Focus: Real Estate

Growing Pains

Growing Pains

May. 27, 2014

A limited supply of A-grade real estate is driving prices up in Mozambique, especially as more foreign companies are entering the country due to the recent gas and coal boom.

Mozambique is on a fast track of rapid urbanization, and with its youthful population, steady GDP growth, and attractiveness for investors, it is no wonder that Jones Lang LeSalle named Maputo one of the top 20 African cities to watch.

BLESS THIS HOUSE

The residential sector of Mozambique is one of the most promising due to the constant demand for both affordable and prime housing. At the top end of the market, prices for villas have been on the rise. Sommerschield Villas are four-bedroom luxury houses that cost between $3,500 and $4,000 per month in 2011; however, in 2013 they were going for around $5,500 and $6,000 per month. In regard to mass-market housing, prices are obviously somewhat lower at an average of $500 to $600 per month. Another driver of housing demand is the tendency for some owners to double up the house as an office to reduce the cost of living and because of a lack of office space. When it comes to buying property in Maputo, the average price per square meter in the city center is around $1,553, compared to the slightly lower $1,491 for an apartment beyond the city center in January 2014. However, if you compare this to the national average, an apartment in a city center costs $1,118 per square meter and $900 in the periphery. The national average monthly disposable income after tax is $760, while in Maputo the average is higher at $1,149 as of January 2014.

THE OFFICE

The demand for office space is high with prices slowly rising as a result. The main demand for space comes from banking and telecoms. In 2013, thenational average cost for prime office space was $30 per square meter per month, which has only grown marginally over the past two years from $25. In the city centers, prices are now moving upward of $40 per square meter. While this may be expensive, especially for local companies, the influx of foreign companies are more than capable of paying such prices. Similarly, Luarda, Angola's capital, had offered similar prices to Mozambique before its oil boom, whereas today businesses regularly pay over $100 per square meter. With the stabilization in the country after Angola's civil war and the rapid influx of investment by oil companies, Luarda has become one of the most expensive cities in the world. Mozambique's case is more one of gas, rather than oil money, and its strong trade links with South African companies have helped to keep food and product prices down, although the same will not work for real estate. The limited supply of hotel rooms and office spaceis likely to continue into the future, meaning that prices are expected to rise at possibly faster rates.


FROM CHECK-OUT TO WAREHOUSE

Due to the Mozambique's largely informal retail sector, retail companies havesometimesfoundit quite hard to establish themselves. However, an inflow of South African retail companies may well breath fresh life into the sector. A flurry of development is taking place, especially in and around Maputo, with the aim of formalizing the market to some degree and hopefully attracting new foreign brands. The Maputo International Trade Fair is a 380,000 sqm mixed-use project located on prime land near the Maputo estuary. It includes retail, hotels, offices, and a residential complex, while also incorporating a marina and pedestrianized area between the development and the river. In Matola, a 42,000 sqm retail component of the Cidadela de Matola opened in 2012. It has been able to attract many national brands as well as those of South Africa. Rental prices across the country are expected to rise in the future as more prime retail space comes online. In 2013, prices in shopping malls, such as the upmarket Marés Shopping Centre in Maputo, cost between $30 and $40 per square meter.

As in most countries, industrial space is concentrated on the outskirts of cities due to increased availability of open land and lower prices. Traditional areas for industrial space are located around the airports, especially for warehousing. However, more recently in Maputo, some of this space around the airport has been converted into prime office space due to its low cost. The cost of warehousing in Maputo is high, usually at around $10 per square meter; however, this is because of the fact that it is usually centrally located, and as some warehouses are being used as office space.

INVESTMENTS

Due to international interest in Mozambique and its general limited supply of usable real estate, recently a number of high value investments have been announced. One of the main calls has been for housing. Duly, Spanish construction group Sanjose signed an agreement with Mozambique's government in October 2012 to build 4,500 homes in Maputo, Dondo, and Nampula. The company said it would build the first 1,500 within 24 months at a cost of $150 million. Each apartment would cover 70.65 sqm and have three bedrooms, a living room, a kitchen, and two bathrooms in four-story buildings. Each unit is set to cost $30,000. The announcement by Sanjose came shortly after China's Henan Guoji Industrial and Development company announced that it would also build 5,000 houses, as well as all related infrastructure, in addition to schools, clinics, and a shopping center. India is also helping to increase housing supply in the country, and in July 2013 announced that it would open a credit line to Mozambique worth $217 million to help fund public works and housing projects. The main aims of the credit line are to repair the Tica-Búzi-Nova highway, build 1,200 houses in Tete, Zambézia, and Cabo Delgado, and finance the third phase of the water supply project in Manica, Zambézia, and Nampula.

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