Malawi is located in Southern Africa and is a member of both Southern African Development Community and Common Market for Eastern and Southern Africa economic groupings of the region.
Malawi has a land area of 118,000 Km2. It has a population of about 18 million people and a rural to urban migration of three percent per annum which is among the highest in Africa as well as the world. Urban areas have an extremely high density (number of occupants per hectare of land) and, as a result, the country has among the highest densities in Africa.
Malawi’s economy is agrarian and basically of primitive agriculture. The country is listed among the five poorest nations on earth and, in February 2017, it was listed as the poorest country in the world as it had the lowest per capita gross domestic product (GDP). Malawian incomes are very low indeed and the main reason for a high rural/urban migration is poverty as people go into urban areas to seek greener pastures. Malawi though has great potential to increase its GDP quickly if export of services can be enhanced and efforts are being made to develop a services sector.
Malawi’s urban built environment consists of 27 percent residential units, 18 percent commercial units, 10 percent industrial units, 15 percent vacant land, 20 percent roads and bridges and eight percent churches and mosques and two percent parks and commons.
The Malawi property market comprises all the components of the built environment except, of course, for the roads, bridges, parks and commons. The majority of the deals are for residential units which is a much segmented sector in accordance with income levels of the members of society. The residential property market is more defined in the urban centres of the country as there are very few property deals in rural areas even though the numbers keep rising such that it is a phenomenon that needs to be watched as it seems to be growing.
It also comprises the commercial sector which consists of shops and offices. Industrial properties such as factories and warehouses also form part of the property market. Again sale or leasing deals or transactions are very few in rural areas but they seem to grow in number, particularly those involving sale of land, which is bound to increase with the new land law which will enhance privatisation of land through which a landowner would deal with the land the way he/she pleases.
Finally, the property market also consists of bare land which may or may not be surveyed and demarcated. The majority of the land is in rural areas. As hinted above, land has been the subject of a new law which ushers in a new legal framework whose implications are yet to be known. The new land law aims at increasing access to land, creates a new estate called the “customary estate” and claims to bring in equitable access to land. Furthermore, the land law limits the maximum period of leasehold tenure to a non-Malawian citizen to 50 years and bans the creation of any new tenure of freehold nature.
The current situation is as follows:
Residential units of all classes seem to have a very high demand. This is basically due to lack of affordable housing finance which has led to a huge shortage of residential units in all the urban areas. Despite there being limited housing finance, there appears quite huge differences in the prices units in the urban areas with Lilongwe registering the highest rentals and sale prices and Zomba the lowest. It has been observed that if Blantyre is K150,000 rental per month, the same property would fetch K300,000 per month in Lilongwe, K100,000 per month in Mzuzu and K80,000 per month in Zomba. Prices of properties subject of genuine sale transactions generally follow the same pattern. In high density areas, rent ranges from K600/m2 in traditional housing areas and unplanned areas to K1,500/m2 per month. In formal high density areas or Malawi Housing Corporation developed areas and in medium density areas, rental for houses range roughly from K1,000/ m2 to K2,000/m2 per month and in low density areas, rentals hover in the region of K2,000/m2 to over K3,000/m2 and over. There is quite a lot of overlapping between medium density and low density areas. Flats/apartments and town houses are quite expensive ranging from around K15,000/m2 to well over K30,000/m2 and in Lilongwe, rentals would be expressed in dollars and the other areas would follow roughly the pattern as expressed above.
The rental market is uncontrolled in the country and there exists no legislation at all as to the amount of rental one can ask for and this is left to the open market. Agreements are generally entered into between a property owner and an intended occupier with very little reference to a valuer.
It has been observed that the demand for office space has been going down in all the urban centres and, as a result, rentals for offices have continuously been low and revision of rental upwards have been resisted by most tenants. What is rather surprising though is that the open market capital value of the buildings is not falling as there is hope that the situation will improve in due course. However, it has been observed that a number of residential properties have unofficially become offices mainly because they are a much cheaper and more convenient buildings.
Shops, on the other hand, rent out at much higher rentals per month ranging from K1,000/km2 in areas outside the city centre to around K5,000/m2 in the heart of town. There is continuous demand for shops in the country as most local centres do not have adequate shopping space.
Most industrial properties other than warehouses are owner-occupied and rental evidence is scarce except for warehousing whose market is quite buoyant.
The current situation of the property market is consistent with a poorly developed economy where majority of participants have low incomes and are poor. Typically, borrowing is expensive and unaffordable and is limited but the demand is extremely high. The policy rate by the Reserve Bank of Malawi though has been falling and has fallen again to 16 percent and one would have expected a sizeable fall in commercial bank lending rates but this has not taken place even though the commercial bank rate has just fallen to 25 percent. This is still high and the effect of high cost of borrowing is to stifle investment in various sectors but most of all in the provision of basic necessities such houses.
In 2014/2015, experts in the property market were of the view that the property market had in fact collapsed as it was taking quite a long time to realise a sale. Things are slowly improving as the bank rate has been reduced and inflation is now around 7.7 percent. However, borrowing is still expensive and the much needed capital injection into the construction has not taken place and the property market remains quiet with very few transactions taking place.
There is a new land law that is in place in the country. The law mostly affects customary land. However, land holding now may be the subject of forfeiture by government as it is now legally empowered to repossess such land using compulsory acquisition powers or the physical planning law.
There is also wrangling between government and chiefs with local government insisting that there are no traditional authorities in areas declared as towns and cities or any such areas under any such authorities. Great care needs to be taken when dealing with land that is in any urban area even if it is of leasehold or freehold tenure. Customary land demands extra care as the new law affects both acquisition and disposal.
Cost of construction is extremely high. High density houses would cost around K300,000 per m2 and medium density housing would be around K450,000 per m2 and around the same for low density areas. A mortgage rate which provides the cost of borrowing and is the opportunity cost of finance is at around 32 percent. This would mean that a house in a medium density area such as New Naperi, the cost of a house 120 m2 in size at K300,000 /m2 would be K36,000,000. If the whole of this money was to be borrowed, then a likely premium of K1,260,000 per month would be payable. If this house was let out, it would fetch a rental of around K250,000 per month. This would create a shortfall of over one million and would show a return on investment of around three percent which is very low indeed but is representative of the current level of returns existing in the country.