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Overseas Property

Risk and Reward in Mozambique

Mozambique is ripe with opportunity, but it’s also fraught with challenges. Making money out of property there is not for the faint-hearted.

A little anecdote to give a taste of this: When researching this article, I made numerous attempts to contact the Mozambican authorities for comment. None was forthcoming and e-mails remained unanswered. The foreign embassies in Maputo were equally unhelpful and when I finally got through to the Investment Promotion Centre, a charming woman told me nobody there spoke English, or at least that’s what I think she said, because my Portuguese is awful.

But those who have braved property investment in Mozambique have found it most worthwhile. Take Mike Day, the principle project representative of what promises to be an unmatched private island resort, Ilha Quisiva, which will be located in the environmentally protected Parque Nacional das Quirimbas national coastal park. Mike has permission from the government to build 14 luxury villas on one of 27 islands in an archipelago that stretches hundreds of kilometres and is roughly 32 kilometres from the town of Pemba, in northern Mozambique.

The R350-million resort was designed by award-winning architects Andrew Makin, Silvio Rech and Lesley Carstens. It will be completed in 2011 and will be sold on a fractional ownership basis, with the cheapest fractions selling from R2-million. The smallest villa will be 400m2 and the largest, 1 052m2. There will be fractions of 26 or 52 days a year and an annual yacht charter entitlement of either one or two weeks.

Mike says the process of securing land in Mozambique was onerous, but for all the right reasons: to protect the natural heritage of the coast and to give comfort to people buying into the development.

‘It has been an arduous process for us, but it doesn’t follow that the same applies to everyone,’ he says. ‘Mozambique has a system that gives you title to right of land use and benefit.’ This is all set out in the Land Law of 1997, which allows one to acquire land rights.

‘Our experience was lengthy and complicated because we sought to develop an island within a national park. If you want land rights in a total or partially protected area, it is more complicated. If an area is deemed protected, you can’t acquire a normal duat, or license to occupy; you need a more onerous form of land right called a “special license”.’ Mike explains that in terms of Mozambican law, all land is owned by the state. You can obtain a duat for 50 years, which is renewable for ongoing periods, but not the classic 99-year lease common to SA.
He continues: ‘We were required to file a project with the authorities and go through the normal community consultation process.

This is common with any land process, but where the area is protected and falls within a reserve, the project has to be consistent with the conservation objectives of the park management plan. The environmental authority may impose certain conditions on you and these differ depending on the area. ‘The objective is to conserve the area. The authorities are not just giving development opportunities for the sake of it; the intent is to provide an economy for the park and to preserve the eco-systems.’

Mike says tourism projects are further complicated by government regulations that were recently promulgated as Decree 39 of 2007. These regulate the Right to Periodic Habitation. Prior to that, the concept of ‘multiple ownership’ had no legal framework in Mozambique.
As part of the newly promulgated legislation in Mozambique, multiple-ownership schemes are required to provide a direct benefit to local communities. Besides the normal compensation payable to persons displaced by the project, a community levy equating to five per cent of the annual levy is payable annually to locals by the scheme.

‘The regulations are new and very advanced for an underdeveloped country,’ Mike says. ‘They seek to create a real property right for someone who acquires a use right over fixed property, and this provides a degree of protection for both buyer and seller. The regulations cover fractional ownership, timeshare and some forms of holiday accommodation. Any scheme that complies with this law will have government approval and will require that your use right be registered with the government. This law is also prescriptive with respect to annual levies and the manner in which schemes are constituted and approved. You should get a certificate for this, which is transferable and heritable.’

The cost of land varies. Aside from the application fee and the cost of the process, a duat is ‘free’. But there is an annual land tax payable to the government, Mike says. He suggests using a consultant to buy land in Mozambique and says that dodgy deals involving bribes to tribal authorities are bound to fail.

‘The days of land secured through a case of brandy for the local chief are numbered. It works until the authorities catch up with you, but when they do, the consequences can be dire,’ he warns. ‘You’ll find that all the fixed improvements on land that has been illegally secured may be destroyed or that the operator may have to cease trading until the proper processes are complied with. The fines are enormous. You hear stories of this happening, and, frankly, there’s nothing wrong with authorities acting harshly towards developers who don’t comply with the law.’

Mike’s experiences are endorsed by Malcolm Warrack, who runs the popular Casa Barry Lodge in Tofo Beach, Inhambane Province. Purchasing property in Mozambique is ‘very structured’, Malcolm says, and only Mozambican citizens can secure infinite rights to use government-owned land. ‘If you’re planning to invest in Mozambique, I’d suggest you read all the laws before doing so, or make contact with a lawyer in Mozambique who is educated in all the investment and land law. This will save you a lot of money.’ Malcolm says the new regulations governing timeshare and fractional ownership have given foreign owners great comfort. With the introduction of fractional ownership, the entry level for investment in Mozambican property has dropped, with some offering between R200 000 and R500 000 for a 30-day holiday option.

On the other end of the scale, Pam Golding Properties is marketing Pambele, a beach property rated by Harper’s Bazaar as ‘one of the most beautiful villas in the world’. Pambele is situated in Vilanculos Coastal Wildlife Sanctuary and is next to the Bazaruto Marine National Park, on the northern tip of the San Sebastian Peninsula. Here, villas are being marketed for R32-million.

PGP’s Lara May says Ponto d’Ouro, Xai Xai, Inhambane, Vilanculos, the Bazaruto Archipelago and Quirimbas are popular areas. The transfer of land use cannot take place before a house (or other immoveable) has been erected on a property. ‘Because land may not be sold in Mozambique, the transferring of these long-term leases is the only other way to “own” property, besides fractional ownership,’ she explains. Lara says entry-level properties in Mozambique can be secured for between R600 000 and R5-million, although most sales are for around R2-million.

South Africans are the biggest investors in Mozambique, according to Malcolm, although international investors are increasingly attracted by the ‘unbelievable diving and fishing, the calm, warm waters, white beaches and many coconut trees’. He says the ‘development of the country as a whole is improving every day. Roads, telecommunications and medical facilities are constantly being upgraded. Water and electricity are now as good as anywhere else in Africa and the whole country continues to upgrade at an alarming rate. These days it’s possible to use cell phones nearly everywhere, and companies like Vodacom are continually installing new towers.’

Lara says that, until recently, property interest in Mozambique was concentrated on the country’s 2 500-kilometre-long coastline. But thanks to high GDP growth over the past 10 years, demand for retail and commercial property in the larger urban areas has also increased. In Maputo, rental for retail space in a mall can range between R250 and R500 a square metre.

Regarding office space, she says, ‘There’s almost no A-grade office space available in the city and it’s estimated that approximately 40 000m2 is required to meet the current demand. The average price for office space is between R100 and R280 a square metre.’
Financing a property purchase in Mozambique is possibly easier for South Africans than for other foreigners. Luthando Vutula, managing executive of ABSA Home Loans, says Barclays Bank in Mozambique, in association with ABSA, has packaged a mortgage loan product that will allow South African citizens buying in Mozambique the option of financing the deal through Barclays. Luthando says the product launch has been postponed to ‘around June’ 2009 to ‘ensure that all the associated legal complexities of owning property in Mozambique are addressed’. This, he says, will ensure that customers benefit from a secure property investment that will be limited to sectional title properties and urban purchases.

Elena Son, who produces an e-mail newsletter relating to life in Maputo, says houses in the city are expensive, small and often semidetached, and if there are any gardens, they’re tiny – about 10m2. Burglar bars and electric fences are also common. ‘Security guards are vital and will cost about R4 500 per month to employ,’ Elena adds. ‘This has become a necessity rather than a luxury.’

Unlike suburbs in other southern African cities, in Maputo’s suburbs there are few big houses with large gardens, she says. ‘Maputo is a small city, and space and sea views are rare… you may find large houses with sea views, but the rentals start at R40 000 a month.’
In Maputo, cheap houses with two or three bedrooms rent for around R20 000 a month, she says, but in nearby Matola, rentals drop to as low as R5 000. Matola is popular with SA expatriates who work for the aluminium smelter, Mozal.