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Pre-Feasibility Study Report: (Picoco Iii Housing Development Project) at Boane, Matola District, Maputo, Mozambique
Pre-Feasibility Study Report: (Picoco Iii Housing Development Project) at Boane, Matola District, Maputo, Mozambique
Prepared by
Indala Consulting Services (Pty) Ltd
The Avenues North, Birch
6 Mellis Road
Rivonia,
Sandton,
2128
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
EXECUTIVE SUMMARY
This report elaborates the technical, market and financial feasibility of implementing a housing
development project in the greater Matola Municipal area, Boane District, close to the city of
Maputo, Mozambique. Prior to the presentation of site specific details it also includes some general
information about the demographics and economic highlights of Mozambique as background
information on the project.
According to the mobilized funding for the project, potential capacity of the allocated land (271ha) is
around 4000 housing units, stand-alone houses and apartments included. Capacity projected to be
utilized in the first phase of the project is around 1000 housing units.
The agreement between the Fundo para o Fomento Habitacao and Imbani Projects (Pty) Ltd to
develop the Boane district using the latest construction technology from South African will retain up
to 60% of professionals considering relocating from Mozambique due to accommodation challenges.
The total cost of the project in the initial stage will be US$133 391 940, the subsequent phases will
be funded from sales and rental proceeds. The Net Present Value (NPV) and the Internal Rate of
Return (IRR) is estimated at US$11 018 000 and 53% respectively. It was FFH’s wish that the
project be a minimal profit project.
The growth of the Mozambican economy has brought about need for industrial, light industrial and
warehousing space. The general growth of the population over available infrastructure has increased
the demand for space to rent and buy.
The technical, financial and market feasibility of this project is satisfactory and it can be
recommended as a very good investment opportunity.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
TABLE OF CONTENTS
i) COVER PAGE
ii) EXECUTIVE SUMMARY
iii) TABLE OF CONTENTS
1 GENERAL INFORMATION
1.1 MOZAMBICAN DEMOGRAPHICS
1.2 MOZAMBICAN ECONOMIC PERFOMANCE HIGHLIGHTS
1.3 HOUSING PARASTATAL & MANDATE
1.4 PICOCO III HOUSING DEVELOPMENT PROJECT OVERVIEW
2.0 SITE INFORMATION
2.1 LOCATION
2.2 ACCESS
3.0 TECHNICAL ANALYSIS
3.1 SITE LOCATION
3.2 HOUSING TYPOLOGIES
3.2.1 UNIT TYPE 90A
3.2.2 UNIT TYPE 90B
3.2.3 UNIT TYPE 110A
3.2.4 UNIT TYPE 11B
3.2.5 UNIT TYPE 130A
3.2.6 UNIT TYPE 130B
3.2.7 UNIT TYPE 150A
3.2.8 UNIT TYPE T2B
3.2.9 UNIT TYPE T3B
3.2.10 UNIT TYPE T2C
3.2.11 UNIT TYPE T3C
3.2.12 UNIT TYPE T4
4.0 REAL ESTATE MARKET ANALYSIS
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
1 General Information
1.1 Mozambican Demographics
The total population in Mozambique was last recorded at 25.2 million people in 2012 from 7.7
million in 1960, changing 229 percent during the last 50 years. Population in Mozambique is
reported by the World Bank. From 1960 until 2012, Mozambique Population averaged 14.3 Million
reaching an all-time high of 25.2 Million in December of 2012 and a record low of 7.7 Million in
December of 1960. The population of Mozambique represents 0.35 percent of the world´s total
population which arguably means that one person in every 291 people on the planet is a resident of
Mozambique.
25
20
15
Mozambican Population
(Millions)
10
Source: www.tradingeconomics.com
Of the 25.2 million Mozambicans, the populace aged between 0 and 14 years constitute 44.1%,
52.6% of the population is between 15 and 64 years of age , while those above 65 years of age only
constitute 3.3%. This thus shows that more than half the population is the economically productive
stereotype and thus ought to be catered for accommodation wise individually and dually (married) .
Since the end of the colonial era in 1975 up until the end of the Mozambican civil war in 1992, the
country had negative growth economically but has since emerged to become one of the world’s
fastest growing economies to date. With a Gross Domestic Product of US$14.59 billion and 7.4%
Growth rate as well as a controlled inflation of 1.1%, Mozambique has been growing in
competitiveness over the past several years.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
Mozambique’s economic growth to exceed 7% in 2012, boosted by strong public and private
sector investment, easing of monetary policy and continued growth of the agricultural sector
(the largest economic sector);
In 2011, the MZN was among the top performing currencies in the world, boosted by strong
FDI inflows, tight monetary conditions and the implementation of a new foreign exchange law.
Aluminium makes up above 50% of Mozambique’s total exports and is an important
FX earner for the country;
• Large mining projects (particularly coal and natural gas) provide a key pillar for growth, and
foreign direct investment is expected to remain strong;
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
• Throughout 2011 a number of companies drilling for gas and oil in the Rovuma
basin (Northern Mozambique) have consistently reported significant findings of large natural
gas reserves, making this area one of the greatest gas fields to be unveiled over the last
decade and putting Mozambique in the world map of gas;
• A number of key investments in the energy sector (thermo and hydro-electric generation as
well as in energy transportation) should create the conditions for further growth in other
sectors such as industry, potentially inducing further economic growth;
• Large investments in infrastructure (rail, airports and ports) connected to the main sectors
driving DFI are expected to have a strong impact in other areas of the economy, including
tourism, agriculture and agro-industry, improving logistics and more generally the viability of
investment projects.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
Despite this positive growth, Mozambique still has inadequate infrastructure mostly in the housing
sector. To this effect, one would expect that as an individual grows and they start working, that they
would move out of their parents’ house and rent an apartment. For most Mozambicans this notion is
not true as they continue to live with their parents due to unavailability of housing stock. The lack of
adequate supply of housing stock forces the rental rates upwards. Rentals in the Maputo CBD are
currently tagged at approximately US$4,000 for a two bedroom 70m² apartments. A similar type of
apartment can be purchased for an equivalent of up to US$300,000.
In the recent past, the FFH mandate has been expanded to include, inter alia, facilitation of
mechanisms to attract local and foreign financing schemes for government housing programs as well
as establishment of partnerships with developers and funders to achieve this aim. With these
activities, it was anticipated that the FFH will be able to fund its operation in the long-run without
relying on allocation from the Ministry of Finance.
The housing units on offer will range from 50m², one bedroom apartments, to a standard two
bedroom apartment, a variety of three and four bedroom apartments to three bedroom townhouses
and a double-storey four bedroom stand-alone house type. The architecture of the units will be
contemporary, spacious and, indicative of refined opulent urban living.
Developed as a modern and affordable lifestyle estate, Picoco III will have a strong emphasis on
“green” living and residents will be encouraged to reduce their carbon footprint where possible.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
Picoco III will set the benchmark for mixed use residential developments in Mozambique and in
every instance the development will provide the end-user a valuable asset of lasting quality and
integrity.
2 Site Information
2.1 Location
Picoco III housing development will be located 30km west of the city of Maputo, in the Boane
District of the Maputo Province.
Source: Google maps website; an aerial view of the location of Picoco III Housing Development
project
2.2 Access
The construction of a 5km road to link the Boane District to Belo Horizonte will be the main
accessibility tool. Belo Horizonte then links Picoco III to every other major location and will be fully
refundable by the Mozambican government upon completion. To this effect the development will
also offer shuttle bus facilities on regular intervals between Picoco III and the Maputo CBD, Matola
and the airport. The shuttle buses would be to offer alternative transport facilities to people who do
not want to travel to work in their own cars as well as provide transport to students who prefer going
to schools in the Maputo CBD or Matola areas.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
3 Technical analyses
3.1 Site Selection
The location was provided by the Fundo para o Fomento de Habitaciao (FFH) as all land in
Mozambique is owned by the government. This therefore elaborates the fact that this land was
pegged for such a development in the Maputo expansion master plan. Imbani Projects in its
agreement with FFH are required to perform the construction process, engineering, and architectural
designs for the project and post-construction management (facilities management).
This site was chosen as it is the best location for a commuter town where workers can commute to
work around the Maputo province conveniently.
NB: the second option (cheaper) in typology mix involved no construction in phase 1 of Unit
Types T2A, T2B, T2C, T3B, T3C, T4
Indala took particular care in sustaining its assumptions used in financial modeling and
advisory work on its clients investment projects based on quantifiable and observable data,
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
With demand largely outstripping supply, current real estate market conditions are very
favorable for green-field real-estate developments;
Given the long-term nature of the investments fuelling Mozambican economic growth, it is
reasonable to assume that the real estate market will not get to close saturation for the next 5-10
years particularly in the regions where most large investments are to take place;
With a growing influx of FDI, there is a major supply shortage of high end homes and grade A office
space ,that are targeted primarily at the international market and investor community;
The current stock of quality housing is experiencing a huge pressure from expatriates for 3-4
bedroom, hence supply of houses for this segment strong. Grade A office rental space will remain
difficult to find because of the scale of the offerings and the tendency to offer space to buy rather
than to let.
A major obstacle for the development of real estate assets is the difficulty in accessing financing; the
inexistence of adequate financial instruments (such as fluid/structured capital markets or dedicated
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
investment funds) determines that most funding relies on debt from commercial banks which, given
the low level of own capital by promoters and relatively high interest rates, seriously limit the
financial capability to develop real estate projects;
Despite the strong signs of a booming – as much as sustained – market, the prevailing high- risk
perception of Mozambique as an investment destination and the general lack of reliable data on the
market adds on to deterring main-stream foreign investors to enter it;
Short track-record of local promoters and uncertainty on exit strategies further determine the
relatively low investment pace on the supply side to accommodate the soaring demand for real
estate products;
Still, demand is strong and prospective returns on real estate projects are extremely attractive.
Fast growth is also fuelling competition among contractors and suppliers of building materials
which combined with increasing scale is pushing down building costs and extending margins for
developers;
The development of the real estate sector is also contributing to the improvement of local
capabilities in all aspects of project implementation/management, from conceptualization and
planning to actual building and market placement, be it in direct technical areas or in its financial
structuring and backing-up; despite this trend, the Mozambican market significantly lags behind
mature markets in experience and expertise;
While overall presenting firm growth indicators, the market is rather thin and overshooting supply is
a risk; off-take agreements from key buyers/tenants, differentiation factors, added- value propositions
are strategies that minimize such risks; good local intelligence is key;
The market demand is generally geared towards rental-type of products as for the greatest part
demand is based on the large investment projects (mining, gas,…) which do not want to add real
estate assets to their core, high-capital intensive investments and/or those expat workers who will rent
before buying property.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
Real
Estate
Warehousing
Logistics
Retail Industrial
i. Substantial and growing FDI fluxes and the technical and management staff
associated with these investments, directly by the investor companies or their suppliers;
ii. Growing middle-class of Mozambican citizens with increasing purchasing power
and wider access to credit;
iii. General high growth rate of the population with a relatively stable stock of built
houses over the previous decades;
iv. Private investors applying excess wealth in real estate assets.
Given the fast growing in demand and prices, housing is also a central priority in
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
governmental policy. Since most new supply of housing by the private sector is focused on
the higher end of the market, the government has stepped in to encourage solutions to lower
income segments. Such policies concurrently aim at controlling urban development in a
sustainable fashion.
The sub-segmentation of the housing market is crucial when defining the real estate
investment profile and correctly position it in the market. Different positioning strategies
may be equally valid depending on the particular supply and demand trends in particular
areas.
4.3.1.2 Office
Demand for office space is primarily originated by the large corporations directly involved in the
anchor investment projects but is then replicated by the numerous business opportunities they
encompass.
Primary suppliers to these projects are rapidly positioning themselves in
Mozambique driving up demand for office space, including service
providers (ranging from technical consultancy practices to legal advisory,
IT, banking and insurance, within a much vaster array), equipment,
materials and consumer goods sellers as well as manufacturers.
The magnitude of the investments underway are continuous and increasingly pulling a wide range of
SMEs into the Mozambican economy, all demanding for suitable premises from where they can
operate their businesses.
Given the long-term nature of the underlying primary large investments, it is predictable that the
trend is also of durable nature. The dispersion of the large investments along the various pivotal
points where they are settling in makes the trend widespread even in regions where formal economic
activity has been sparse or nearly inexistent.
The increase in demand is not only in the office space (size) itself but also in its sophistication
with service and quality aspects gradually gaining relevance.
4.3.1.3 Retail
The economic growth brings along changes in consumer needs and
habits. The prevailing traditional retail landscape is gradually giving way to
new commercial areas where modern retail is increasingly gaining
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
relevance. In most urban areas larger operators, with particular relevance for South African retail
chains, are opening new shops as anchor tenants of malls and shopping centers.
The general growth trend of the economy, as far as retail is concerned, is further speeded up by the
increasing numbers of people entering the formal employment market, away from agriculture into
extractive, processing and services industries. With average disposable income on the rise there is a
growing demand for consumer goods and retail is booming, particularly in its modern formats.
Adding to this the expat community is also expanding bringing with them the consumption needs and
habits as much as the purchasing power.
Retail is on the rise as much as the demand for space specifically conceived for it, particularly in the
key geographic areas where economic expansion is strongly felt. The retail chains, keen to expand
in this market, offer the possibility of conceiving real estate retail areas together with their future
tenants, diminishing the investments risks. They are generally ready to enter long-term contracts
which diminish uncertainty over future cash flows from investments in retail parks, malls or other
formats.
The existing infrastructure is just a marginal part of what will be when mining, gas and other
investments reach full scale operations. The gap is wide and offers numerous investment
opportunities, in terms of space/premises required as well as the management and handling
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
expertise.
From single warehouses to large multimodal logistic platforms, a number of projects are currently
taking shape and will require adequate funding.
The critical consequence is that most real estate products should be conceived taking this factor into
consideration. If highly geared, the financial charges may eat up a considerable part of the returns
and if not properly financed (adequate time span) they may actually not survive to see the light of
day. On the other hand, the rents are increasing sharply and may yield much higher returns for an
investor with a longer term perspective.
Coincidently, while build-to-sell products face slow market acceptance and penetration, build- to-rent
are in sharp contrast facing an unmet demand willing to pay substantial premiums for not having the
initial capital outflow associated with the purchase.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
They generally struggle to raise adequate funding and are based in little or no
previous research, lacking the necessary analytical basis on their planning stage.
Projects are built based on the general assumption that the demand will rapidly
absorb whatever is offered. While to some extent that has been the reality, such loose approach will
most probably lead to a number of investment flops, and if not so drastic, most investments will be
far from achieving their potential returns with sub-optimal options being taken.
Existing projects in search for finance and equity partners exist in all major segments, be it
geographically, by product type and size.
A strategy for entering the Mozambican market should take into consideration that most projects will
be presented as green-field and require additional effort to improve them up to being best options.
Such a strategy at this stage makes good business sense although may deter less flexible players from
entering.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
For an investor, particularly of a more financial nature, this means that entering the project in early
stages and contributing to its design and financial planning phases may bring additional gains.
Generally most existing projects an investor may consider to participate in still require some effort in
their various components. It does not mean they are not good investment proposals, it just means
that the prospective investor may see advantages in entering at an earlier stage and not expect to
be presented with “ready-to-invest” propositions. Such approach may encompass a significant
up-side not to mention being in itself a clear risk-mitigation strategy.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
Scale
Project scale somewhat reflects the development stage of the market. Scale/size of projects is quite
diverse ranging from stand-alone buildings to large urbanizations up to one billion USD investment
schedule. The most common projects are worth up to one hundred million USD (investment size).
1000
4.3.3.2 Investment/ Exit Strategy
The simple perception that the Traditional Exit Alternatives
market is booming is not enough
to enter it as what an outsider will Corporates
End Market
see is a blurred picture of a
Individuals
changing reality which in financial
Exit
terms is equivalent to high perceived Structured
Investment
risk. Since for its own nature real Markets
Second Stage Investment Funds
estate investments require significant Investors
up-front capital commitments, this
risk translates into limited funding Individuals
available.
The financing of real estate projects is further limited by the fact that the
bulk of the market is on the rental side. While returns are high, the
profile changes dramatically in terms of the time span they occur. In
addition to facing an undefined investment environment, the investor is
asked to wait for long-term prospective returns. It all adds up to deter investors.
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
There is a great deal of space for further structuring the projects, by creating innovative project-
finance type of solutions to ensure viability and mitigate high perceived risks. For investors willing
to make the effort, the market offers potentially high returns. The traditional resource to commercial
banks debt as the primary source of finance should give way to other possibilities, from equity to
hybrid financing instruments for it is not enough, adequate and local banks exposure to real estate, in
a context of limited capital, seriously hinders their appetite for additional financing the sector.
A serious concern for someone investing in green-field projects is the options to exit the investment.
Thus far the projects have been pretty much developed with the end market (end users) as the
prospective off-takers of the investment.
Yet, with the development of the market and the growing interest it is generating, additional options
are becoming viable, particularly with the formation and entrance of real estate dedicated funds with
a longer term approach, willing to keep the assets in their portfolios as a source of a steady income
stream.
The trend is quite tangible with an increasing number of different funds of different origins
and sizes enquiring on potential investment targets.
As the sector evolves the spectrum of exit strategies will become wider benefiting those who took
the risk in its early stages.
the supply side of the industry. Understanding the dynamics of this fast evolving environment is not
only fundamental, it requires creative research approaches to get the relevant information and some
additional effort to access it.
While technical capabilities for the development of projects have been gained by the association of
local promoters to outside experts (such as architects or designers) information gathering still needs
to be done locally, requiring physical presence to understand the market context, access/filter the
investment opportunities, and structure them in a format an investor can understand in order to
evaluate as potential investment targets.
5 Financial Analysis
5.1 Project Costs
This mainly constitutes the capital and operational expenditure. Based on previous experience and
rough calculations the total cost of the initial phase of the project (phase 1 sales/ revenue will fund
subsequent phases’ costs) can be estimated as follows.
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Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
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Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
6 Conclusion
According to the technical, market and financial feasibility studies, this is a very economical housing
project.
As far as the report is concerned a brief summary of the study are included in the main text in order
to emphasize the most important facts only. Any Detailed information is given as annexures.
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