Features of the Real Estate market in the Ivory Coast

The residential real estate market in sub-Saharan West Africa in general and in the Ivory Coast in particular, have some key features that are quite different from developed countries, namely:

Few mortgages –   Most houses are bought outright with 100% equity.  One model is that the buyer pays the developer in instalments over a multi-year period while the house is being built.  Mortgages do exist but are rare.  I checked with a local bank and the interest rates were in the 13%-15% range reflecting a high risk premium due to I’d say ultimately weak rule of law and possibly the probability of devaluation of the currency, the CFA Franc which has a fixed peg to the Euro.

High rental returns (on paper at least) –  Gross annual rents are in the range of 10% – 15% of the purchase price. The worse the neighbourhood the higher the return it seems.

Low salaries – People can be employed for 100 Euro a month which is great for passive income, but maybe less great for the country. Nevertheless I don’t think one should be ashamed of investing in Africa and hiring people for 100 Euro a month – it really helps economic growth and doesn’t twist incentives as aid money has a tendency to do.

Tax – There is a tax on real estate ownership, and on lettings – all pedagogically explained in a video clip at website of the Ivorian Tax Authority (http://www.dgici.com/). It’s basically 4% of the gross annual market rent for owner occupied properties, and 15% of the gross annual rent for lettings. However, in practice, very few people pay this tax and enforcement is a bit tricky as people are likely to protest or even riot against any attempt to collect the tax. It is perceived – correctly I’d say – that very little of the tax money comes back in form services to the people and that the bulk of it will end up in the pockets of tax officers and politicians. I think most of the Ivory Coast’s tax revenue come from custom duties – just as was the case for Western countries up until the beginning of the 20^th century (US tax revenues graph) – and I’d say a not insignificant part of the tax revenues and benefits from government privileges/monopolies go to the luxury consumption of an elite group of politicians, public officers and well connected businessmen.

Weak Rule of Law – There is a land registry that seems to work reasonably well. It might have happened, I have never heard of cases in which a property has been stolen by the fraudulent change of ownership in the land registry. However, I have heard of several cases where the same property has been sold to multiple buyers, and of terrains where the ownership I disputed. The problem is so bad that property ads for land sometimes include “non-disputed” as a selling point. In any case, in a dispute with a tenant, seller or developer, what the law says matters, but unfortunately bribes and political connections do also matter.   Worse, if the local municipality decides to mess with you (charge arbitrary taxes, demand bribes, require permissions for this and that) there is not much one can do unless one has political connections. Hence business discussions/disputes – I have seen this a few times – can morph from discussing who is right to who knows the most powerful politician. I have known an Italian lady who ran a hotel and a restaurant on an island which is part of Senegal’s capital Dakar. She had two local authorities, each claiming she should pay tax to them and not to the other. She said that she in total paid more in bribes/tax than she would have paid tax in Italy and that difference between a bribe and tax was pretty nebulous.  She had registered the restaurant business, but never managed to register the hotel business due to complex bureaucracy and seemingly never ending demands for bribes.