Residential real estate prices in Abidjan range from extremely low in the slums or “quartier precaires” as they are called, to several million Euros for luxury villas for an elite comprising of maybe 0.5% of the population. In between there is a middle class comprising maybe 5%-15% of the population that have formal jobs, are successful small scale entrepreneurs – often in the informal sector – or have relatives in a developed country sending money, and can afford rents in the 80 – 500 Euro range.
Below the middle class, there’s the majority of the city’s population living in “quartier populaires” They make a living in the informal sector or have low level formal jobs, often living in walled courts with with one-story buildings that cater for the extended family and not uncommonly animals.
Additionally, there are areas where many Europeans (mostly French) live such as Zone 4/Bietry, which are in the gap between the middle class and the super-rich.
As a buy to let investor the question is which part of the market to aim for.
The slums can probably be excluded as the dwellings there are commonly not set up legally, and risk being torn down by the authorities. I may be wrong, but I don’t think the inhabitants of the slums pay any rents.
The super luxury part of the market will have to be excluded as well, at least at this time. I don’t have the funds to buy here, and maybe one could buy land and have a luxury villa built but even that is too expensive I believe. Either way, people who can afford a luxury villa usually own it instead of renting it, so the rental market is limited. However, there could be exceptions such as foreign ambassador’s residences. I know a guy who owns a nice villa in Conakry, the Capital of Guinea, and rents it to the ambassador of a Scandinavian country. Conakry is a very different place compared to Abidjan though, and I think I’ll stay out of the super-luxury segment.
My first house is in a middle class area and the gross rental return is 12% which is not bad. Returns could be a bit lower today as prices have gone up more than rents. One advantage of the middle class segment is that tenants often get their income from Europe in Euro, making the rents and value of properties a bit more shielded against a devaluation of the local currency the CFA Franc. The CFA Franc has a fixed peg to the Euro at 655.9 : 1. In 1994 it was devalued by 50% and that might happen again.
A rule of thumb is that wealthier tenants are more likely to pay the rent and not to cause trouble. Because of this landlords demand higher risk premiums in poorer areas and consequently returns in the quartier populaires is higher than in the middle class areas. A higher devaluation premium also plays in. Still, I don’t think these two factors explain the whole difference in returns. I speculate that there is some sort of behavioural bias going on. Ivorians who are wealthy enough to invest in real estate have, I think, often a desire put a barrier between themselves and poverty and prefer to deal with better off areas if they can. Coming in from a northern developed country, African poverty seems pretty alien and nothing that could happen to you, but for the local residents it’s another story. An example of the same bias is that Africans who can afford to dress well, also do dress very well with very few exceptions – the way you dress becomes a status/class marker in a country where not everybody can afford nice clothes. Grunge was never a hit in West Africa. It’s the same thing in the real estate market, locals who can buy property in nice neighbourhoods, prefer not to deal with poor neighbourhoods.
This would seem like a good opportunity for westerners to invest in the quartier populaires, but alas, that is very difficult to do as the asking price would shoot up dramatically when the seller sees that the buyer has white skin and is presumably very rich and has poor knowledge of the neighbourhood. These areas are a bit like many small villages next to each other, and it is difficult to do business there unless you have some connection to the people living there, and it is even more difficult if you are a white European or North American.
The piece of land mentioned in the previous post is in a quartier populaire area, and I intend to let my local partner deal with it entirely.