Investing in African real estate can be lucrative. But it’s not as easy as putting your money into the stock market and collecting dividends on a monthly basis.
There are many factors to consider when analyzing the best markets for investment in Africa. The economic outlook of each country, inflation rates, capital gains tax rates, interest rates.
Some countries offer higher returns on investments than others depending on market conditions. Looking at data from more than one country can help you narrow down your investment options. In this blog post we will discuss some tips and strategies for investing in African real estate.
Location, Location, Location
Location is the most important factor when investing in real estate. Homes in seaside areas, for example have a higher return on investment than homes located inland.
Proximity to social infrastructure like schools, hospitals and shopping centers, impacts ROI.
Also the proximity to urban areas and known high-growth regions is an added factor. These often offer better yields than ownership in locations with limited rental prospects.
Buying a property off-plan
Jumping on a pre-construction opportunity and buying your own piece of paradise before it even opens its doors is an option that many people are considering. It is commonly know as buying off-plan.
You can buy an off-plan property when the building is still in its design and planning phase, or you could opt for a near-completed project in it’s final touches. The risks and rewards vary depending on what stage you get in, as well as your plans for the property – are you buying this to live in yourself? Or maybe it’s an investment opportunity?
Benefits of buying off-plan
- Price – When you buy off-plan you lock in that price. This is often times significantly lower than price on completion.
- Custom Fit – You have the option to customize your interior from the onset. From color schemes, to fittings and fixtures.
- Choice – There’s a wide variety of choice to pick from at this stage. You get to choose a property with the desired layout and superior position. This impacts return on investment as well as rental yields.
- Time – Off-plans take some time before before completion and settlement. This gives you time to save, reducing the amount to borrow. This in turn reduces your loan payments. If property prices rise within this time, you get equity increase too.
Property type, whether residential, commercial or mixed use, also influences the return on investment. Always consider the types of properties that tend to offer higher returns.
- Apartment blocks in locations with limited and high cost of land are a lucrative investment.
- Multi family homes and developments with a communal secure environment do attract buyers and renters.
- Single family homes and apartments attract the single, young working class and family.
What is the economic outlook of the Country?
The economic outlook in African countries varies. It is important to understand these dynamics when considering investment. Economic growth rates are important since they affect both rental and home values.
For instance, economy decline, a high risk indicator, means there may be lower demand for homes.
This results in a downward trend on property prices and rental yields. It’s not wise to invest in housing markets where economic outlooks seem uncertain.
The inflation rate also plays a role in deciding whether it is a good investment opportunity or not. Countries like Mauritius and Uganda have low annualized inflation rates. Other countries such as Angola and Ethiopia have high annualized inflation rates.
Two of the most important factors to add are, liquidity and balance sheet strength. Investors should consider how much money is available in the market for lending purposes as this also has an impact on rental returns.
There are many political factors that affect the real estate market in Africa. When scouting for a market to venture into, this is one factor that often comes up top of the list.
Some African countries still do have political instability and are ones to avoid. There’s dictatorship regimes and acute corruption levels. As a result they score very low on Ease of doing business list, and other rankings.
Many African countries have vast amounts of government resources and assets vested in their economies. This implies that they can control prices as well as currency flows to manipulate economic trends.
There are also regulatory considerations to take into account. Property ownership rights aren’t always straightforward or standardized in some African nations. In some countries, foreigners are not allowed to own land outside of designated zones.
When looking into an investment opportunity take time to research all related costs. For instance, capital gains tax, property tax, annual land tax. This indicates what you’re spending upfront and throughout ownership of your asset (property). . That said, many African countries have tax incentives, and exemptions. This is to attract foreign direct investment.
Infrastructural development determines the level of investment in real estate. If an area is not connected by a decent road network, or lacks indoor plumbing and electricity to support businesses, it will not be top on the list.
Other incentives like access to public transportation, proximity to international airports, do attract buyers and investors. Social infrastructure like hospitals, schools, and shopping centers are also vital in attracting investment. All this factors should be part of one’s checklist to investing in a property.
In identifying the best markets to invest in, understand how they have performed historically. Look at different time periods (e.g., last few decades). Consider factors such as population density, GDP growth rates, unemployment rate etc. These indicators gauge potential performance on an asset over a fixed period of time with some degree of certainty.
In concluding this article, there are various factors that affect the market price for real estate in Africa. Economic growth rates, population density, urbanization rates, political climate. It is important to identify these when determining your investment strategy. To get a better understanding to invest in African property markets, get expert advice on how to mitigate any associated risks.