Is Africa’s Property Boom Sustainable?

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Current trends in the real estate market in Africa indicate that demand for up market accommodation is rising. Residential homes, apartment buildings, plush villas and commercial properties in prime areas of urban cities across the continent are being snatched off the property market faster than they are being built as potential property developers scramble to cash in on the real estate boom.

With an increase in the number of Africans living in the diaspora choosing to invest in their countries of origin, property prices have sky rocketed with some houses being sold at eye watering prices – as much as £4 million. According to Ventures Africa, property in some upmarket areas in Lagos Nigeria can be among the most expensive in Africa with some two bedroom apartments costing more than $1 million. Some South African properties are known to be even much more expensive with properties in Western Cape going up to as much as $25 million according to online publication

The influx of foreign cash from Africans in the diaspora and foreign investors has contributed to the high cost of housing. Favourable rates of foreign exchange mean that some properties are considered a bargain for foreign buyers as well as Africans living in the diaspora. Tenants from the expatriate community working in Africa on mining projects and the like, who are willing to pay huge sums of money to stay in secure comfortable accommodation, provide a steady flow of revenue for landlords to justify the hefty amounts being asked for. The quality of commercial and private property has certainly improved as economic growth continues to be sustained averaging at 5% over the past 10 years.

UN-Habitat estimates that African cities become home to more over 400,000 every day. As the middle class continues to grow, demand for housing in prime areas of urban cities is increasing. This has in turn led to “chronic undersupply” of housing in major cities and has had an impact on property prices. Property developers are on the other hand, reaping the rewards because of the rise in demand. Limited access to mortgage financing has not deterred some property developers in Africa. Those with a portfolio of property generate impressive cash to fund additional development. Bricks and mortar are now seen as a safe hedge particularly amongst individuals and corporations seeking to avoid tax and launder money, in other words “clean up dirty money”.

In a report by the Associated Press published in 2010, it was alleged that in the years following the 2008 crisis, the rise in property prices in Kenya was linked to Somali pirates who it is alleged were on a spending spree, shelling out substantial sums of money from ransom payments, on property in prime areas. These allegations apparently caused an outrage in Kenya and prompted the government to carry out an investigation into property owned by foreigners in the country. This all happened at time when house prices in the West plunged to extremely low levels as the recession continued to hit hard. There has been some sceptism that the reports in the press with regards to Somali pirates were not credible and that the high prices are simply an inevitable result of high demand and a rising middle class.

The question that we however, need to ask is this: is the property boom which has led to high property prices sustainable? Some critics predict a steep decline as commodity prices start to decline considerably but others are of the view that this is highly unlikely due to the demand for real estate, which trumps negative factors such as high unemployment, poor infrastructure and poor transportation.

The sad fact is that a large number of people in the low income bracket are being priced out of the market. The report by UN-Habitat, titled “The State Of African Urban Transition”, has revealed the high levels of inequality that exists among different socio-economic population strata, with many Africans who live in poverty, being unable to access urban land. This has led to the proliferation of urban slum dwelling across the continent. At least 70% of the urban population in Sub Sahara Africa live in slums according to Shelter Afrique and the slum population is set to grow to 1.4 billion by the year 2020 if no action is taken.

Most people living in these areas tend to be employed in the informal sector with very little job security and disposable income. The average Kenyan according to now has to work 140 years to be able to buy an average decent house. Most resort to building houses in illegal settlements  which are often over crowded and at risk of being demolished by the government once the land has been sold off to property developers. In early October this year Amnesty International reported that a large number of residents of the Epworth area an “illegal settlement” close to Harare in Zimbabwe had their homes bulldozed. This is apparently becoming common place as land in urban areas is carved out and sold off leaving many families who actually contribute to the economy formally and informally with no alternative.

It is imperative that governments across the continent address this problem by coming up with initiatives that will enable people in the low income bracket to have access to finance that will enable them own decent and affordable property. While some critics might argue that more innovative financial alternatives are already available such as microfinance for housing, it is known that these tend to be mostly available to people who already own property as this provides some form of security to the lender.

The deficit in good quality housing needs to be addressed. There is a need for governments to come up with policies that will allow for an increase in access to decent housing. Land policies and urban land planning policies are critical to solving the problems of decent affordable housing for the urban poor. Positive steps need to be taken in order to deliver aspirations of human development and prosperity for all.

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