Africa has long been identified as the last frontier for investment opportunities, and real estate is only one among many options.
Investing in African real estate can be lucrative. But it’s not as easy as putting your money into the stock market and collecting monthly dividends.
In this article, we go over some tips for investing in real estate on the African continent.
Table of contents
- Factors to consider when analysing the best markets for investment in Africa
- 1. Location, Location, Location.
- 2. Buying a Property Off-Plan
- 3. Property Type
- 4. What is the Economic Outlook of the Country?
- 5. Political Climate
- 6. Tax Implications
- 7. Infrastructure
- 8. Historical Trends
8 Tips to Invest in the African Real Estate Market.
1. Location, Location, Location.
Location is the most crucial factor when investing in real estate. Homes in seaside areas, for example, have a higher return on investment than inland homes.
Proximity to social infrastructure, like schools, hospitals, and shopping centers, impacts return on investment (ROI).
Also, the proximity to urban areas and known high-growth regions is an added factor. These often offer better yields than locations that are further from urban centers and suburbs. These offer limited rental prospects.
2. Buying a Property Off-Plan
Getting in on the pre-construction stage of properties is an option many buyers are considering and for a good reason. This is commonly known as buying off-plan. This trend is common in South Africa and in many other nations across the continent.
One can buy an off-plan property while the building is still in its design and planning phase. Or one could also opt for a near-completed project in its final stages.
The risks and rewards vary depending on what stage you get in. Your plan for the property is crucial too. Are you buying this to live for yourself, or perhaps it’s an investment asset?
Benefits of Buying Off-Plan
- Price – This is often significantly lower than the price on completion.
- Custom Fit – You can customize your interior from the onset. This can range from color schemes to fittings and fixtures.
- Choice – There are many options to pick from at the off-plan 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 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 an increase in property equity.
3. Property Type
A 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 land costs are a lucrative investment.
- Multi-family homes and developments with a secure communal environment attract buyers and renters.
- Single-family homes and apartments attract single, young working-class and family.
- Affordable housing is a great need on the continent and has the largest market. The majority of the African population cannot even afford basic necessities. Therefore subsidized housing goes a long way in solving the acute housing shortage. This also mitigates the issue of slum dwellings.
4. What is the Economic Outlook of the Country?
The economic outlook in African countries varies. It is essential to understand these dynamics when considering an investment. Economic growth rates are significant since they affect both rental and home values.
For instance, economic decline, a high-risk indicator, means there may be lower demand for homes.
This results in a downward trend in property prices and rental yields. Investing in housing markets where economic outlooks seem uncertain is not wise.
The inflation rate also plays a role in deciding whether it is a good investment opportunity.
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. This has an overall impact on rental returns.
That said, the continent has some of the fastest-growing economies in the world right now. Business opportunities abound as a result.
5. Political Climate
Many political factors affect the real estate market in Africa. When scouting for a market to venture into, this factor often comes up top of the list.
Some African countries still do have unstable political environments. These are definitely ones to avoid. There are dictatorship regimes and acute corruption levels. As a result, they score very low on the Ease of doing business list and other rankings.
Many African countries have vast government resources and assets vested in their economies. This implies they can control prices and 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 cannot own land outside designated zones.
6. Tax Implications
When looking into an investment opportunity, research all related costs. For instance, capital gains tax, property tax, annual land tax, etc.
This indicates what you spend upfront and throughout your asset (property) ownership. That said, many African countries have attractive tax incentives and improved and competitive financial services. This is to attract foreign direct investment.
Infrastructure development determines the level of investment in real estate. An area lacking a decent road network, indoor plumbing, and electricity to support businesses will most likely not attract investments.
Other incentives like access to public transportation and proximity to international airports attract buyers and investors. Social infrastructure like hospitals, schools, and shopping centers are vital in attracting investment. All these factors should be part of one’s checklist for investing in a property.
8. Historical Trends
In identifying the best markets to invest in, understand how they have performed historically. Look at different periods. For example, performance in the last few decades.
Consider factors such as population density, GDP growth rates, unemployment rate, etc. These indicators gauge the potential performance of an asset over a fixed period with some degree of certainty.
In conclusion, it is essential to identify the factors covered in this article when determining your investment strategy.
Looking at data from more than one country can help you narrow down your investment options.
We advise you to seek expert advice for a broader understanding of real estate investment in Africa. This will go a long way in mitigating any associated risks. Get in touch with us for consultation on investing in African real estate.