What Is Causing The Real Estate Boom In Africa?

What Is Causing The Real Estate Boom In Africa?
It is our usual tradition here on smallstarter.com to not only share
interesting business ideas and opportunities with you but to
explore the reasons behind them. Knowing the reasons why the
real estate market in Africa is booming makes you a more
informed entrepreneur and allows you to take calculated risks and
make better investment decisions. Some of the factors behind this
boom may be obvious to you, but it is very important that you look
at them in the right context. Here they are…
Africa Is Experiencing a Huge Population Boom
The logic here is quite simple – the larger the
population, the higher the demand for housing
(shelter). Africa’s population currently stands at over
one billion and is expected to reach 2.4 billion in just
40 years. Over this period, our continent will
experience the fastest population growth in any part
of the world (including Asia). The 10 countries on
earth with the highest fertility rates are in Sub-
Saharan Africa where the average woman gives birth
to about five children in her lifetime. In countries like
Niger, the birth rate is as high as seven. (source:
Population Reference Bureau ).
Just to give you some perspective, according to a
Reuter’s article published early this year, Nigeria
(Africa’s most populated country) adds roughly
11,000 newborns to its population every day! Over the
coming years, millions of Africans will need shelter –
a roof over their heads. This huge population boom is
the strongest underlying reason for the huge demand
for accommodation and real estate properties across
Africa.
Millions of Africans are moving to the cities
A significant proportion of the demand for housing and real estate
in Africa is concentrated in the cities. According to a report by the
International Housing Coalition , only about 80 million Africans lived
in cities in 1983. Today, that number has risen to over 400 million.
The size of Africa’s urban areas has been growing at nearly 5
percent for the past two decades. Going by the current estimates,
300 million more Africans will become city people and urban
dwellers by 2030. A few reasons why Africa’s urban population is
growing at such a high rate are its huge population boom, and fast
growing economy which is attracting more people to the cities who
are searching of job and business opportunities.
At the moment, a little over 50 African cities have a population
equal to or more than one million people. At the current rate of
migration, the number of cities with over one million people is
expected to reach 65 by the year 2030. Because more people are
flocking to cities and towns in search of jobs and a better life, they
are putting a lot of pressure on the inadequate accommodation in
urban areas.
The Housing Problem is Too Big for the Governments
In many parts of the world, governments are responsible for
providing basic and affordable housing and accommodation for its
people. In Africa, however, the governments are not doing enough
to solve the housing shortage problem. In the continent’s most
populated country for example, the World Bank estimates that over
16 million new houses need to be provided to solve Nigeria’s
serious housing problem. The estimated cost of providing these
homes stands at a whopping $350 billion! That’s too much for any
one government to handle!
As a result of government’s inability to close the huge gap between
supply and demand for housing in Africa, the pressure from the
large existing demand is pushing up real estate prices across the
continent. As a result, private investors, entrepreneurs and
ordinary people like you now have a role to play in solving the
housing crisis.
Favourable Economic Growth
The recent (2013) report by the African Development Bank, OECD,
UNDP and ECA reveals that Sub-Saharan African economies are
among the fastest growing in the world. According to the report,
"Africa’s economic growth was 4.2 percent in 2012 and is
projected to reach 4.5 percent in 2013, and further to 5.2 percent in
2014."
In times of economic boom, more people have the financial power
to invest in real estate. Although there is still widespread poverty in
many parts of Africa, the average income per person is growing in
many countries. In addition, the size of Africa’s large and growing
middle class is a significant force behind the boom in the real
estate market. The people in this category (now more than 300
million) are looking for real estate to live or invest in and have the
money to pay.
4 Reasons Why You Should Invest in Real Estate?
Now that we have looked at reasons behind the huge demand and
boom in the African real estate market, let’s now look at a couple
of reasons why you should be very interested to invest in real
estate.
#1 - Real Estate Provides a Steady Source of Cash Flow
When you buy or build a piece of property (single or multiple
room apartments, bungalows etc.), and rent it out to tenants,
that property starts to earn you rental income (monthly or
yearly depending on the contract with your tenants). With the
high demand for accommodation and growing inflation, rent
prices are always on the rise. Higher rent prices mean more
income for you, the landlord.
Compared to other investment options, the income from real
estate is the most steady. Take stocks for example, the
amount of dividends paid by many companies often fluctuate
and may not be paid every year. Bank savings (another form of
investment) usually attract interest payments that may be
steady but are often very small compared to the returns you
can get from investing in real estate.
Because the income from real estate investments is steady and
predictable, you can plan better. The rent you get from your
property can be used for specific projects such as paying your
kids’ school fees, travelling abroad or buying a new car. Rental
income is also great for people who are planning for
retirement.
#2 - Real Estate Can Be Used As Collateral for a Loan
In Africa, collateral is one of the biggest obstacles faced by
entrepreneurs in obtaining a bank loan to start a new business
or acquire property (such as a factory, machinery or
equipment). When banks ask for collateral, they want you to
provide something that is equal to or greater in value than the loan
amount you are asking for. Under this definition, your car and
furniture should qualify as collateral, but the banks won’t accept
them.
Banks usually prefer real estate as collateral because it is known
to continually appreciate in value. Unlike your car which loses
value every day, the value of real estate properties are more likely
to grow. Compared to stocks (which some banks accept), the
value of a property cannot vanish overnight (like stocks). As a
result, an investment in real estate means that you can use the
properties you buy as leverage to get money (loan) from a bank
and other lenders. Only very few other investments can give you
the kind of leverage that real estate can.
#3 - Real Estate Offers One of the Highest Returns on Your
Investment
Like we just mentioned, real estate always grows in value.
Especially in developing regions like Africa where the property
market is not as matured like in North America or Europe, the
prices of real estate are often on a steady rise. Nairobi (Kenya),
Lagos (Nigeria) and Luanda (Angola) are some of the African cities
that are currently rated as hot property markets. Due to the huge
demand for shelter in many African cities, the returns on real
estate investment are one of the highest in the world.
Although buying and selling of real estate should not be your main
investment goal, it is your insurance that should you need to sell
your property sometime in the future (for whatever reason), you
will still make a handsome return. You can earn rent income for
many years like we mentioned earlier or you could sell the
property. Either way, you make money and earn a profit on your
real estate investment!
Nigeria is one of the many countries in Africa that is experiencing a
huge boom in its real estate market. The short 2-minute video you
are about to watch is just another account of the huge returns that
are possible with real estate investment. In two of its major cities,
Lagos and Abuja, returns as high as 35 percent are being
achieved. Watch and get inspired…
#4 - Real Estate is a Low Risk Investment
I’m sure you would have heard of stock market crashes and banks
going bankrupt. Although real estate values often fall, it is not
usually a very bad situation. In fact, even when property values
fall, you would still earn rent income from your property. On the
other hand, real estate is physical and tangible compared to
stocks, bonds and many other intangible forms of investment. Both
in times of high inflation, economic boom and bust, real estate
investments remain robust and will most likely continue to earn
you income. Very few other investment options can do the same.