Mozambique real estate: Risk equals reward

High cost of building
The cost of developing property in Mozambique is relatively high, largely because building materials, usually in short supply, are expensive. In more isolated areas it is also often necessary to build basic infrastructure, from drainage to generators, from scratch. There are challenges facing the lower end of the property market too; although public works are under way, overall, housing projects targeting the lower and middle classes have not yet taken off in a way that satisfies demand.

In Maputo, demand for housing is acute. This is partly due to mass migration from the countryside to the towns. In 2012, the Maputo consulate reported a 25% rise in the number of migrants registering in the city.

The average Mozambican middle-high-income household has a monthly income of little over $1,500, simply not enough to qualify for mortgages – especially as Mozambique’s banks have a minimum lending amount of MZN 300,000 ($9,500) and charge 20% interest. “Debt to equity is costly here,” says Adrian Frey, from Swiss Capital Partners. “The typical bank loan here has a 20% interest rate so increasingly people are turning to other sources. Sometimes you can negotiate it down,” he adds.

According to Frey, poor regulatory infrastructure slows down property projects and ultimately costs investors money as well.

“Mozambique needs a more modern legal framework. It has good marketing, which is attracting investors, but the legal framework is where things get stuck,” Frey adds. “For example, an investor with money might be invited by the President to build an office. Now he needs land but the municipality takes six months to give him the go-ahead to claim his land and he has by then spent $20,000 paying a lawyer to sort this out. He also finds he needs an environmental licence, which takes ages.”

The property sector is fairly high risk but potentially high yielding, vulnerable due to being linked to two booming but embryonic economic sectors – and the success of massive infrastructure projects still under development. But the building blocks are present: a rising wealthy class, increasing presence of international businesses and investor willingness to commit to big property projects.