Supporting the Policy Environment for Economic Development

What’s happening with the real-estate market in Mozambique?

Greater attention needs to be given to the real-estate market “bubble” and its implications to the economy. The current trend sees prices higher than justifiable. In the city, rent prices are now only quoted in dollars.  Rents have increased dramatically over the past four years; purchase prices have doubled. The most common type of property has three bedrooms and we are talking about $3k per month, you can find properties in prime areas for $7k per month! For purchase prices you’ll find that the same property might be sold for about $500k— sometimes more  - that is, in country with $573 GDP per capita. For  old residents of town, the opportunity cost of not leasing / renting out their homes becomes overwhelming, driving traditional city dwellers (such as  myself) to live in the outskirts of town.

The only valid justification of this phenomenon is due to the gradual “dollarization” of the economy, stemming from (1) AID agencies that pay staff in dollars and (2) International Oil and Gas companies that  pay above market salaries. This in turn lead to speculation by ambitious brokers that have pushed prices to new heights, though these extraordinary prices  are met by a seemingly inelastic demand!  Quality becomes the only real market differentiator as prices are speculated based on location. In certain places, tenants are even willing to “fix up” houses with their own money as to secure the space. So, calling it a bubble might be a stretch, because the reality of the matter is, even though prices seem be continuously rising, they're inclined to do so in the face of the sky rocketing demand. So the question is,  if this situation persists (contrary to my own free market new liberal  beliefs) in the medium to long term, are there regulatory mechanism that  need to be implemented to bring down the equilibrium price?

Carlos Matos