Botswana’s property market offers huge growth potential
August 02, 2017
The relative lack of housing supply has led to high rental yields in Botswana, according to research conducted by Global Property Guide suggesting that yields of 6.5% to 9.5% can be enjoyed on residential property in Gaborone and Francistown. This is supported by a recent research conducted by Centre for Affordable Housing Finance in Africa (CAHF), which shows that rental properties in the city centrecurrently offer high gross rental yields of 7.9%. Residential properties located outside the city centre also offer healthy rental yields of about 5.5%.
The price of a newly built house measuring 60 square metres (sq. m) starts at BWP370,000 (US$36,000) in 2016, while the average rent for a residential property stood at US$315 per month, according to the CAHF.
Botswana is rated the most attractive investment destination in Africa by the Africa Investment Index 2016 published by Quantum Global Research Lab, due to its improved credit rating, favourable current account ratio, import cover, and ease of doing business.
Botswana is also considered one of the freest economies in the region by Heritage’s 2017 Index of Economic Freedom. The government’s regulatory environment encourages growth and openness to trade and foreign investment.
The Botswana Government actively seeks out foreign investment and is happy to sell land to foreigners. Only tribal land and state land cannot be sold to foreigners, and in most areas of Gabarone (and indeed Botswana) land can be bought.
According to the World Bank, it takes about 12 days to register a property in Botswana in 2016, compared to an average of 57.5 days for sub-Saharan Africa. The process costs around 5.1% of the value of the property. To increase tenure security and improve transparency on land and property ownership, the Ministry of Lands and Housing is implementing a nationwide land registration system.
According to the IPD Botswana Annual Property Consultative Index, which is published annually by investment research firm MSCI, the total return for all properties (residential and non-residential) in Botswana stood at 16.5% in 2015, from annual returns of 11.5% in 2014, 21.5% in 2013, 17.9% in 2012, and 20.9% in 2011. For residential properties, total returns stood at 6.4% in 2015. The income return for residential properties was 4.1%, whilst the capital return was 2.2%.
Both demand and property values in Botswana are expected to continue rising modestly this year, amidst improving economic conditions, according to local property experts.
According to Lloyd Sungirirai of real estate investment and development company Vantage Properties, the residential real estate market remains upbeat, with demand for low to mid-income properties expected to be very high, amidst inadequate supply. However, Sungirirai noted that the tightening of lending criteria,and the rising popularity of unsecured credit, hinder the growth of the real estate market.
Botswana’s economy grew by 2.9% in 2016 from a year earlier, an improvement from a contraction of 1.7% in 2015 but still far below its average annual growth rate of 6.9% from 2010 to 2014. The economy is projected to grow by a healthy 4.1% this year and by another 4.2% in 2017, according to the International Monetary Fund(IMF).
Lack of supply has led to high yields in Botswana
Residential property prices in Gaborone and Francistown had rental yields ranging from 6.55% to 9.4% in December 2005, according to Global Property Guide research. Yields are now estimated to be between 7% and 10% by Seeff Properties. Knight Frank estimate that upper-end residential yields in Gabarone are around 15%, but this estimate is generally held to be not credible. Francistown yields are generally higher.
Income tax is moderate in Botswana
Rental Income: Rental income is taxed at progressive rates, from 5% to 25%.
Capital Gains: Gains from the disposal of immovable property are taxed at progressive rates, from 5% to 25%.
Inheritance: Estate tax is levied at progressive rates, from 5% to 25%. Transfer of property ownership is subject to capital transfer tax.
Residents: Residents are taxed on their worldwide income at progressive rates, from 5% to 25%.
Buying costs are low in Botswana
Buying costs are around 6.12% to8.36%of the property value. The buyer pays for the transfer duty at 5%, and conveyance fee at around 1% to 3% of the property value.
Botswana has pro-landlord laws
The law in Botswana is pro-landlord, but the force of the law is weakened by slow enforcement in the courts.
Rent: Landlord and tenant are free to agree the rent; rent control only applies to commercial properties in urban areas. The parties may also freely agree a mechanism for increasing the rent during the tenancy term.
Rent Arrears: Although the landlord’s rights are strong, the law can be slow. For example, if rent due has not been paid, the landlord has a residual “hypothec” over any movable goods the lessee has on the leased premises. But if opposed, an action to seize the goods can take 2 to 3 years to enforce.
Africa's success storyBotswana is a small-landlocked state, dominated largely by desert, savannas, wetlands, and salt pans. Nonetheless, it is home to a wide variety of wildlife that has attracted adventure-seekers from around the world. The tightly controlled tourism industry is developing into the country’s second most important industry after mining. Botswana’s population of more than 2 million is concentrated mainly on the eastern corridor where the land is more suitable for agriculture
A former British protectorate, Botswana gained independence in 1966. It has been Africa’s longest running multi-party democracy since then, and stability continues up to present. There are three major political parties: the Botswana Democratic Party (BDP), Botswana National Front (BNF), and Botswana Congress Party (BCP). Although the BDP has dominated the political landscape, competition is tolerated. President Ian Khama succeeded Festus Mogae in 2008.
Botswana is one of Africa’s success stories.After the discovery of three of the world’s richest diamond mines within its territory, Botswana experienced the world’s highest average growth rate from 1966 to 1999, transforming itself into a middle-income country with a per capita GDP of almost US$7,000 in 2016. Real GDP per capita grew by more than 240% from 1980 to 2005, the highest in Africa and one of the highest growth rates in the world.
Since then, the economy has become mainly dependent on mining; it is the world’s biggest diamond producer by value. Diamond mining accounts for about a third of GDP and 75% of all exports. The export of diamond and other minerals such as copper, nickel and gold have made Botswana one of the most prosperous African countries.
After contracting by 7.7% in 2009 due to the global financial crisis, the economy rebounded quickly in the following year with real GDP growth of 8.6%. Good management of public finance has resulted in budget surpluses in recent years.
Botswana’s economy grew by 2.9% in 2016, after contracting by 1.7% in 2015, thanks to an increase in diamond production. However, it is still far below the economy’s average annual growth rate of 6.9% from 2010 to 2014.
Diamond production increased 20.8% in Q4 2016 from the previous quarter and by 14.3% when compared to a year earlier, according to the Central Statistics Office (CSO). The mining production index stood at 82.4 in Q4 2016, up from 74.4 the previous quarter and 77.9 in the same period last year.
Debswana Diamond Company, a partnership between the government of Botswana and De Beers Group of Companies, produced 20.9 million carats of diamonds in 2016, up from 20.4 million carats in 2015. Moreover, diamond sales reached 26.3 million carats in 2016 generating BWP40 billion (US$3.9 billion), compared to just 14.7 million carats sales in 2015 that generated BWP24 billion (US$2.3 billion).
The economy is projected to grow by a healthy 4.1% this year and by another 4.2% in 2017, according to the IMF.