Government drives real estate sector growth

Filed under: Breaking News |

The Zambia government, and especially the Lusaka City Council, has successfully created progressive real estate legislation, that actively seeks to harness both local and global capital and sector expertise. This has the potential to unlock the growth of the country’s commercial and residential real estate sector. The key that will enable this legislation to achieve its desired effect, however, lies in a much closer dialogue and partnership between government and the private sector.

Advancing beyond general declarations of good intent, to detailed expressions of practical and implementable policy that investors can safely place capital in, “is the critical next step that Zambia needs to achieve, if it is to realise the potential of its real estate sector to unlock wealth, drive broader economic growth, and transform the lives of ordinary Zambians,” says Kfir Rusin, Managing Director of API.

The Lusaka City Council (LCC) has identified three areas of strategic focus that will enable the city’s real estate sector to act as an engine of growth. By “enhancing the urban road network and decongesting the city, improving water and sanitation in the city, and responding to the housing challenge through the urban renewal project, we are actively creating the infrastructural environment in which real estate development can thrive,” says Mwiche Mudala, Director of Valuation and Real Estates of the Lusaka City Council.

The Public Partnership Act of 2009, for example, specifically enables development at the local level by offering the private sector an opportunity to participate in both infrastructure and real estate development through various models. This legislation demonstrates the Zambian government’s acceptance of the need for accelerated development in that it does not prescribe what this investment – or these public private partnership models – should look like. Instead, “the legislation offers an open-ended invitation to the private sector to participate through the processes provided in the Act under the guidance of a specialist transaction advisor,” explains Mudala.

According to Rusin potential real estate investors are indeed encouraged by Zambia’s progressive legislation. He goes on to explain, however, that when the private sector talks about ‘public private partnership’ or ‘guarantees’ they don’t mean money. They mean that government needs to bring a tangible, material and measurable contribution to these potential partnerships.

 

The provision of basic infrastructure, for example, will make the end cost of residential units more affordable, since the developer will not be required to add the costs of building roads, sewerage and power connections to the real estate development project.

Importantly, government can bring infrastructure to public private partnerships as part of its existing development mandate – especially as a comparatively small investment in basic infrastructure has the potential to kick-start whole regional economies by drawing in much more private sector investment.

Alternatively, government could provide land free, or subsidised, for urban residential development. This would not be giving land away for nothing, but would be bringing fair value to public private partnerships which would then be able to deliver affordable housing, on a very large scale, to thousands of urban dwellers. “This kind of measurable and material contribution to the public private partnership process will fulfill government’s development mandate while also providing developers with the kind of government support that will free the real estate sector to transform the broader economy,” says Rusin. ‘

The challenges are, however, very real.

Lusaka, as the most urbanized city in Zambia, “offers little room for expansion without incurring colossal compensation pay-outs to those affected by development. Most of the land in Lusaka is already titled so it is not just a question of government being able to provide government land. Also, much of the untitled land adjacent to city nodes is often held by chiefs in trust to tribal communities. Land prices are therefore set by the market, “meaning that a lot of big development projects fail at the first hurdle, as land costs make them unaffordable to investors,” says Mudala.

As such, integrated development planning is key. There is also a need to strengthen the legal and institutional framework to firmly ensure compliance with official development plans, “if we are to control the quality of urban development while avoiding the spectre of land underutilization and compulsory acquisition,” adds Mudala. Hence the Lusaka Comprehensive Urban Development Plan seeks to create a balanced, economically strong and environmentally friendly city in which people will voluntarily contribute their capital and land to partnerships that have tangible benefits to their communities.

The 2017 ZamReal Property Forum, Zambia’s premier real estate conference, will focus on understanding these challenges while unpacking the many other opportunities that the right relationship between public policy and private investment can unlock in Zambia.

The combination of rational real estate policy enabling robust public private partnerships in Zambia has the potential to see real estate investment initiate a virtuous cycle of investment and development, “with the potential to transform the growth trajectory of the entire economy while changing, materially, the lives and prospects of ordinary Zambians,” says Mudala.

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