Growing demand from middle class and commercial segment could lead to oversupply of real estate in Côte d’Ivoire

 

A state programme to build affordable housing is now taking off with the support of significant investment from foreign firms. Beyond the need for affordable housing, a rising middle class and additional need for retail space is spurring demand throughout the country. However, difficulties in accessing financing, as well as a lack of available lands and unclear and inadequate land ownership legislation, have posed challenges for those interested in investing in the real estate market.

Housing Trends

While the country has seen some diversification in development in recent years, with a wider range of commercial units on offer, the country is facing a housing shortage estimated at 400,000 to 600,000 units, particularly in the economic capital of Abidjan. This has been spurred by a rising middle class, high urbanisation and population growth, as well as the return of the African Development Bank’s headquarters to Abidjan, which has contributed to the higher demand for high-end housing offers. Demand for retail and office space has also brought new commercial offerings, such as the Regus Centre and the Renaissance Plaza, onto the market in recent years.

According to real estate consultancy Knight Frank’s “Africa Report 2017/2018”, rents have been increasing, with the average price of a four-bedroom villa in Cocody and Zone 4, one of the most sought-after neighbourhoods in Abidjan, reaching €3300. Rental prices in the city range from CFA125,000 (€187.50) to CFA200,000 (€300) for a studio apartment, though there is significant variation between neighbourhoods.

To address the urgency of the housing market’s discrepancies, the government has made moves to simplify bureaucratic processes, most notably creating a one-stop shop model for construction permits and facilitating funding of commercial malls through tax exemptions and other land advantages.

Additionally a new 2018 rent law – though criticised for being difficult to implement in practice – was passed by the Parliament, placing limits on deposits and up-front rent amounts with the goal of expanding access to housing for Ivorian citizens. Additional measures introduced in 2016 include a tax on the importation of construction material, particularly cement and clinker.

Barriers to Entry 

Despite these efforts, many barriers of entry still exist. Capital requirements for real estate developers and buyers alike pose significant challenges for the financing of and access to credit for new projects. Though interest rates have fallen since 2017 and special loans have been created to fund new social housing, financing continues to be a challenge.

Four institutions are involved in residential real estate financing in Côte d’Ivoire. These are the National Investment Bank; the Support Fund for Housing; the Urban Land Account; and the Housing Mobilisation Account. The latter was created in 1987 to stimulate the delivery of affordable housing for low-income buyers by the private sector through tax incentives and financial assistance. Despite the existence of these funds, access to loans for housing remains a challenge in Côte d’Ivoire. This is in large part because the country’s commercial banks are risk-averse and remain wary of financing the low-income housing segment.

Land acquisition also tends to be a significant barrier,as the procedure is lengthy and complex, and the availability of adequate land is limited. While the July 2013 land acquisition order was intended to simplify the land acquisition and registration processes, unclear land classification requirements continue to create complications.

Although the legislative system has been improved, more remains to be done to enhance regulatory efficiency. New regulations were introduced in 2017 reducing taxes for developers whose production is dedicated at least 60% to social housing, as well as fixing the prices of houses built under the programme at CFA12.5m (€18,700) for social housing and CFA23m (€34,500) in the business segment.

Commercial Real Estate

In 2018 Abidjan added an eighth commercial mall to its offering, Cosmos Yopougon, after the recent introduction of a number of shopping centres in the country, driven by modernised consumer trends and the entry of a number of major European retailers such as supermarkets Carrefour and Auchan. Cosmos Yopougon opened in the commune of Yopougon, which is the largest neighbourhood of the capital city, with more than 1m inhabitants.

Funded and constructed by the UK’s HC Capital Properties and the Lebanese Sarada Group, and operated by the US firm Cushman and Wakefield, the commercial mall cost CFA18bn (€27m) and is built on a 3-ha site with 41 national and international brands, such as Burger King and Carrefour Market, which has invested €6m for a supermarket on the grounds covering 3000 sq metres.

The opening of Cosmos Yopougon is a major shift in commercial real estate trends in the city as malls are focused in the neighbourhoods of Marcory and Cocody and targeted towards the middle and upper classes. In this sense, the mall will create a new dynamic both in terms of real estate and retail in the commune of Yopougon, which is a less affluent and traditionally more industrial commune.

Cosmos comes after five years of progressive investment in the retail real estate space led by established players in the market who developed shopping malls in the country, primarily Prosuma, the country’s largest retail group with more than 150 stores. This retailer owns four shopping commercial malls and centres, while the CFAO and Carrefour have introduced other malls – Playcee, Playce Marcory and Riviera Palmeraie – onto the market as a joint venture. Local retail group Orca also operates the Abidjan Mall in the Riviera Bonoumin.

Forecast

Despite significant discrepancies between supply and demand in the housing market, in addition to significant challenges and difficulties, Côte d’Ivoire is likely to continue to see growth in its real estate market, thanks to its social housing programme as well as to its rising middle class. Further incentives for the private sector to engage in low-income housing would provide real estate with an important boost, while at the same time incentivising real estate development in the commercial segment in line with changes in customer trends and preferences. An expansion in the retail and commercial markets encouraged by government incentives, along with legal reforms, simpler administrative proceedings and tax exemptions, is set to improve the investment climate in the coming years.

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The Report: Côte d'Ivoire 2019

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