Côte d'Ivoire's real estate segments work to meet large unmet demand

Côte d’Ivoire’s real estate sector has witnessed strong activity in recent years, as stability returned to the country and a shortfall in property availability across market segments has attracted international investors and developers. A state initiative to build up the social housing segment is taking off with backing from local and Moroccan developers in particular, having previously faced long delays (see analysis). Strong demand is also driving growth in the mid-range residential segment, while the office and retail markets have seen their share of renewed activity as well.

Challenges for the sector include difficulties accessing financing, rising land and cement prices, government delays in the construction of roads and utilities networks and issues surrounding land ownership. However, measures are under way to tackle some of these hurdles, including an expansion of domestic cement capacity and the launch of a national land registry.

Return To Activity

Ivorian real estate has witnessed a major boom in recent years, driven in part by growing foreign investor interest. “There was very little investment in real estate during the years of crisis, which lead to a major shortfall in housing construction,” Mariam Mahama, commercial director of local real estate agency and developer Kalimba Immo, told OBG. “However, when stability returned following the 2011 elections, international investment funds began to release financing again, leading to a large increase in the number of projects under way in both the public and private sectors,” she said, citing UK emerging market-focused private equity fund Actis, which is involved in several projects around the country. “Côte d’Ivoire has also seen a four-fold increase in the number of property developers active in the market, to around 20.”

Williams Bella, partner at real estate services and management firm Alleb Group, said that foreign investor interest is particularly concentrated on the prime office and retail segments in popular areas of Abidjan, but broader involvement is constrained by complexities of the local market. He suggests foreign companies seek information from and develop partnerships with Ivorian actors. “There are a few exceptions, like Moroccan developers in the social and mid-range housing market or a UK-based investment and development company with offices in Abidjan, but they invest due to a good relationship with Ivorian entrepreneurs who provide them with a better understanding of the local market,” he told OBG. “Foreign investors are otherwise rarely interested in residential projects, as those involve more domestic counterparties and there is even less understanding of local rationale than in other segments.”

Rising Prices

While the recent market activity has been good for developers, the consequent rising cost of plots has put some pressure on their margins in the last few years. “One challenge is the increase in land prices – the boom in the construction sector has made land owners increase their prices to the point of them doubling or more,” Alesia Adou, CEO of real estate intermediary firm Cerisier Holding, told OBG.

The sector was also hit in 2017 by a shortage in the supply of cement – a recurrent problem in recent years – which has pushed up costs for developers. “The government has been working to try to improve the availability of cement, and the increased import allowances have had some impact, but the problem has yet to be resolved, and the last two months have been difficult,” Nadine Bahi, commercial director of real estate developer Batim CI, told OBG in June 2017. However, local cement suppliers are currently ramping up capacity, which should ease such pressures from 2018 onwards (see Construction analysis).

Land Availability & Ownership

The rush of construction has exacerbated a land shortage in central areas of Abidjan, pushing up prices and leading residential developers to look outside the city for plots to build on. This trend is seeing developers acquire an increasing number of plots over which villages exercise customary rights, but to which no one has ever had formal title – a process that can prove difficult and risky, and has helped keep foreign investment funds out of the residential market. “Buying village land is very complicated and time-consuming for foreign investors, and can go badly wrong,” Mahama told OBG. “Purchasers have to ensure they are fully knowledgeable about the situation, are buying from the right person and that the land has not already been sold to someone else,” she added, noting that there was a substantial amount of fraud in relation to such purchases. The state has launched an electronic land registry, which should reduce issues related to plot titles, and has been rapidly expanding its network of one-stop shop real estate offices, with 73 open as of early 2017. By gathering all actors involved in issuing a building permit into one space, the process has become quicker and more transparent.

Residential

Strong economic growth since 2011 has led to high levels of demand for housing. Jean-Francois Moreau, CEO of local real estate developer Promogim, told OBG that levels of residential property demand decreased slightly in early 2017, but he thought they would remain high provided the wider economy continued to experience strong growth.

A lack of development activity during the country’s years of crisis and conflict, as well as continuing obstacles to sector expansion, have led to limited availability in certain segments. Bella said Côte d’ Ivoire suffered from a lack of supply in the mid-range and lower-tier markets in particular, which cater to citizens earning salaries between CFA100,000 (€152) and CFA1m (€1524) per month. “Mid-range housing is less profitable and more risky than upscale projects, as counterparty risk is higher and there is a shortage of firms with the technical know-how to make large-scale, middle-income developments profitable,” he told OBG, noting factors such as longer-than-normal terms to secure land titles or high duties on imported construction materials that put margins in the segment under further pressure. “The arrival of a number of local, regional and North African firms to the segment is likely to improve the situation, as they have a better understanding of local real estate dynamics. However, it’s not clear how fast the government will conduct infrastructure works such as roads and water supply for the locations they have selected,” Bella added. By contrast, he said that there has been a recent spurt in the construction of high-end residences around Abidjan, which he said the market could take time to absorb in some areas, although it is yet unknown if this will have a major impact on price tags.

Still, the combination of high demand and legacy supply shortages has been pushing up rents and sale prices across the market. “Prices are rising in all housing segments and in almost all areas,” Mahama told OBG. “The only exception is the southern quarter of Abidjan. Demand there used to be high, as it is near the airport and allows easy access during times of trouble, for example, when bridges are closed. The area contains a mix of residential, commercial and industrial facilities, but with the political situation having stabilised, demand has shifted towards proper residential zones, which has led to a 30-40% fall in rents there.”

With land in and around Abidjan in increasingly short supply, and sale price restrictions in the social housing segment necessitating economies of scale, developers are looking to high-density, multi-storey apartment blocks. However, some observers believe a cultural aversion to apartment living and high-rise projects in particular will be difficult to overcome. Palmeraie Développement of Morocco has opted to forego the higher margins associated with vertical construction and limit the height of its buildings to a maximum of two stories in order to boost the appeal of its units.

Other industry figures say that such concerns have been over-stated. “The idea that African communities are reluctant to live in apartments is a misconception. As in every other market, dwelling trends change over time, and given the availability of land and limited spending power, apartment blocks offer great opportunities for developers,” Siriki Sangaré, CEO of local real estate firm OPES Holding and president of the National Chamber of Developers and Builders of Côte d’Ivoire, told OBG. A regional player further afield takes a cautiously optimistic approach. “People frequently talk about the cultural challenges related to Ivorians living in apartments, but all countries go through a similar stage of development, and people’s habits will adapt,” Kazem El Khalil, country manager of Lebanese construction company and developer SEG, told OBG.

Office Market

Most prime office development is taking place in the upscale Plateau neighbourhood of Abidjan, which functions as the city’s central business district, and where restrictions on building height are less stringent than other areas. Major developments under way in the economic capital include the Renaissance Plaza project, being built by Actis as a public-private partnership project on the site of the district’s former central market. Construction work on the project began in late July 2017 and is due to be competed in the second half of 2019. The CFA55bn (€82.5m) development includes a 15-storey office building with a 1500-seat conference centre, as well as a five-star hotel. Other multi-storey office towers were being developed by international firms in Abidjan during 2017, reflecting confidence in the segment.

Mahama said demand in the market was robust as evidenced by sales figures. “Demand varies by neighbourhood and in relation to factors such as the quality of the space, but overall it is strong,” she told OBG. However, she noted that rental demand was more subdued. “Firms looking to rent are generally reluctant to sign multi-year leases, given the high degree of political and economic uncertainty in the country.”

Retail

Côte d’Ivoire’s retail real estate segment has seen substantial growth in recent years, and has emerged as one of the best-developed markets in francophone West Africa. December 2015 saw the inauguration of the 20,000-sq-metre PlaYce Marcory in the Marcory area of Abidjan by Japanese-owned developer Comptoir Français de l’Afrique de l’Ouest (CFAO) and French retailer Carrefour. In a 2017 report, global real estate consultancy Knight Frank described the facility as the city’s first investment-grade mall.

In August 2016 the Cocody district saw the opening of Abidjan Mall – the largest retail space in the country. The 35,000-sq-metre facility was built at an investment cost of CFA5bn (€7.5m) by developer Orca Deco, which also operates three smaller malls in the city. In June 2017 CFAO opened another mall, PlaYce Palmeraie, also in Cocody. The 29,000-sq-metre shopping centre includes a 2000-sq-metre Carrefour hypermarket.

Industrial Zones

To improve the state of the country’s real estate stock and boost the quality of life in residential areas, the government is in the process of developing or rehabilitating four dedicated industrial zones and urging companies that have established factories in residential areas to move to the zones. The four zones are located in Yopougon, Vridi and Koumassi, and Akoupé Zeudji near the PK24 marker on the Northern Highway – all in the greater-Abidjan region.

Companies can apply to the Ministry of Industry for an exemption to the move, which will be granted if they are not judged to have major negative environmental or community impacts in their residential area. However, authorities recommend such firms move to the industrial zones wherever possible, given a lack of transparency regarding land ownership and acquisition in many of the plots used for such purposes in non-industrial areas of the city. Companies that move to the zones will also benefit from a real estate tax exemption.

Financing

undefined One issue for the sector is that access to finance, which is often problematic for both retail purchasers and property developers. “Financing is a major problem for new developers entering the market,” Bahi told OBG. “Without any experience such as completed projects, they will struggle to obtain bank loans.”

Experienced developers, meanwhile, prefer to seek funding beyond loans from financial institutions. “Interest rates are high, so developers usually try to keep bank financing to below 50% of the cost of a project. However, rates are now starting to fall as a result of growing competition between banks, which is encouraging,” Mahama told OBG. Projects completely funded by the government are rare, prompting developers to secure financing from private sources for both their own projects and participation in state-led initiatives.

“Given the strain on state budgets, developers must look to finance real estate projects privately with the help of foreign capital or development funds,” Sangaré told OBG. “Doing so may result in lower interest rates and longer loan maturities, thus making properties more affordable for buyers.”Households can also struggle to manage mortgage payments, which involve interest rates of around 8-9% over 20 years. While a state fund to guarantee mortgages exists, in practice it is not actually refinanced by the government, meaning it has not helped lower interest rates.

Mohamed Yacoubi, director-general for Africa of Palmeraie Développement, told OBG that proper utilisation of the fund could benefit many citizens. “In Morocco and several other countries, the creation of guarantee funds backed by the state have allowed banks to lower their mortgage rates to 4-5% spread over as much as 25 years, which increases the number of people able to qualify for a loan,” he told OBG. Nevertheless, 2017 saw banks pay more attention to the housing market by creating more attractive products: “For the last four to five years, banks have started making efforts when it comes to financing real estate projects. The Treaty on the Harmonisation of Business Law in Africa (OHADA) has improved the security of investments across the sector, allowing for a reduction in risk, thereby lowering interest rates. Today, we are seeing competition in the financing of the sector with interest rates ranging from around 7% to 8% with maturity of up to 20 years. Back in 2011 to 2013, these numbers were 12-13% with 7-10 years maturity, tops,” said Serge Tidiane Diop, CEO of Africa Link Capital.

Alleb Group’s Bella thinks including a rental option for social housing initiatives rather than exclusively selling units could also help households labouring to repay mortgage loans. “With the unique selling scheme, many candidates for social housing will struggle to obtain bank credit and pay current high interest rates, so it would make sense to allow people to rent as well as buy,” he told OBG. “Côte d’Ivoire could also follow the lead of South Africa and Morocco, which have successfully developed social and economic housing via government involvement in back-stopping mortgages.” Underscoring this, 68% of Ivorians rent rather than own their homes, according to a 2015 study by Knight Frank.

Outlook

The future of Côte d’Ivoire’s property market will depend in large part on the country’s wider economic performance, which the IMF forecasts will remain strong in the coming years, with annual GDP growth to stay above 7% through to 2019. Rising land prices and the reduced availability of prime plots in Abidjan act as constraints on the sector, but development should receive a boost in 2018 from the anticipated end of the recent shortfall in domestic building supplies.