Angola: A prosperous future from a distressed present
Angola has been experiencing a financial and economic crisis since 2014, resulting from a sharp reduction in oil prices, with government measures that include promoting the market for problematic assets. While the COVID-19 pandemic has added to this situation, there is also huge potential for growth.
2020 sees Angola experiencing its fifth year of economic recession. We know this recession - which is being fought through significant diversification of the economy, reducing our dependence on oil - will continue for some time. But opportunities exist alongside the challenges.
While the coronavirus pandemic is expected to bring down the price of real estate even further, the future promises to be one of recovery for Angola's real estate market. It is a sector with enormous potential for development, since there remains a housing deficit and a need to diversify geographically in, for example, tourism and retail, alongside many other needs.
Serious issues remain, of course. In the last five years, non-performing loans In Angola have more than doubled1. This has led banks to turn off the financing tap, especially in mortgage credit, seriously affecting the real estate market with demand or real estate purchases falling between 80-90%2. The significant vacancy rate of properties, particularly in Luanda, is essentially the result of potential buyers finding it difficult to access credit to purchase properties even with an adjusted price.
However, industry and logistics is a sector that continues to assert itself as an area of real estate with huge growth potential, especially considering the scarce supply of property taking into account the growth of Angola's industrial infrastructure. The structure of the economy is far more diverse than ten years ago, with a significant reduction in the weight of the oil sector. And while Angolan real estate still focuses almost exclusively on the city of Luanda, other towns and cities do exist, all be it on a hardly comparable scale, such as Lobito, Benguela, Soyo, Cabinda and Namibe. These locations will eventually develop organically based on wider economic development, from installing new equipment and infrastructure for industry and agriculture to housing for workers moving to these locations.
In tourism, the hotel and hospitality industry has continued to develop slowly. Angola is a country with many attractions and has made efforts to develop tourism. This potential, and others, has been on standby in recent years, but will certainly become more evident as economic growth consolidates.
In addition, young people with increased purchasing power constitute a new middle class. We need to consider the increase in the active population and, above all, this young middle class, who possess a higher level of education, have smaller families than traditionally, and who have stable employment with multinationals, the civil service, in banking, and so on. This means increasing importance for the real estate market and rising demand for housing. It should be noted that the decline in average household size in Angola has led to an increase in demand for smaller types of property, specifically for one and two bedrooms3.
Angola has taken important steps to stimulate foreign investment and in view of the currency devaluation, real estate continues to be considered a safe and attractive investment.
In the meantime, the Angolan state has implemented a series of measures aimed at resolving the difficulties faced by the financial sector, which stands accused of being the main culprit in the real estate market crisis due to a lack of funding. Data from the National Bank of Angola (BNA) indicates that banks reject 86% of housing loan applications.
One such measure aims to promote the market for problematic assets. This includes legislation for the securitization of assets and establishing the state-owned asset management entity Recredit with the objective of absorbing non-performing loans. Recredit has been capitalized since 2016 through the issue of Treasury Bonds with the specific objective of supporting the regeneration of national banks. Already in 2020, this has involved buying 80% of non-performing loans from the Angolan state bank BPC.
The withdrawal of non-performing loans from banks’ balance sheets will have the expected result of allowing more effective participation and financial inclusion for the population, while promoting financing for the economy. The recovery of non-performing loans, through the accountability of debtors, will allow banks to get back into liquidity, with new strategies being devised to provide credit again to the economy and the real estate sector, namely through housing loans. Indeed, the authorities have been making a huge effort to force the banks to grant credit to the economy, notably by implementing a Credit Support Programme (PAC). For example, the National Bank of Angola has issued a notice obliging Angolan commercial banks to grant credit to national production in the minimum amount equivalent to 2.5% of their net assets until the end of 2020.
The outlook for Angolan real estate
There is no doubt that property prices will continue their downward trend in 2020. However, multiple factors will mean that, in the medium term, the real estate sector may recover at least part of the flashpoint it experienced until 2015. These include: the regeneration and capitalization of the banking sector; pressure on banks to grant credit; stimulating foreign investment; diversifying the economy and its enlargement to areas outside Luanda; investing in tourism; the growth of a younger working middle class; currency devaluation; and many other factors yet to emerge.
We can anticipate a prosperous future for the Angolan real estate market – while the present is also a distressed investment opportunity.
1National Bank of Angola (NBA) data – as quoted here
2Information provided by the Association of Real Estate Professionals of Angola (APIMA) to various media – example
32018 real estate market report, by consulting company Abacus and JLL