Legal Discussions with Vengai Madzima: Diaspora Property Syndicates  

NewZimbabwe.com has invited Mr. Vengai Madzima, the Senior Partner at Madzima Chidyausiku Museta Legal Practitioners (MCM Legal), to discuss the potential for diaspora property syndicates in Zimbabwe.  

Reporter: Welcome back Mr. Madzima. In your view, is this a potentially lucrative option?

VM: Thank you

Your question requires a holistic analysis of the property market and the fundamentals that allow or prohibit entry by individual players from the diaspora. In general terms, the last 20 years have witnessed an upward trend in property values. Seismic shifts in global markets like the 2008 global recession, whose effects were felt in markets around the world, hardly impacted Zimbabwe property pricing while property prices were falling around the world.

This, in my view, is a result of the fact that the majority of property ownership is free from mortgage or bank control. Therefore, prevailing interest rates do not have a significant bearing on property pricing in Zimbabwe.

Property pricing is usually seller-determined, although buyers have sway depending on the prevailing liquidity in the market.

I mention this because it speaks to the potential returns for property investors normally positive. However, in the converse, the lack of widespread mortgage financing also limits the entry of individual players locally and in the diaspora, as most property sales and purchases require a one–time payment against a limited supply of banks offering mortgage services.

That being said, the answer to your question is yes, diaspora property syndicates are lucrative in that they potentially unlock foreign finance and, depending on objectives, may benefit from a cost-based market entry.

Reporter: What do you think are the things to consider in the formation of such syndicates?

VM: It is critical that the documents constituting the ‘syndicate’ are clear in what the syndicate intends to achieve, including the preferred property area of investment. Emphasis on this point may appear superfluous, however,  you will be surprised at how easily groups of people may have a different understanding of the objectives of the group.

So if the syndicate’s intention is to enter the property market to specifically purchase land and construct housing for its members, be it clusters or flats, that must be clear. If, on the other hand, the intention is to develop properties for sale and money is shared among the syndicate members, those terms also must be clear. Here I am talking about governing documents regulating payments of dividends, repatriation of finances, project execution, rights and duties and dispute resolution.

It may also be advisable to create a similar, duly constituted legal vehicle in Zimbabwe that will execute the mandate on this side of the world.

 Reporter: What legal protections are available or should be sought for such a vehicle?

VM:  The diaspora syndicate will enjoy the same protections the local investors enjoy as it relates to purchasing or disposing of property, subject to the proper due diligence being carried out.

Depending on how the syndicate is constituted and its objectives, there may be a need and benefit to seek the assistance of the Zimbabwe Investment and Development Agency (ZIDA) before investing. Should the syndicate want to repatriate profits or rentals, then the investment will need to be registered with the Reserve Bank of Zimbabwe and have the necessary exchange control approvals.

The syndicate must be duly incorporated in Zimbabwe or be sufficiently compliant for deed registration and operation in Zimbabwe.

Reporter: What potential challenges are likely to be faced by such syndicates?

VM:  A lack of contemporary on-the-ground knowledge of the property business may affect the syndicate’s progress, making it prone to title and fraud risk. It will be necessary to have a complement of applicable local professions to assist with the project.

I also mention that the Zimbabwean economy and consequently the liquidity in the property market is in flux and prone to political and regulatory changes, and various opportunities and threats present themselves at various times.

There is no substitute for local knowledge, currency threats may be mitigated contractually and by registering the investment with ZIDA and or the Reserve Bank of Zimbabwe. Bureaucracy in some instances may prove a potential challenge, for example, maybe approvals for permits such as subdivision or cluster housing permits, et cetera, this really speaks to the selection of the local team in mitigating such risks

Reporter: In closing, what opportunities and benefits may this bring?

VM: Our law allows for joint ventures with municipalities and local governments, opening up opportunities for urban renewal, job creation, skills transfer, economic growth and general development through these structures. The opportunities are immense both for the syndicate and the country.

Reporter: Thank you, Mr. Madzima, we have to end here, because of our time.

VM: Thank you.

These discussions are of a general nature, and those seeking specific legal advice should contact their lawyer.

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You can contact Vengai Madzima on vengai@mcmlegal.co.zw or at www.mcmlegal.co.zw