For many years, private equity or other institutional investors have been the most prominent players in the African property sector, but now something has changed. Africa is experiencing a huge population boom, so the demand of housing is increasing. Millions of Africans are moving to the cities, so a significant proportion of the demand for housing and real estate in Africa is concentrated in the big cities.
There are also many people from other continents, who are thinking to buy properties in African continent for investments purpose or other purpose. Buying an apartment in Africa is not a simple process and it is important to take in consideration the most important objective and subjective factors during the decision-making. In addition, it is necessary to analyse the real estate market, before buying an apartment in Africa. In this work we are going to analyse the real estate market in the African continent and to find in which countries the market is overvalued and in which is undervalued.
If we consider the price to income ratio, the most expensive country is Algeria, where are necessary 21.2 years to buy an apartment. Morocco is in the second place with 14.7 years, followed by Egypt with 13.6 years, Tunisia with 12.3 years and South Africa with 4.1 years.
If we consider price to rent ratio of the city centre, the real estate market is overvalued in Algeria, Tunisia and Morocco, so in these countries is better to rent than to buy an apartment. In Egypt is better to rent, but not always, because under certain circumstances buying is better. The only country where the real estate market is undervalued is South Africa, so in this country buying an apartment is better than renting.
If we consider price to rent ratio outside the city centre, the real estate market is overvalued in Algeria, Morocco and Tunisia, so in these countries is better to rent than to buy an apartment. In Egypt is better to rent, but not always, because under certain circumstances buying is better. The only country where the real estate market is undervalued is South Africa, so in this country buying an apartment is better than renting.
If we consider the mortgage as percentage of income, the most expensive country is Egypt, where the mortgage payment is about 200% of the incomes. Algeria is in the second place with 180.4%, followed by Morocco with 123%, Tunisia with 115.8% and South Africa with 49.2%.
In African continent, there are many occasions to purchase an apartment at discount price when the real estate market is overvalued, but at the same it is necessary to be careful, because there are also many apartments at expensive price despite the real estate market is undervalued.
About the data used in this work
Real estate market analysis is made considering an apartment of 90 square meters which price per square meter is the average of price in the city centre and outside of city centre. The indicators used are:
- Price to income ratio. It is calculated by dividing apartment price to median familial disposable income for a year. Lower value is better.
- Price to rent ratio. It is calculated by dividing the apartment price to the received rent income or the estimated rent that would be paid if renting. Lower values suggest that it is better to buy rather than rent, and higher values suggest that it is better to rent rather than buy.
- Mortgage as percentage of income. It is calculated by dividing the monthly cost of the mortgage to take-home family income. Lower value is better.
The data used in this work are provided by Numbeo and are relating to 2019.