with currency issues once and for all. Before that is done, landlords need to protect their investment by communicating clearly with their tenants and finding amicable ground. These issues need to be dealt with on a case by case basis because in all situations, circumstances will be different, but, landlords and tenants need to always find each other.