Mozambique is currently experiencing a property boom. But are the locals being left behind as rand, euro and dollar-paying expats rapidly re-colonise the country?

Some 38 years after winning its fight for independence, Mozambique is still battling to get its property market in order. Today, it faces a new challenge: the return of Europeans to its cities and coastlines. Beachfront plots are being turned into holiday homes for wealthy foreigners while rents in the capital, Maputo, have increased from the influx of expats. Rising costs in Mozambique’s cities are starting to force out locals, and developers are exacerbating the problem by demolishing low-end homes and rebuilding them as high-end properties aimed at foreign buyers.

It is difficult to blame visitors for finding Mozambique so attractive. The Portuguese-speaking country has a tropical climate, 2,500 kilometres of mostly unspoilt coastline, excellent diving and strong economic growth. And thanks to Mozambique’s rapid development, says estate agent Pam Golding, foreign buyers can also expect access to international schools, modern supermarkets, malls and a highly efficient healthcare system – depending, of course, on where they buy.

Several big names in South Africa’s property market have expanded their business to Mozambique. As of November 2013, Remax was offering a holiday home in Xai-Xai for around $350,000, while Mozambique Properties had listed a lodge with a spa and gym for $1.5 million. Alongside upmarket homes in Maputo, South-African-run websites devoted to property in Mozambique offer full or part-ownership of holiday units in popular resorts like Ponta d’Oura and Inhambane. An up market, three-bedroom beach house can cost from $150,000 to $500,000.

Mozambique’s wealth of natural resources is the reason for the property market’s bright outlook. The minerals trade in particular has enlivened the property market as foreign corporations move into Maputo and Tete – the centre of the country’s coal boom – bringing with them expats who need housing. As the country’s economy booms, the promise of rising property values make this an excellent time for foreigners to acquire a holiday home or invest in a property to rent out.

Mozambique’s ascent, especially viewed alongside the economic slump in Europe, has brought many Portuguese to their former colony in search of a brisker economy and better employment prospects. An endogenous middle class has begun to flourish, too, as local entrepreneurs seize new career opportunities. According to Gonçalo Marques of Pam Golding Properties in Maputo, these factors have all fuelled the property price boom. “Every developer in town wants to develop high-end properties, which have the biggest margins of profit,” he says. “You can build for $1,000 per square metre and sell at $4,000 [per square metre].

A Bad Deal for Locals?

While, from a purely economic standpoint, the numbers sound promising, the rush to develop top-end properties and the overall increase in prices have started to push native Mozambicans in some cities out of their homes. Even boosters of development have begun to notice the trend. In June this year, The Economist reported that in Maputo’s residential suburb of Polana Caniço, almost all the single-story houses are owned or rented by Mozambican families. But that would soon change, The Economist predicted, as Maputo continued to expand and residential suburbs were bulldozed to make way for new high rise developments. In a foretaste of what awaits Polana Caniço, the neighborhood of Sommerschield to its south has already morphed into an expat community. Rent has soared and purchase prices doubled, leaving few Mozambicans able to afford to live there anymore.

“Maputo rentals have doubled or even trebled in the past couple of years,” confirms Marques. “A three-bedroom apartment that’s more than 40 years old costs $3,000 a month and a brand new three-bedroom apartment is $7,000 a month and most Mozambicans can’t afford that.” In this climate, Mozambicans without formal title to their homes face particular challenges. “In Maputo some locals have been moved off land where they were not legally supposed to be, to allow developers to take over the land to build high end products,” says Marques, though he says that “the city council always makes an effort to relocate them and improve their lifestyle.” For now, demand still outstrips supply, so the price of rentals will continue to climb.

Demand for housing is being fuelled not just by expatriate buyers but also by population growth and by migration from rural areas to the cities. Yet getting a foothold on the property ladder is nearly impossible, with bank interest rates of 16-20 percent too high to make mortgages affordable. Marques hopes the lending conditions will ease in the near future. “18 months ago the rate was 26 percent, so it’s been coming down and the expectation is that it will continue to come down,” he says. “At this stage it’s a rental market, but if interest rates go down and new properties come in it will turn into a buying market because houses will be more affordable.”

Building for the Middle Class

Developers have begun to realize that only a limited segment of people are able to afford top-end properties. A few are beginning to shift their focus to more affordable mid-end housing. “There are a couple of developments already in place but it’s far from sufficient,” says Marques. “Over the next couple of years we expect the market will change. There’s not enough liquidity for everybody to buy high-end property and there is a rising middle class. We need low- to middle-end products.” This shift in building patterns is already happening in Maputo, where the government is improving the infrastructure and where a new ring road will open up more areas for middle-class housing.

But even as the market for mid-range housing appears set to readjust, other issues are complicating Mozambique’s property market. Laws for the rental market date back to 1961 and are in dire need of revision. A lack of data on housing in production is also a hindrance – without an accurate overview of who is building what, the market could grow more skewed. Many developers are still constructing office space when that market is probably heading for saturation, warns Marques. “Over the next couple of years 300,000 square metres are going up just in Maputo, so there will be an over-supply,” he says. But, despite these problems, Marques believes this is a great time for foreigners looking to buy property in Mozambique. “You have sound returns and can make a lot of money,” he says. A carefully chosen property bought to rent out could easily make a return of 10 to 12 percent a year, he predicts.

Law of the Land

Some would-be investors in Mozambique are deterred by the country’s property ownership laws, which state that all land belongs to the government. Developers can lease the land for 50 years, and the lease can theoretically be renewed in perpetuity. However, since the first leases were only drawn up after independence, none have come up for renewal yet to put that rule to the test.

Any property built on the leased land is owned by the license holder, who can retain the ownership or sell or rent the property to others without any restrictions. Since 2007 the law has allowed foreigners to build properties or buy property on land that the government has granted the right to use. Anybody buying property must make sure the developer holds all the necessary government approvals, which also serves to confirm that the developer has been vetted as a reputable operator.

In the recent past, South Africans were the main buyers of holiday homes, though in recent years demand has dwindled. Many buyers now come from Brazil, Portugal and Dubai, says Paul Preen, a South African who has been involved in the property market since 1996. Preen has seen several legal changes to them country’s property laws, and although the rules have been fairly stable since 2008, he believes they are sometimes contradictory. Yet investing in property is safe if it is done correctly using a lawyer who understands the country’s system of land rights, he says.

In some ways, says Preen, investing in Mozambique can be a particularly good deal because the investor does not pay for the land. He notes that for the price of one overseas holiday, an investor can buy part-ownership of a beach chalet and then get another 50 years usage plus capital appreciation. Nor is the buyer at risk of losing the land, as the buyer never owned it anyway. Repossession would require the government to buy any infrastructure the lessee has erected.

But dealing with the country’s legal red tape requires a lot of patience and it is expensive to get the land rights put in place. “I would be hesitant to enter as a small developer today,” says Preen. “I think that window of opportunity has passed.” Preen believes the best opportunity for individuals now is to buy into a development constructed by one of the large developers.

One consequence of the country’s slightly unusual land laws, Preen argues, is that development tends to happen only when it benefits the local population. “The first step to any development is approval from the community, and as long as there is something in it for them they are happy,” he says. Larger developments in particular must put in place schools, clinics or other public works that benefit the local people. One positive result of development has been an improvement in the country’s roads and other infrastructure, though it may be done out of necessity rather than altruism. Anyone building in the more remote areas will at a minimum have to install an electricity generator and a borehole for water.

Luxury on the Coast

Preen’s company, Casarei, sells part or whole ownership of units in several resorts. Its offerings include beach camps and homes priced from $15,000 and upwards in Maputo, Vilanculos and the islands further north around Pemba and Nacala. South Africans tend to prefer the southern coastline up to Vilanculos so that they can drive in, while Preen prefers the remoteness of Pomene and Cabo Sao Sebastiao. “The market has been slow since the global crunch but it’s turning the corner again, with many well-priced opportunities,” says Preen.

Conscious of the need to protect against over-development, the Mozambican government has banned private houses up to two kilometres inland along certain parts of the coast. That said, it has permitted the development of some enormous tourism resorts on the sea front. In some ways the global economic slump that Preen mentions has been more effective at protecting the coastline, where development has slowed over the past five years. Yet signs of wealth are everywhere still. Around Inhambane, Ponta do Oura, Vilanculos, Pemba and Bilene, the houses are typically priced in US dollars, ranging from $100,000 to $800,000 for a five-bedroom luxury villa. On exclusive Benguerra Island, beachfront villas start at $1.5 million. One website listing properties in Ponta do Ouro tells potential buyers that the area has “experienced a proliferation of residential construction” with eight new resorts, luxury guest houses, banking facilities, nightclubs and restaurants. Some people, including many expatriates, would recoil in horror at that vision of over-development. Yet foreign investors have no right to complain, since they are the ones driving this demand for a luxury lifestyle.