Are you considering starting a business in Africa’s property sector or maybe invest in it?
Many African countries are currently experiencing an economic slowdown and a weakened local currency, and as a result of that house prices in many markets have fallen – which may provide an easier entry point for you to come in and buy property – even at prime locations. This can be a great asset from the get go if you decide to rent it.
But what about building or develping property yourself in Africa?
With GDPs and Africa’s middle class steadily growing, property and real estate investment in Africa are booming. At the moment there is a demand-supply deficit in the property and real estate market, making it one of the most profitable sectors in Africa’s emerging economies.
While South Africa remains a strong real estate investment hub (and property there is currently very cheap because of the weak Rand), Angola, Nigeria, Ghana, Kenya, and Morocco are the new emerging markets that catch everyone’s attention. Tanzania, Zambia and Namibia are also gaining fast in popularity. So, if you are planning to open a business in the property sector or a closely related field here is the first decision you have to make. In which market would you get started? More on that in a minute.
If done right and with the necessary preparation, you can certainly build a very lucrative business in Africa’s property sector and you should certainly be encouraged to get started. But there are some bold facts that you should know first.
#1 Africa’s developers are coming from the Eastern parts of the globe
Yes, indeed, most developers who are leading in Africa’s property sector are not Africans. Developers so far come mainly from within the Middle East, Asia, Russia, and to some extent from within Africa, while Western investors are still not strongly represented (with the exception of being in South Africa).
Did you hear that? Africa needs African property developers! Go for it!
But it does not stop here: many of the buyers are not locals either. Take Mozambique for example: In the recent past, South Africans were the main buyers of holiday homes there, though in recent years demand has dwindled. Many buyers now come from Brazil, Portugal and Dubai.
#2 The market is set to change to serve Africa’s middle class
Developers in Africa have begun to realize that only a limited segment of people are able to afford top-end properties. This is probably why many buyers are currently non-Africans. What is really needed in Africa right now is housing for the middle and lower middle classes, and this should not just be a serious development goal for Africa, but is also an important consideration for your business strategy. High demand for housing and office space will be driven by the middle class, and governments and investors will without a doubt respond to that need. It’s a new mass market, so keep that in mind when planning. There is however another new and increasingly growing trend: Modern small city flats and studios are wanted by young professionals who want to leave the family home to live on their own. It's an interesting niche many still overlook.
#3 Affordable Housing is risky – but great opportunities exist for innovative construction models
There is also a huge need for housing among Africa's lower income classes. In fact, when you speak to a government representative from a related department on the continent, he will probably be quick to point out the opportunities in affordable housing. After all, they have a responsibility to meet that demand. However, when you research this more or you speak to local investors on the ground you will quickly find out that this option is generally much more complex and risky.
Well, first of all profit margins are relatively small and that means that you need to build and sell a large number of houses to make a heatlthy profit. For one luxurious villa you may need to sell 100 affordable houses to make the same financial gains.
Further: Your target market may not even be in a position to afford the houses. And this mean that most affordable housing projects require that you partner with a local bank that is prepared to give morgages to your house buyers.
Having said that the need for affordable houses in Africa is very much there and the impact you can potentially make is big.
But unique opportunities exist around innovative housing designs and construction material. Anything that can be built fast and cost effective can be a great winner. By the way, be aware of the fact that affordable houses can actually cost to up to US$40,000 – but if you were able to build even very basic city units for just $10-20,000 you would be celebrated as a hero by many.
#4 The hurdles to success can be great
If you are thinking of going into property development or investment you may need to put down a 50% deposit – this is a normal requirement in many Sub-Saharan countries. That’s much higher than the required 10-25% one usually pays in the UK, for example.
In any case, for a business start up the high deposit may still be your greatest hurdle, followed by red tape bureaucracy, unreliable construction workers, delayed permits….
The real estate sector is a profitable, but also risky industry, and hence being informed and knowing what to expect is important before moving in.
If you are flexible I would take a decision that would make your life so much easier during start up: choose countries with top property sectors, so currently South Africa, Angola, Nigeria, Ghana, Kenya, Tanzania, Zambia and Namibia, and then choose among those the country with the easiest business regulations including ‘registering property’. But be aware: in some states foreigners (so including other Africans) may not be allowed to own land or property.
But, I need to make some final remarks in this regard: Rwanda is among Africa’s top two countries for ease of doing business and among the world’s top 8 for registering property fast – followed by Botswana. Althogh these are not your typical real estate markets, both are among Africa’s fast emerging economies and in Rwanda the government is planning for 200,000 more housing units in Kigali alone in the next 5 years. But not only that, both also belong to the safest countries in Africa. Let’s do our check regarding the property rights for foreigners: in Botswana freehold land ownership is available and encouraged for foreigners, but in Rwanda it is restricted.
So, I would definitely look into Botswana and possibly Rwanda and see if you are able to tap into a nice niche to start your property business there.
#5 Start shoe-string budget business concepts in related areas
Investing in the housing and real estate market in Africa requires that you have access to capital – and not too little. However, if you do not have that capital and you are still interested in Africa's real estate sector, there are so many shoe-string budget models that would still allow to yo get into the industry.
These would include for example property management, interior design, landscape gardening, or online platforms for real estate buyers and related service providers.
Now, I hope we will be buying our African dream house from you one day! Hope you found the article useful, and we would love to hear your comments below! Let's keep marching together for success in Africa!
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