Botswana's thriving housing market
Lalaine C. Delmendo | December 06, 2019
Botswana's residential property market, while relatively underdeveloped, seems to offer huge growth potential. This beautiful country offers marvelous wildlife tourism, with excellent all-year weather, and its thriving diamond mining industry gave it the world's highest average growth rate from 1966 to 1999, transforming it into a middle-income country with a per capita GDP of almost US$8,000 in 2018.However the imposition of a 30% transfer tax on foreign property buyers will dampen demand. But this has not yet stalled the rise in house prices.
In the first quarter of 2019, the average price of residential property rose by 11.4% to BWP 852,529 (US$78,430) from the same period last year, according to Bank of Botswana's Monetary Policy Report October 2019. Quarter-on-quarter, residential property prices rose 11.1% in Q1 2019.
Land prices are rising too, though inexpensive by international standards. Freehold land within the city centre of Gaborone had an average price of BWP1,320 (US$121) per square metre (sq. m.) in 2018, according to CAHF. This means that a small plot of 300 sq. m. in the city would cost around BWP396,000 (US$36,400). Land in rural and urban villages is still cheap, with prices ranging from BWP 230 (US$ 21) to BWP 260 (US$ 24) per sq. m.
The continued rise in house prices was partly because Botswana is rated as one of the top 5 most attractive investment destinations in Africa by the Africa Investment Index 2018 published by Quantum Global Research Lab, due to its improved credit rating, favourable current account ratio, import cover, and ease of doing business, and it is rated one of Africa's freest economies by Heritage's 2019 Index of Economic Freedom.
The Botswana Government actively seeks out foreign investment and is happy to sell land to foreigners. Only tribal land and state land cannot be sold to foreigners, and in most areas of Gabarone (and indeed Botswana) land can be bought.
Analysis
of Botswana Residential Property Market »
Lack of supply has led to high yields in Botswana
Residential property prices in Gaborone and Francistown had rental yields ranging from 6.55% to 9.4% in December 2005, according to Global Property Guide research. Yields are now estimated to be between 7% and 10% by Seeff Properties. Knight Frank estimate that upper-end residential yields in Gabarone are around 15%, but this estimate is generally held to be not credible. Francistown yields are generally higher.
Income tax is moderate in Botswana
Rental Income: Rental income is taxed at progressive rates, from 5% to 25%.
Capital Gains: Gains from the disposal of immovable property are taxed at progressive rates, from 5% to 25%.
Inheritance: Estate tax is levied at progressive rates, from 5% to 25%. Transfer of property ownership is subject to capital transfer tax.
Residents: Residents are taxed on their worldwide income at progressive rates, from 5% to 25%.
Buying costs are low in Botswana
Buying costs are around 6.12% to8.36%of the property value. The buyer pays for the transfer duty at 5%, and conveyance fee at around 1% to 3% of the property value.
Botswana has pro-landlord laws
The law in Botswana is pro-landlord, but the force of the law is weakened by slow enforcement in the courts.
Rent: Landlord and tenant are free to agree the rent; rent control only applies to commercial properties in urban areas. The parties may also freely agree a mechanism for increasing the rent during the tenancy term.
Rent Arrears: Although the landlord’s rights are strong, the law can be slow. For example, if rent due has not been paid, the landlord has a residual “hypothec” over any movable goods the lessee has on the leased premises. But if opposed, an action to seize the goods can take 2 to 3 years to enforce.
Economic growth to slow, as diamond demand weakens
After three of the world’s richest diamond mines were found, Botswana's GDP per capita grew by 240% from 1980 to 2005, one of the highest growth rates in the world.Botswana is now the world’s biggest diamond producer by value and the second largest by volume (next to Russia). Diamond mining accounts for a third of GDP, and around 70% to 85% of all exports.
Debswana Diamond Company, a partnership between the government of Botswana and De Beers Group of Companies, produced 24.1 million carats of diamonds in 2018, up 6% from a year earlier, buoyed by strong demand from the US, China and India. Debswana is the biggest contributor to Botswana’s government revenues.
The economy grew by an annual average of 6.9% from 2010 to 2014. The economy contracted slightly in 2015 by 1.7% due to falling diamond prices. In 2018, Botswana’s economy grew by 4.5%, up from the previous year’s 2.9% expansion and the highest growth since 2013.
However during the year to Q3 2019, Debswana’s diamond production fell by 2% y-o-y to 17.4 million carats, amidst faltering demand. During the same period, De Beers has thus far recorded diamond sales of just US$3.21 billion, sharply down from US$5.39 billion and US$5.31 billion by the corresponding period in 2018 and 2017.
As such, the government recently revised its GDP growth forecast for 2019 to 3.6%, down from its earlier estimate of 4.3%.
“After a relatively good performance in 2018, the economy is facing headwinds in 2019 related to weaknesses in the diamond market, a severe drought, and slower growth in neighbouring countries,” said Papa N’Diaye of IMF.
Unemployment is high. During 2018, the overall jobless rate stood at 17.9%, slightly up from 17.6% a year earlier.
In October 2019, inflation slowed to 2.4%, down from 3% in the previous month and the lowest level this year, according to the Bank of Botswana. Inflation in Botswana averaged 8.3% in 2000-2013 before falling to an average of 3.4% in 2014-2018.
President MokgweetsiMasisi’s ruling party, Botswana Democratic Party, extended its 53-year grip on power after winning 38 out of the 57 national assembly seats during the general election held last October 23, 2019. Masisi vowed to focus on job creation and to continue fighting widespread corruption.