As a key driver of long-term socio-economic growth in recent years, Djibouti has focused on investing large volumes of capital in infrastructure projects, including real estate. Other priorities within the Djibouti Vision 2035 long-term development agenda include improved living conditions through the construction of affordable accommodation and enhanced access to quality housing, improved sanitation for clean cities and the elimination of informal settlements. This focus has translated into reforms that aim to augment performance and encourage investment.
Structure & Oversight
Housing and urban development is overseen by the Ministry of City, Urban Planning and Housing. Public housing policy and strategy, as well as the development and control of real estate development regulations, also falls under the ministry’s purview. Another major player is the Agency for Urban Rehabilitation and Social Housing, which, under the ministry’s supervision, oversees the restructuring of informal housing. The agency replaced the Housing Fund, a parastatal institution that built over 4000 housing units and 4500 serviced plots between its creation in 2001 and its closure in 2018.
That year was designated the Year of Housing by President Ismaïl Omar Guelleh, with a commitment to accelerating the construction of residential units, widening access to housing and promoting private investment. Additionally, in 2018 the Real Estate and Land Development Company replaced the Djibouti Real Estate Company, a body that focused on middle- to high-income citizens, constructed basic infrastructure and sold the plots to private real estate developers. Responsibilities of the new entity include the acquisition, subdivision and marketing of serviced land plots to the public and private sector, and construction operations for medium- and high-end housing.
Business Environment
With real estate among the priority sectors for investment, a number of reforms have been passed since 2013 to raise standards and increase investment. As of 2018 real estate sales tax was lowered from 10% to 3% for all sales and purchases of land, buildings and homes for organisations, businesses and individuals. Previously, only businesses could receive a tax break of paying 5% sales or purchase tax on land and buildings in their first purchase. Moreover, foreign and domestic investors in the real estate and land development segments are exempted from business value-added and consumption taxes, during the construction and onboarding stages.
Affordability
The affordability of housing in Djibouti faces the twin challenge of a relatively high poverty and unemployment rate, despite strong GDP growth. The extreme poverty rate was 21.1% in 2017, the most recent year for which information was available. This rate was significantly higher in more rural areas (45%) than in Djibouti City (13.6%). Moreover, 40.2% of the population lived below the extreme poverty line. The country’s unemployment rate reached 28.4% in 2020 and 2021, up slightly from 26.4% in 2019, according to estimates reported by the World Bank.
Meanwhile, housing prices have been driven higher by a series of factors, including an influx of migrants with greater spending power – drawn by Djibouti’s political stability and Islamic culture – from Yemen and Somalia. Another exacerbating factors is a reliance on imports for construction materials.
In terms of the impact of these factors on home ownership affordability a permanent home cost around nine times the per-capita GDP in 2021, according to the most recent data from the Centre for Affordable Housing Finance in Africa (CAHF). As of mid-2022 global costof-living database Numbeo estimated that the average cost for a residential unit was between DJF120,000 ($676) and DJF450,000 ($2540) per sq metre in the centre of Djibouti City, and between DJF90,000 ($510) and DJF280,000 ($1580) beyond the capital’s centre.
Renting a home, according to the CAHF, accounts for around 10% of the per-capita GDP. As of mid-2022 Numbeo estimated that rental prices for a one-bedroom apartment within the capital’s centre range from DJF90,000 ($510) to DJF390,000 ($2200), and three-bedroom homes from DJF130,000 ($730) to DJF600,000 ($3380). Outside of this area, the rate decreases to between DJF60,000 ($338) and DJF178,000 ($1000) for a one-bedroom unit, and DJF65,000 ($370) to DJF214,000 ($1210) for a three-bedroom home.
Housing Deficit
According to a report published in November 2021 by the African Union Commission, migrants accounted for more than 10% of Djibouti’s population in 2019. As of May 2022 the country hosted some 35,000 refugees and asylum seekers, according to the UN High Commissioner for Refugees. The majority of these originated from Somalia (accounting for some 14,000 refugees), Ethiopia (13,500 asylum seekers) and Yemen (6000 refugees). While some displaced populations pass through the country and raise infrastructure demands only for a brief period, others stay for longer periods, raising longer-term infrastructure demand.
The housing deficit was estimated at around 30,000 homes by the International Finance Corporation in August 2022, with 2500-3000 new homes needed per year to keep up with demand. The shortage is most pronounced in and around the capital city. With around 700 new homes constructed annually, Djibouti has not yet been able to close the gap between the supply and demand for housing, despite a series of financing agreements for large-scale housing and the public sector’s focus on widening access to affordable, quality housing.
Mortgages
A number of the country’s banks provide access to housing finance, with 13 residential mortgage providers as of 2021, according to the Central Bank of Djibouti. Of these, Salaam African Bank, an Islamic bank that maintained almost one-third of the country’s bank accounts in mid-2021, finances up to 70% of the value of a residential property. While the country offers low lending rates, averaging 7% per annum as of 2021, mortgage penetration rates have room for growth. The value of mortgages issued in 2019, for instance, equalled 2.5% of GDP. Incumbent challenges include the lack of a comprehensive electronic system for checking mortgages. Efforts to widen access to credit and strengthen the financial services sector therefore offer opportunities for Djibouti to increase mortgage penetration as a path to wider home ownership.
Amid these challenges, a state rent-to-lease scheme for government-built homes seeks to expand home ownership among broader segments of Djibouti’s population. Under this programme, the construction of 540 apartments for medium-income earners was supported by a Bank of Africa loan of over DJF2bn ($11.3m). First-time buyers in regular employment are eligible for subsidies: low-income beneficiaries of social housing require no down payment for a new home and begin monthly payments upon move-in, while medium-income beneficiaries pay an initial 5-10% of the total price of the unit and continue with monthly payments. The requirement to be in regular employment excludes informal workers, which constitute a considerable part of the country’s workforce (see Economy chapter).
International Financing
A number of international financing agreements have aimed to help address Djibouti’s housing shortage for lower-income populations in recent years. Among these, during the Year of Housing Djibouti was given a $5m grant from the UAE towards a project comprising 121 single-family dwellings and related infrastructure, and the construction for 1000 low-income units in the capital’s Balbala suburb began. The latter initiative, with $7m of funding from China Merchants Holding, was developed by the IOG Foundation – named after President Guelleh and formed in 2016 to improve housing supply. By 2018 the foundation had built 650 affordable homes, with an additional 1500 under construction.
With respect to more recent home financing efforts, in 2020 Djibouti submitted a request to Kuwait-based Arab Fund for Economic and Social Development for financing towards a 440-apartment social housing construction programme. This came two years after work began on a DJF3.7bn ($20.8m), 504-home residential project financed through the fund. In February 2022 the Saudi Fund for Development inaugurated a 120-unit housing project in the country, contributing a DJF1.3bn ($7.3m) grant. This followed a DJF4.9bn ($27.6m) grant for an 840-unit housing project in the outskirts of the capital, for which construction commenced in 2018.
Government efforts to widen access to quality housing with the support of multilateral funding include the Zero Slums in Djibouti Programme, launched in 2013. The initiative aims to mobilise DJF100bn ($563.4m) to invest in 14 low-income neighbourhoods, primarily located in Balbala. The programme seeks to build at least 20,000 affordable housing units, with monthly rent ranging from $85-230, by 2035. In December 2020 the World Bank mobilised $30m in additional financing, supplementing DJF4.4bn ($24.8m) in 2018, to widen the project scope. This additional funding is designed to directly benefit 114,000 people in Ali-Addeh and Hol-Hol. These two informal settlements host around three-quarters of the total refugee population, and the international organisation’s investment will target infrastructure, basic services and housing improvements.
Office & Retail
The development of high-end commercial real estate to leverage interest from foreign nationals could provide another growth avenue for potential investors. Among the country’s appeal are ongoing large-scale infrastructure projects and existing military bases, belonging to Germany, Spain, Italy, France, the US, the UK, China and Saudi Arabia . The inauguration of a new 17-storey business tower at the close of 2017 marked an important step in strengthening the country’s A-class office space offering. Developed by construction company Cosmezz and comprising 6000 sq metres of leasable area, Mezz Tower is located near important demand generators including the city centre, the free trade zone and Djibouti’s ports. The tower is expected to cater to a regional customer base in the years to come, underscoring Djibouti’s growing role within the regional trade and investment ecosystem.
Djibouti’s first large shopping mall was also launched in 2017: the $135m Bawadi Mall, built by Dubai-based Nael & Bin Harmal Investment, includes the country’s first cinema. With Djibouti’s commercial real estate still in its infancy, the segment offers wide-ranging opportunities for development, such as fulfilling demand from foreign nationals that may have high purchasing power given the current lack of high-end facilities.
The ongoing transformation of the Port of Djibouti into the Djibouti International Free Trade Zone also looks set to stimulate commercial and office real estate development in the years to come (see Construction chapter). Meanwhile, the October 2020 launch of the East Africa International Special Business Zone is poised to raise Djibouti’s appeal for regional business and investment. In terms of commercial real estate, plans include a business district, apartments, exhibition centre, conference rooms and a hotel.
Hotels & Hospitality
In November 2020 France-headquartered Accor signed a management agreement with Djibouti’s Kamaj Investment, which initially started as a real estate agency, to manage the multinational hospitality company’s first properties in Djibouti. With the completion of three projects in 2023, Accor will operate a total of 291 keys in Djibouti.
Two of the hotels are located in the Heron district of the capital – in close proximity to the free trade zone, embassies and high-end residential neighbourhoods. The first is the renovation, 40-room extension and reopening of the existing Les Accacias property under the Novotel brand. Originally intended for completion in 2022, the 110-room hotel is expected to reopen in February 2023. Within the same district and with planned 2023 completion, Accor will open a new-build Pullman Living project with 131 one-, two- and three-bedroom apartments, as well as an outdoor restaurant, coffee shop, swimming pool, fitness centre and gym. The third project involves the transformation of a heritage building within the commercial business district into a 50-key MG allery hotel, scheduled to open in 2023. The hotel offers meeting and conference rooms, a restaurant, coffee shop, swimming pool, fitness centre and gym.
Outlook
Djibouti has made considerable progress towards widening housing provision and promoting investment in the segment in recent years. Nonetheless, a sizeable housing deficit presents a challenge to the country’s long-term development agenda. International financing agreements for large housing projects can go some way towards addressing the shortfall, while steps to strengthen the financial services sector could help widen access to credit for prospective homeowners.
In the years ahead, increased revenue from logistics and infrastructure projects could help lessen budgetary constraints and provide fiscal space for public investment throughout the sector. Encouraging private-sector participation will be essential in order to unlock real estate development potential from 2023 and beyond. The prospects of increased demand for commercial real estate offerings, including prospective demand for high-end properties, could facilitate new growth opportunities for real estate developers.
Read More from OBG
