Affordability key to unlocking Africa’s housing markets
Continent-wide, residential markets have been in a state of a suspended animation for the better part of two and a half years.
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With economies slowly limping back to life and international travel resuming, expatriates and tourists are returning, which is boosting demand and the performance of the residential sector as job levels recover.
Indeed, in Lagos, rents currently stand 22% higher than they were in 2019, while Cape Town (13%) and Nairobi (5%) have also registered increases over the same period.
These strong increases are likely to be curbed as housing demand in many cities is starting to shift away from city centers to the suburbs primarily due to affordability considerations, but also due to the relative gain in indoor and outdoor space. With inflation continuing to edge upwards, affordability is expected to come into even sharper focus, especially as real household incomes continue to be eroded.
Historically, housing affordability challenges have been usually addressed at government level, through various subsidies and in the current record-inflation environment, the continent’s authorities are rapidly mobilising to stave off any cost-of-living emergency. The Egyptian government, for instance, has already intervened in the residential market by reducing land acquisition costs, while other governments have tried to encourage the development of more affordable housing through tax rebates on construction costs.
"Developers recognise the scale of challenge and the continent has seen a wide range of residential property types being brought forward."
Elsewhere, the challenge is greater. In many markets on the continent, demand for residential real estate has historically been fuelled by easy access to cheap debt financing, but rising lending rates are quickly becoming a stumbling block for many house hunters. In Nigeria for instance, mortgage rates stand at over 20%, positioning them well out of reach of the average buyer, with recent transactions being linked predominantly to cash-rich diaspora.
South Africa too enjoyed a boom in deal activity in 2020 as access to debt financing was affordable due to the low prevailing interest rate, but the heightened sales activity is rapidly slowing as lending rates rise.
Developers recognise the scale of the challenge and the continent has seen a wide range of residential property types being brought forward to address Africa’s affordable housing needs. Co-living and fully furnished apartments have quickly become more mainstream and are proving to be a hit amongst locals as well as returning single expatriates.