Mozambique real estate: Risk equals reward

High demand for residences
Meanwhile, residential real estate is also going from strength to strength, particularly on the upper end of the scale. Local property agents have noted a boom in demand for beachside properties – due to rising interest not only from local wealthy Mozambicans but also expats, many of whom have been brought to the country by the coal and natural gas industries.

The government also intends to construct 100,000 low-cost homes this year and the target date is on schedule. Some experts claim that the housing deficit can be resolved within the next five to 10 years due to such projects.

The property sector is throwing up interesting private equity opportunities. According to Andrew Fimister, a founding partner at PE firm Maris Capital, which has operations in Mozambique, real estate is one of the easiest cash-generating business opportunities in the country. However, he concedes that with so many PE companies now investing in real estate in Mozambique, the market may become overcrowded. This has prompted Maris Capital to dabble more in the services sector.

The property boom has brought new opportunities for South African banks as well. For example, Absa bank has been exploring possibilities of coming up with mortgage products that allow South Africans to purchase property in Mozambique.

However, playing in Mozambique’s real estate sector comes with its own risks. First is that it is impossible to really buy land in Mozambique because all land technically belongs to the state. Instead, individuals and companies buy renewable 50-year leases. In theory then, an individual could purchase land only to have it taken away after 50 years.

Yet the biggest risk is that virtually all the projects in the pipeline are counting on the bonanza expected to be unleashed by the coal and gas industries. Coal is relatively new and its success will depend on how rapidly and efficiently infrastructure to move it to export ports can be completed, while it will be years before the first LNG shipments can be made.

Overall, around $25bn worth of projects are currently being implemented within the country’s construction sector, prompting projections that the industry will burgeon 10% between 2012 and 2016.

Big infrastructure projects under way include overhauling the country’s Sena railway, a major conduit for coal, which has been beset by flooding in the past, and another to construct the $4.5bn Nacala corridor, which will link coal complexes in Moatize to the coast.

These are high-cost, major-scale infrastructure projects that could experience delays. Infrastructure endeavours are even more crucial when it comes to the fate of property developments in isolated areas, such as Palma – where a road connecting it to the nearest major city, Pemba, was only recently finished.