16 October, 2013

The Somaliland Housing Gap: A Missed Market Opportunity?

The Somaliland Housing Gap: A Missed Market Opportunity?

Victor Odundo Owuor
October 15, 2013

View of Hargeysa, Image from Tristam Sparks Flickr

The availability of decent and affordable housing is a goal of every society, especially those coming out of prolonged conflict. Housing is an increasingly critical challenge in urban centers of Somalia, particularly in the relatively stable region of Somaliland. The draft five-year development plan for Somaliland (2012-2016) documents that the cities of Hargeysa, Baki, Berbera, Erigavo, Las Khorey, and Las Anod face significant shortages of affordable housing. The housing gap is the widest in the two most rapidly growing cities, Hargeysa and Berbera, where returning members of the diaspora, government employees, representatives of multinational companies, new business owners with staff, and a vast array of non-governmental organizations are in the immediate need of safe, affordable, and covenant-controlled housing. The market for real estate and housing in Somaliland is currently not met. The role of business is to seek opportunities where market gaps exist, especially in countries emerging from prolonged conflict. Does the Somaliland housing gap present a viable business opportunity? Yes, but there are significant challenges that an investor will face.

Somaliland is changing rapidly. For instance, take population growth. Hargeysa had 650,000 people in 2012. According to the five year development plan, Hargeysa’s overall population growth is projected to rise by 3.14% in 2013. But this growing population is not met with a proportionate growth in available housing. There are no neighborhood configurations in Somaliland that foreigners, either diaspora or investors, would find livable (or the expectation that living arrangements are organized, safe, affordable, and have services like water, heat, electricity, etc.). Many new residents find home in the city’s few hotels where vastly differing standards provide very limited short-stay opportunities for residents and foreigners.

In addition, if and where homes are built, no discernible patterns or standards are followed. Building standards vary. Substructure and superstructure walling might be comprised of all manner of materials — cement blocks, clay bricks, butch and semi-dressed quarry stone, or even mud-based cladding. Roofing is predominantly imported iron-sheeting, with some clay or brick tiles used by the resource-rich owners. Houses are built with an assortment of materials depending on the resource base of the house owner’s (who also serves as the developer!). Homes are put up in selected spots, walled in, and passed off as status symbols. Little consideration is given to social services. Water and electricity are hard to come by. Where water does exist, tankers supply the commodity with various degrees of quality. Rudimentary electricity is provided by a few private-sector agents of the local government but billing for the utility is calculated by using simple units of measure such as the number of bulbs in a home. Modern domestic waste disposal is largely for the more affluent neighborhoods and mainly executed through stand-alone septic tanks.

The Somaliland construction industry is in its nascent stages. A lack of capacity and of a regulatory framework remains a major challenge. Building supplies and the bulk of finishing materials must be imported. Also imported are the needed architects, quantity surveyors, engineers, landscape architects, surveyors, town planners, environmental specialists and skilled artisans. These professionals with varying degrees of expertise do exist in Hargeysa but not in enough numbers to support the successful execution of concurrent multi-unit ventures. These capacity constraints will continue as long as there is no uniform legal or regulatory framework to act as a one-stop shop for the training, testing, certification, registration, and regulation of the operations of these contractors.

To successfully undertake a project of this magnitude, a consortium of private equity firms focused on real estate and powered by a core foundational discipline suitable to East Africa would have to be set up.

Nairobi skyline, Image from WikipediaThe best examples of such master-planned communities would be Runda, and the Nyayo Estate, Embakasi (both suburbs of Nairobi, Kenya), or even Hill View Estate in Kigali, Rwanda where pooled funds and government concessions have enabled the establishment of attractive planned housing.

Finally, in spite of the challenges mentioned above, some 400 million dollars in remittance money from the Somalia diaspora has flowed into Somaliland in 2012 which, if properly channeled into mortgage-finance initiatives, could provide the financing for multi-unit housing complexes. Initiatives such as the mortgage finance pool developed by Rwanda’s Agaciro Development Fund or schemes set up by Shelter Afrique, the pan-African housing finance company that Somalia is now officially a member of, could be explored. The only caveat is that all financial instruments must be Sharia compliant, as 99% of Somalis are Muslims. A potential model is the newly introduced Islamic mortgage known as “Diminishing Mushrakah” of the Gulf African Bank of Kenya combined with other regional financial institutions like Equity Bank, Kenya Commercial Bank, and Diamond Trust Bank. These institutions working in tandem with equity funds and remittance companies (of which Dahabshill is the most prominent) can set up working initiatives that could translate into a huge pool of buyers. Additionally, all available land is owned by the Somaliland government. As a welcome overture, the government offers a three-year tax holiday on foreign investments with a further 50% rebate on continuing profits after the initial tax holiday lapses.

In the absence of affordable planned-housing units, the Somaliland members of the diaspora continue to invest in other countries much to the detriment of Somalia’s housing sector. For many Somalis in the diaspora and others looking for housing in Somaliland, the idea of a covenant-controlled community would be a strong selling point and worthwhile investment. This growing need for a robust housing market is only one example of the many types of available opportunities for investors in Somaliland and the rest of the country of Somalia.


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