Exploring a New & True Emerging Market Property Investment Opportunity

Bathed by the tropical Indian Ocean along its 2,470km coast, Mozambique is a jewel of a destination for tourists and investors alike.  The country is Portuguese-speaking and borders well-known destinations such as South Africa, Malawi, Tanzania, Zambia and Zimbabwe.  Its coastline is dotted with islands including the Bazarutto and Quirimbas archipelago marine national parks with their world-renowned dive sites, and the historic landmarks of Ilha de Mocambique and Ibo Island.  Inland Mozambique has a number of national parks and reserves such as Gorongosa and Limpopo parks and Niassa reserve, one of Africa’s last great wilderness areas.

The country has experienced a peaceful transition from a 20-year civil war to multi-party democracy.  A growing business sector, economic stability and low inflation have seen the country move rapidly towards the free-market model.  This, combined with favourable investment legislation, friendly people and a stunning location has contributed to a rapid rise in foreign direct investment.  Sectors such as agriculture and tourism are particularly attractive to investors and provide a variety of opportunities.

Most African countries have complex business environments, and Mozambique is no different.  While investments here may offer high returns, the associated risks can be expected to be high as well, which is typical of a developing economy.  Given that the advantages of investing in Mozambique are generally obvious, this article aims to orientate potential investors about the potential pitfalls and how best to avoid these, and to ensure that their investment is secured legally. It focuses on investments in tourism and property.

For historical reasons, with the influences of Portuguese colonial rule and post-colonial socialism, Mozambique’s legal framework can be perplexing to a new investor.  For example, under the Constitution, all land in Mozambique is the property of the state and cannot be bought, sold, mortgaged or transacted.  Land-holding follows a concession-type arrangement, based on contracts which are valid for up to 50 years, and are renewable.

That being said, a quick search on the Internet shows a number of properties for sale in Mozambique, particularly in the tourism sector, which leads one to consider how such transactions can be legally accomplished, while respecting the letter of the law as it applies to land-holding.  This article seeks to answer that question.  It is presented in a question and answer format, which we hope will render the complex legal concepts discussed, accessible.

There are a number of ways to acquire land in Mozambique and the main ones are addressed below.  Each has its own merits and a potential investor should consider the various options before deciding which is best suited to their own purpose.  It is always worth noting that anyone planning to invest in a foreign legal jurisdiction is well-advised to seek reputable legal counsel with sound local knowledge.  The same is most certainly true for investments in Mozambique.

Investors sometimes complain about the cost of legal advice, but the reality is that obtaining sound advice saves time and money, and ensures that your investment is safe.  Top law firms in Mozambique have lawyers who speak English and sometimes other languages too, and your country’s embassy or diplomatic representation in the country should be able to provide you with a list of lawyers who speak your language.  The contacts of several top law firms with broad experience in foreign investment, land and tourism are also available from national chambers of commerce such as ACIS.

Can foreigners own land in Mozambique?

Foreign individuals cannot own land in Mozambique, unless they have been resident for more than 10 years and can prove this.  That being said, legal questions remain about what happens if these individuals then leave Mozambique, and the law on this has not been tested.  As a rule therefore, ownership of a company tends to be the safest route for foreigners investing in property.

How can I set up or buy a company to purchase property in Mozambique?

As noted above, owning a company which is incorporated and registered in Mozambique tends to be the most convenient legal option for foreigners wanting to hold land title.  Company ownership has the additional benefit of allowing a foreigner to access investment incentives and to secure work and residence permits.

A company can be set up or bought.  Obtaining quality legal advice before embarking on either option is recommended, and in the case of buying an existing company investors should be sure to undertake careful due diligence.  Companies which already exist must be able to provide tax and social security compliance certificates, operating licenses, and other licenses for the land, and for any construction which has taken place.  These must be supported by an environmental license or exemption certificate.  Buying a company that already has secured title to the land you plan to invest in tends to be the fastest route, as registering and incorporating a new company can take many months.  Buying an existing company means that land, property built on that land, and other assets transfer automatically to the new owners.  However any liabilities also transfer which is why due diligence is necessary!

Is there a difference between property in towns and in the countryside?

Yes, both are treated differently under the law and have different ownership requirements, so be sure to check what type of land you are considering investing in.

Can foreigners own urban property in Mozambique?

Generally the answer to this question is “no”.  Property which was nationalised after Independence and during the country’s socialist period cannot be owned by foreign individuals.  A legal debate continues about whether majority foreign-owned business, (i.e. with more than 50% of the shareholding belonging to non-national individuals), can legitimately own such property.  It is well worth seeking legal advice if you are considering buying a property in an urban area, particularly if the property was ever nationalised.

There are some properties, in main cities in particular, which were never nationalised and these can potentially be acquired by foreigners.  Mozambique is also experiencing rapid growth in new constructions in many cities, and these new properties can legally be owned by foreign investors.

What about investing in developed land in rural areas?

As mentioned previously, under Mozambique’s land law, land cannot be transacted.  However anything which has been built or developed on the land can be, and the underlying land is then transferred with the property or infrastructure.  This transfer is subject to licensing and registration.  By this mechanism, the land which is under a property continues to belong to the state while the building changes ownership.  The transfer having been correctly registered and approved, the land title then moves to the new owner for the remainder of its validity period.

There are various restrictions on such transactions.  The key one is that land title is conceded for a specific purpose.  This purpose is outlined by the applicant for the land, in the investment plan submitted as part of the initial land application process.  As an example, if the land is applied for as a residential property, it is not a foregone conclusion that it can then be converted into a tourism establishment.  Change of use must be requested and the actual title updated to reflect the new form of use. 

Investors should take care to look at the investment plan, which formed the basis for the original concession of the land, to make sure that the person selling the property on the land has complied with this plan.  Having acquired a property, change of use, expansion, and alteration can all be applied for with relative ease.

What about investing in undeveloped land or land which is in the process of being developed in Mozambique?

The land law provides for a three-stage application process, with each phase having specific requirements to fulfill.  First is the initial application.  This is followed by a provisional authorisation phase and then a definitive authorisation phase.

During the initial application phase the land is formally identified, mapped and delimited.  At this stage consultations also take place with local communities.  After these procedures have been completed a provisional title document is issued.

Provisional title gives a foreigner (including a majority foreign-owned company) two years to complete development based on the development plan submitted during the application phase.  During this phase investors must also apply for and obtain various licenses, such as an environmental license, and a construction permit, as well as registering the provisional title with the real property registry.  The investor must also complete the development of the property within this period.

Having completed the development within the period, the investor then applies for definitive title.  For this to be issued the development is inspected to make sure that it complies with the plan which was submitted.  After a successful inspection, a definitive title is issued for a specific time period of up to 50 years, and this title is then registered thus securing the property.

Both land under development (when provisional title and key licenses, in particular the environmental license have been issued) and developed land (where definitive title has been conceded) can be, and are transacted.

Where land is under development and still in its provisional title phase, anyone who buys it is committing to complete the development as proposed in the original development plan, and to do so within whatever time remains of the two-year provisional title period.  That being said, extensions can be made to the two-year period and it is also possible to apply for authorisation to make changes to the original development plan.  This means that in practice the system is more flexible than it might at first appear.

The main danger for investors is when they try to buy land which is still in the application phase, and has not yet been conceded a provisional title. During this initial stage the land has not been conceded and therefore cannot be transacted, and any acquisition of land at this point should be considered risky since there are no guarantees that the title will in fact be conceded.  While a large number of such properties are offered for “sale” in fact the land does not yet “belong” to the person selling it, and a potential investor could just as well submit their own application for that piece of land as pay the high asking price for something which, in legal terms, does not actually belong to the seller.

Does fractional ownership of property exist in Mozambique?

Timeshare and the concept of fractional ownership or periodic use, (such as for a holiday home), is something that has only recently entered Mozambique’s legal framework.  Because of the structure of the country’s land and property legislation, the legal provision for these types of ownership is complex and bureaucratic.  While developers may offer various types of shortcut, the reality is that the legislation has not been tested and anyone looking at timeshare, fractional ownership and similar types of investment would do well to seek qualified, independent legal advice.  Preferably such advice should be given by a lawyer not directly associated with the development itself, for obvious reasons!  This will enable the investor to be sure that the format being used is watertight and that their investment is secured, and also that there are no hidden costs and obligations.

What is a property in Mozambique worth?

Because land cannot be bought or sold, it does not have a value.  It is the property or infrastructure on the land that holds the value, and as any Google search for Mozambican property will show, this is a growing, though still relatively exclusive, market.  Perhaps because of the relatively small and exclusive nature of the market, property prices have generally remained stable during the global financial crisis, which makes Mozambique an attractive option for investment.  Compared to other, similar, locations, quality property in stunning locations is still affordable.

Since investment in property is a relatively new area in the country, valuation is generally informal.  Theoretically a property or development is worth the value stated in the accounts of the company that holds the title and registration documents, or the registered value based on a certificate issued by the real property registry, in the case of concessions held by Mozambican individuals for example.  In reality of course, desirability and location add to the potential value in what is currently a seller’s market.  In order to gauge whether an asking price is reasonable, some informal research into other prices in the same area is worthwhile, and people are generally open to discussing this.

Where can I get assistance to invest in Mozambique?

The services of a good lawyer with local knowledge are a worthwhile investment for anyone looking at buying property in another country.  Lawyers can assist with information about legalities of property transactions, investment incentives, residence requirements and more.  Various Mozambique-specific advice and useful background reading material is available through ACIS, a site which also includes a series of investment guides for investors on its downloads page.

Mozambique is fast becoming a talked about and desirable destination. Interested investors considering getting in at ground level can expect to be welcomed to a stunning tropical paradise.  Some of the rules and requirements described here may sound complex, but in reality a profitable investment can be achieved securely giving you a chance to live the dream lifestyle in an exciting and dynamic country.  Any investor seeking a truly emerging market with massive underlying potential would do very well to take a much closer look at this stunning nation.