Sub-Saharan Africa property development overview with implications for land-based financing
This report is a Sub-Saharan property development overview undertaken as part of the ‘Urban infrastructure in Sub-Saharan Africa – Harnessing land values’ project, with a view to increasing knowledge of property development modalities and associated practice with regard to “land-based financing”. That term implies that the property developer and/or owner, in additional to the internal infrastructure land and buildings that is conventionally part of a property ‘package’, pays for other ‘external’ infrastructure through some mechanism. If the developer pays for costs that would normally be covered by the City or State, then land-based financing is taking place to some extent. On the other hand, if any of the conventional development package is paid for by the city, then subsidisation is taking place.
A case study approach was adopted whereby team members working on the larger project were asked to select relevant ‘mini’ case studies of property developments where they had experience. Within a limited budget, a total of 29 mini case studies were undertaken in 22 of the largest cities in Sub-Saharan Africa, in 16 countries, covering as many development circumstances as possible. The case studies were based on published documentation, internet searches, interviews (where possible) and existing team knowledge, and explore the characteristics of each development in terms of the planning, the access to land, the development rights granted, the funding mechanism, and the type of infrastructure required and constructed.
The mini case studies indicate that there is a substantial degree of land-based financing taking place, largely in the form of developer in-kind contributions. While in some cases a once off fee, charge or tax is levied associated with the issuing of property development rights, there was no evidence studies that this was used to fund infrastructure. Instead this money appeared to either cover only administrative costs, was used to finance operating costs, or went to the State and not to the City. Ethiopia is the only example of funds for infrastructure being raised through the sale of a land or development right, in this case through the land lease system.
In contrast, there are many examples of the State subsidising commercial developments, primarily through making land available well below market value or even at zero cost to the developer. The typical argument for doing this is that it promotes economic growth. Although it may be too early to tell, there is also little evidence that the economic benefits of those developments result in revenues to cities that can then be used for infrastructure to serve the poor. If this is not happening, and in a situation where city economies and property values are escalating rapidly, benefiting the relatively well-off, the lack of application of land-based financing to these developments is a lost opportunity.
African Centre for Cities. Sub-Saharan Africa property development overview with implications for land-based financing. African Centre for Cities, Cape Town, South Africa (2015) 50 pp.