Mozambique is increasingly becoming a ‘hot’ destination for tourism and investment. After a 20-year civil war the country has made remarkable progress and is now a multi-party democracy working hard to move from a socialist to a free-market model. The country has seen consistent GDP growth, and low inflation, and this combined with its stability, friendly people and favourable location are contributing to a rapid rise in foreign direct investment.
A Portuguese-speaking country, Mozambique is situated to the north of South Africa, east of Zimbabwe and Malawi and south of Tanzania has a 2,470 km coastline, bordered by the tropical Indian Ocean, providing the ideal setting for tourism. The Bazaruto and Quirimbas archipelagos are idyllic beach destinations, and Mozambique has international quality dive sites with rare marine species found in the stunning marine national parks. The country has a number of major rivers (including Zambezi, Limpopo and Rovuma) providing water for agricultural production, and ensuring fertile soils as well as hydroelectric capacity. In addition there are national parks, reserves, game concessions and forests waiting to be explored either visitors or investors. In short the country has something for everyone, and for most investment budgets!
However, Mozambique, like many countries in Africa, while attractive to investors, has a business environment which can hold pitfalls for the unwary. Return on investment is generally high so the risks can be expected to be similarly high. This report therefore provides some of the ‘dos and don’ts’ for potential investors, particularly looking at property and tourism investment.
Mozambique’s colonial and socialist past have contributed to a number of unusual features in its overall legal framework and in particular its property legislation. All land in Mozambique is the property of the state. It cannot be bought or sold, mortgaged or otherwise transacted. Land is held based on a concession-type arrangement with contracts valid for up to 50 years, and renewable. However a quick Google search will show that there appears to be a thriving market for land, particularly in the tourism sector, in Mozambique. How is this then possible?
There are various ways to acquire land in Mozambique, each with its own merits, and we deal with the key ones below. As a precursor to everything else written here, anyone thinking of investing in Mozambique (or indeed in any legal jurisdiction with which they are not familiar) would be advised to seek reputable legal counsel with sound local knowledge. While this has cost implications, it saves time and money in the long run. Ensuring that your dream home or business is legally yours is essential! National embassies with representation in Mozambique are able to provide lists of lawyers speaking different languages, and reputable lawyers are also listed through business associations such as ACIS www.acismoz.com
Ownership of land by foreigners:
As a general rule foreign individuals cannot own land in Mozambique, unless they can demonstrate that they have been resident for more than 10 years, and even then the issue of what happens if they subsequently leave Mozambique is subject to debate among lawyers, and has yet to be tested. Owning a company is therefore the preferred and most secure vehicle for most foreigners seeking to invest in property.
Set-up or Purchase of companies:
Ownership of a company incorporated and registered in Mozambique is a vehicle for a foreigner to obtain the work and residence permits necessary to benefit from their investment in the country, as well as to hold title to land.
Companies can either be set up from scratch or purchased. In both cases legal advice should be sought and in the case of the purchase of an existing company due diligence should be undertaken. An existing company should be able to provide compliance certificates from the tax and social security authorities, as well as operating licenses, and land, construction and environmental licenses where relevant. Purchase of an existing company, particularly if this company holds title to the land and owns the property you want to acquire, is usually the fastest method. By acquiring the company the land, property and other assets immediately and automatically transfer to the new owners.
As a general rule foreigners cannot own urban property. Any property which was nationalised at or after Independence cannot be owned by foreign individuals, and there continues to be a debate about the legality of majority foreign owned business (more than 50% of the shareholding belonging to non-nationals) owning such property.
However there are some properties which were never nationalised and the recent economic growth in the country has given rise to a building boom in many urban areas, meaning that these new-builds can be acquired by foreigners.
Non-urban land which has already been developed:
While land itself cannot be transacted, infrastructure and property constructed on land can be. This means that while the land under a building remains the state’s property, the building may be sold, and the land ‘title’ for the remainder of its validity period will then move with the building to the new owner.
That being said there are a number of restrictions, the main one being that the land ‘title’ is only conceded for the specific purpose stated in the original investment plan. So for example if you were to buy a farm which was licensed as a dairy farm, you could not then convert the property on the farm o a tourism establishment, without first applying for change of use, and for an alteration to the original ‘title’.
Therefore before acquiring any existing investment or development is essential to see the original investment plan for which the land was conceded and to ensure that this plan has been complied with.
Post-acquisition it is possible to apply for change of use of the property, or to apply to expand existing developments subject to application and licensing.
Urban or rural land which has not been developed or is under development:
Land concessioning takes place in three main stages, the application phase, the provisional title phase and the definitive title phase. Each has its own rules and requirements.
The application phase includes identification of the land, mapping, consultation with local communities and delimitation of the land. These procedures having been successfully completed, the applicant for the land is issued with a provisional title.
In the provisional title phase a foreigner (including majority foreign-owned company) has two years to complete the development plan on which the land concession is based. This includes obtaining additional licenses (environmental, construction and so on) and completing the actual development of the property in accordance with the plans submitted when the title was applied for. During this phase the land and proposed development are registered with the real property registry.
After the development is complete and within the two-year period, the definitive title phase can begin. At this stage the development is inspected to ensure it complies with the original development plan and definitive title, valid for up to 50 years is issued for the land. The property developed on the land is then registered with the real property registry.
Land which is under development (i.e. has its provisional title and other licenses in place), or which has been developed and definitively licensed, can be transacted. However in the case of land under development the purchaser must ensure that they complete the development as planned, within the same two-year period that relates to the original application submitted (i.e. by the vendor). Extensions can be granted to the two-year period, and applications to change the development plan are also permitted.
Key pitfalls occur where investors seek to ‘purchase’ undeveloped land which has not yet entered the provisional licensing stage. Legally speaking and in theory, such transactions cannot take place because the land does not yet have provisional title. Therefore this land must be applied for directly from the state, not purchased from anyone. In such instances there are no guarantees that the purchaser will in fact be eventually granted the title for the development they hope to undertake.
Timeshare and holiday homes:
Fractional ownership and periodic use of property are new concepts in Mozambican law. The current legislation is cumbersome for both types of property ownership and has not yet been tested. Anyone seeking to purchase a timeshare, or develop a holiday home would be advised to seek independent legal advice, from a lawyer not associated with the property development company selling the timeshare or periodic use property, to ensure that the legal construct for ownership provides adequate protection, and that the encumbrances associated with the purchase (such as shareholding of a company) do not hold any unexpected surprises.
How much should I pay?
As mentioned before, since land itself cannot be transacted in Mozambique, land itself does not have a value. Developments on land, which can be transacted, are part of a relatively small property market. In theory the value of a development is its book value in the accounts of the company selling it, or the value registered at the real property registry in the case of purchases from individuals.
Valuation is therefore a relatively informal process and since quality developments remain relatively few, it is a seller’s market in many respects. It is worth noting that Mozambique’s property prices have been relatively unaffected by the global recession, making them an attractive investment opportunity, and in comparison with properties of a similar type in other countries Mozambique provides excellent value for money. In order to determine the value of a property it is as well to ask around in the area where the property is located, and check for similar properties for sale through agents and on the Internet.
Where to go for help:
As mentioned above the services of a good lawyer are really essential for potential investors. A lawyer can advise on all the various parameters of the proposed investment and assist in identifying the most appropriate way to go about investing, taking into account available investment benefits, tax and duty incentives and so on.
A comprehensive series of investment guides dealing with all aspects from company start-up through land, environmental and tourism licensing to tax, immigration and employment requirements are available from www.acismoz.com/downloads.
In conclusion, Mozambique is a beautiful and welcoming country, full of exciting opportunities. Investors are welcome, and while some of the requirements mentioned above may seem strange or even off-putting, an investment done the right way provides not only for a profitable venture, but also a chance to live an exciting and exotic lifestyle and contribute to the development of a wonderful country.
For more information and photos visit Paradise Property Mozambique