Why Real Estate Investors Should Pay Attention to Currency Changes in Africa

The Zambian currency is currently listed as the best performing currency in the world and among the strongest currencies in Africa. This follows renewed optimism in the country due to the new administration which saw the country post impressive results with its currency appearing as one of the worst performing currencies just a year ago.

On the other hand, the The Ghanaian cedi has rapidly depreciated by more than 47% against the dollar since the start of the year, making it the second worst performing currency after the Sri Lankan rupee in August. Inflation levels also remained in the double digits recorded at 31.7% in July 2022.

Similarly, the Kenyan shilling, Nigerian naira and South African rand continued to depreciate amid rising inflation levels and external pressures.

The stakes are higher, with some countries having a lot more to lose

There is no doubt that the performance of currencies is most often an excellent indicator of the economic stability of a country. For countries like Ghana, leveraging its long-standing safe haven status has been the main premise to attract investors. However, investors currently have a reason to be nervous. With inflation already on the rise, rising debt levels and potential default, the country is expected to see a reduction. This could negatively impact new take-up in the office and prime residential sector, as well as reduce demand in the retail sector due to declining purchasing power. As such, much depends on the ability of the administration to enact monetary and fiscal policies that redress the country’s situation.

Points of light appear

For Zambia, the opposite is true. As a country in free fall for the past few years, investors are now looking at the country with renewed optimism. As the second largest producer of copper, mining interest is increasing. The country has recorded up to US$3.1 billion copper exports in the fourth quarter of 2021, an increase of 30.8% compared to the previous year. In this context, the demand for offices should recover, supported by the mining sector as well as the financial services sector. Although the market remains relatively small, it could be the launch pad for a vibrant commercial real estate sector outside of its retail sector.

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And in the East, the final confirmation of Kenya’s presidential candidate will hopefully also mean positive news for the real estate sector. If inflation does not take off further and the currency stabilizes, house prices could continue to rise modestly and transaction volumes should increase towards the end of the year. In a previous article this monthwe have highlighted the main factors likely to have an impact on the real estate sector in Kenya, post-election.

The call of the dollar

Despite the tremendous recovery recorded by some of the major countries, dollar-denominated leases remain the most preferred in the majority of countries in the commercial real estate sector. For potential home buyers as well, dollar-denominated purchases continued to generate additional savings. A buyer looking to buy a $100,000 property in Kenya today compared to a year ago will get around 9% savings if buying in local currency. While in some cities like Lagos and Accra, this translates into savings of up to 73% and 40%. Interestingly, in Zambia this would mean losses of up to 4% today compared to the previous year.

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In the graph below, we illustrate the relative percentage savings for a $100,000 property in different countries today compared to a year ago.

Source: Analysis data was taken from central bank rates in each country

While currencies remain volatile, the preference for the dollar could continue to be reflected in the real estate market in various African cities. However, the need to understand the local market is becoming increasingly evident, as the Zambian wins illustrate.

We love your feedback! Let us know your thoughts on currency impacts on the African property market by emailing [email protected].

If you would like to see a more in-depth analysis of African property markets, subscribe to the Estate Intel platform to access data such as; sale rates, yields, supply drivers and information on the major real estate market players who are active in the market.

About Ruben V. Albin

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