Property sector struggling, rental income growth slows

The property sector is yet to reach its full potential post-Covid-19 with rental income failing to grow because of high inflation and a weakening currency that have eroded tenants’ disposable income.

An analysis of the financial results of Malawi Stock Exchange-listed Mpico plc and Icon Properties plc, two of the country’s property management and development giants, shows that since 2020 and 2021 when rental income dropped due to pandemic effects, recovery is being subdued by emerging shocks such as high inflation and kwacha devaluation, among others.

Icon Properties plc, which achieved a rental revenue growth of 560 percent in 2019 to K2.4 billion, saw its revenue jumping by 96.5 percent in 2020 to K4.9 billion before tumbling -0.7 6percent due to Covid in 2021.

Similarly, Mpico plc’s rental income grew 31.8 percent in 2017 to K5.5 billion and subsequent rises followed in 2018 and 2019 by six percent and 11.5 percent, respectively, before it plummeted by -4.6 percent in 2020 because of pandemic effects.

Icon Properties plc chairperson Eric Chapola said while the sector faces a gloomy situation, some players are doing well based on type of property, location and mix in the investment portfolio.

He said: “Both devaluation and high inflation erode the purchasing power parity and, as such, affect both the supply side and demand side.

“This brings a disincentive to would-be investors in real estate, seeing that they may not achieve rent values which may make a business case for such investments.”

Knight Frank managing director Desmond Namangale said the country’s property sector is still in its infancy stage and is exposed to economic shocks, but remained confident that it will remain resilient.

He said: “If the national economy is struggling, the real sector follows suit. Nevertheless, all is not lost as there are a number of projects and programmes being implemented by the government and other development partners which have got a direct impact on the real estate sectors.

“These have a direct impact on the real estate sector as the activities taking place will create space or need space for industrialisation.”

In a separate interview, investment analyst Kondwani Makwakwa said property owners have been facing a tough choice of whether to raise rentals and lose tenants or keep the rentals unchanged at a time the value of money has reduced.

He said: “Property owners face a tough choice. Either keeping rentals stable to retain tenants or risk higher vacancy rates if they raise rentals and drive tenants away.

“Therefore, economic difficulties have led to a situation where property owners are gradually increasing rental prices.”

But Makwakwa said the outlook for the property market is positive.

On the stock market, Mpico plc and Icon Properties plc share prices are among the lowest at K14.67 and K16.79, respectively.