Exploring Leasehold Tenure in Zimbabwe's Real Estate Sector

In recent years, Zimbabwe has been exploring innovative strategies to stimulate its real estate sector and promote infrastructure development. One approach gaining traction is the implementation of leasehold tenure. This article explores the concept of leasehold tenure, its potential benefits for Zimbabwe, and how it can be adapted from successful models in other regions.

Understanding Leasehold Tenure

Leasehold tenure is a property ownership model in which an individual or entity, known as the lessee, acquires the right to occupy and use land owned by another party, the lessor, for a specified duration. This arrangement is formalized by registering a long-term lease in the Deeds Registry. Importantly, leasehold tenure does not involve the transfer of land ownership; instead, it grants the lessee real rights over the property, providing them exclusive control and the ability to exclude others from interference.

Advantages of Leasehold Tenure

Leasehold tenure presents various benefits for both landowners and developers in Zimbabwe. It enables landowners to provide secured access to their land without giving up ownership rights. Additionally, this model typically requires lower initial costs compared to traditional freehold property acquisitions.

Moreover, leasehold transfers are not subject to Capital Gains Tax (CGT), as they do not fall under the category of specified assets in the CGT Act. Lessees are legally protected, ensuring their right to undisturbed use of the property. Furthermore, leasehold arrangements can generate a steady income stream for landowners that can be reinvested in the community.

For developers, leasehold tenure offers the possibility of using the lease as collateral to secure financing for projects. This development model can create employment opportunities and enhance the provision of essential services, all while allowing for greater flexibility in its application compared to traditional ownership structures.

The Waterfall Development: A Case Study

To illustrate the potential of leasehold tenure, we can examine the Waterfall Development in South Africa, the largest property development in the nation's history, which is entirely based on leasehold land. The Mia family, through the Waterfall Islamic Institute trust, owns the land and cannot sell it outright due to religious considerations; instead, the development is based on 99-year renewable leases.

This ambitious project includes between 12,000 and 19,000 residential units, potentially accommodating up to 76,000 residents, along with commercial and office spaces that could host an additional 75,000 individuals.

Adapting the Leasehold Model for Zimbabwe

While Zimbabwe's legal framework recognizes long-term leases as immovable property, several challenges must be addressed to fully implement a leasehold tenure system similar to that of the Waterfall Development. Currently, the framework allows for the recognition and registration of long-term leases, their transferability, and the ability to use them as collateral. However, landowners bear the risk of claims against the property due to lease hypothecation or outstanding utilities.

Additionally, subdividing land for multiple leases can incur significant costs and time delays. Although subsequent transfers of subdivided land into property-holding companies (PropCos) are exempt from CGT, lessees are still liable for stamp duty based on land values. Security interests can only be secured by the landowner, not by the developer or lessee, leading to a lack of investor confidence in the leasehold model among financial institutions.

Proposed Framework for Zimbabwe

To overcome these challenges and realize leasehold tenure's full potential, experts suggest a comprehensive framework for Zimbabwe. This includes negotiating a one-time lease consideration for the target property and determining lease tenures ranging from 10 to 99 years, with options for renewal or extension. For commercial properties, a monthly consideration system could be implemented, where the developer pays the landowner a percentage of net rental income.

Leases should be registered as notarial deeds against the property's title deed, and mechanisms should be developed to protect financiers and banks, such as step-in rights or suspended lease agreements that activate upon default.

The Role of Financial Institutions

The involvement of banks and financial institutions is crucial for the success of leasehold tenure. The goal is to create a bankable instrument that major financial institutions can utilize for financing property development on a leasehold basis. To protect the interests of these financiers, several steps can be taken. For instance, the notarial lease must be registered between the property owner and the lessee. The lessee can then secure a loan from the financier, with the property owner guaranteeing repayment while placing restrictions on the financier's ability to claim or sell the land.

In the event of default, the landowner can cancel the lease, resulting in the lessee forfeiting claims to improvements made on the property. The owner would then have the option to sell a new lease to a third party to cover the guaranteed amount.

Implementing leasehold tenure in Zimbabwe has the potential to invigorate the real estate sector and facilitate essential infrastructure development. By granting developers access to land that may otherwise be unavailable for purchase, this model can unlock funding for development projects, create jobs, and generate increased revenue for the country.

Despite existing challenges, the advantages of leasehold tenure appear to outweigh its drawbacks. As Zimbabwe continues to refine its property development and ownership strategies, the leasehold model offers an exciting opportunity for economic growth and a more dynamic real estate sector.