Pre-Feasibility Study Report PICOCO III PDF

2013
Pre-Feasibility Study Report

(PICOCO III HOUSING DEVELOPMENT PROJECT)
At Boane, Matola District, Maputo, Mozambique
Prepared by
Indala Consulting Services (Pty) Ltd
The Avenues North, Birch
6 Mellis Road
Rivonia,
Sandton,
2128
Pre-Feasibility Study Report – PICOCO III HOUSING DEVELOPMENT
EXECUTIVE SUMMARY
This report elaborates the technical, market and financial feasibility of implementing a housing
development project in the greater Matola Municipal area, Boane District, close to the city of
Maputo, Mozambique. Prior to the presentation of site specific details it also includes some general
information about the demographics and economic highlights of Mozambique as background
information on the project.
According to the mobilized funding for the project, potential capacity of the allocated land (271ha) is
around 4000 housing units, stand-alone houses and apartments included. Capacity projected to be
utilized in the first phase of the project is around 1000 housing units.
The agreement between the Fundo para o Fomento Habitacao and Imbani Projects (Pty) Ltd to
develop the Boane district using the latest construction technology from South African will retain up
to 60% of professionals considering relocating from Mozambique due to accommodation challenges.
The total cost of the project in the initial stage will be US$133 391 940, the subsequent phases will
be funded from sales and rental proceeds. The Net Present Value (NPV) and the Internal Rate of
Return (IRR) is estimated at US$11 018 000 and 53% respectively. It was FFH’s wish that the
project be a minimal profit project.
The growth of the Mozambican economy has brought about need for industrial, light industrial and
warehousing space. The general growth of the population over available infrastructure has increased
the demand for space to rent and buy.
The technical, financial and market feasibility of this project is satisfactory and it can be
recommended as a very good investment opportunity.
TABLE OF CONTENTS
i) COVER PAGE
ii) EXECUTIVE SUMMARY
iii) TABLE OF CONTENTS
1 GENERAL INFORMATION
1.1 MOZAMBICAN DEMOGRAPHICS
1.2 MOZAMBICAN ECONOMIC PERFOMANCE HIGHLIGHTS
1.3 HOUSING PARASTATAL & MANDATE
1.4 PICOCO III HOUSING DEVELOPMENT PROJECT OVERVIEW
2.0 SITE INFORMATION
2.1 LOCATION
2.2 ACCESS
3.0 TECHNICAL ANALYSIS
3.1 SITE LOCATION
3.2 HOUSING TYPOLOGIES
3.2.1 UNIT TYPE 90A
3.2.2 UNIT TYPE 90B
3.2.3 UNIT TYPE 110A
3.2.4 UNIT TYPE 11B
3.2.6 UNIT TYPE 130B
3.2.8 UNIT TYPE T2B
3.2.9 UNIT TYPE T3B
3.2.10 UNIT TYPE T2C
3.2.11 UNIT TYPE T3C
3.2.12 UNIT TYPE T4
4.0 REAL ESTATE MARKET ANALYSIS
4.1 MARKET OVERVIEW

4.2 MARKET TRENDS AND PROSPECTS
4.3 MARKET SEGMENTATION
4.3.1 END-USER SEGMENTATION
4.3.1.1 HOUSING
4.3.1.2 OFFICE
4.3.1.3 RETAIL
4.3.1.4 WAREHOUSING/ LOGISTICS/ INDUSTRIAL
4.3.2 RENT/SALE SEGMENTATION
4.3.3.0 OTHER RELEVANT VARIABLES
4.3.3.1 BUSINESS CYCLES
4.3.3.2 INVESTMENT/ EXIT STRATEGY
4.3.3.3 LOCAL INTELLIGENCE
5.0 FINANCIAL ANALYSIS
5.1 PROJECT COSTS
5.1.1 CAPITAL EXPENDITURE
5.1.2 OPERATIONAL EXPENDITURE
5.1.3 AGGREGATE COSTS
5.2 HOUSING UNITS STATISTICAL MODELING
5.2.1 UNIT COST AND SALES PRICES
5.2.2 ASSOCIATE AREAS AND COSTS
5.3 ECONOMICS OF THE PROJECT
6 CONCLUSION
1 General Information
1.1 Mozambican Demographics
The total population in Mozambique was last recorded at 25.2 million people in 2012 from 7.7
million in 1960, changing 229 percent during the last 50 years. Population in Mozambique is
reported by the World Bank. From 1960 until 2012, Mozambique Population averaged 14.3 Million
reaching an all-time high of 25.2 Million in December of 2012 and a record low of 7.7 Million in
December of 1960. The population of Mozambique represents 0.35 percent of the world´s total
population which arguably means that one person in every 291 people on the planet is a resident of
Mozambique.
Mozambican Population (Millions)

30
25
20
15
Mozambican Population
(Millions)
10
Source: www.tradingeconomics.com
Of the 25.2 million Mozambicans, the populace aged between 0 and 14 years constitute 44.1%,
52.6% of the population is between 15 and 64 years of age , while those above 65 years of age only
constitute 3.3%. This thus shows that more than half the population is the economically productive
stereotype and thus ought to be catered for accommodation wise individually and dually (married) .
Since the end of the colonial era in 1975 up until the end of the Mozambican civil war in 1992, the
country had negative growth economically but has since emerged to become one of the world’s
fastest growing economies to date. With a Gross Domestic Product of US$14.59 billion and 7.4%
Growth rate as well as a controlled inflation of 1.1%, Mozambique has been growing in
competitiveness over the past several years.
1.2 Mozambican Economical performance highlights:

• Strong economic performance over the past 15 years; in a 16 year period,
Mozambique’s GDP grew at an average annual rate of 8% registered the highest growth in all
non-oil sub-Saharan Africa economies (EIU, August 2010);
• Macroeconomic stability resulting from a series of structural reforms, and a substantial flow
of foreign aid and large investment projects from abroad, means that Mozambique is
considered one of the fastest growing economies in the world in the last decade, prospected to
be one of the 3 fastest growing economies over the next years;
Mozambique’s economic growth to exceed 7% in 2012, boosted by strong public and private
sector investment, easing of monetary policy and continued growth of the agricultural sector
(the largest economic sector);
In 2011, the MZN was among the top performing currencies in the world, boosted by strong
FDI inflows, tight monetary conditions and the implementation of a new foreign exchange law.
 Aluminium makes up above 50% of Mozambique’s total exports and is an important
FX earner for the country;
• Large mining projects (particularly coal and natural gas) provide a key pillar for growth, and
foreign direct investment is expected to remain strong;
• Throughout 2011 a number of companies drilling for gas and oil in the Rovuma
basin (Northern Mozambique) have consistently reported significant findings of large natural
gas reserves, making this area one of the greatest gas fields to be unveiled over the last
decade and putting Mozambique in the world map of gas;
• A number of key investments in the energy sector (thermo and hydro-electric generation as
well as in energy transportation) should create the conditions for further growth in other
sectors such as industry, potentially inducing further economic growth;
• Large investments in infrastructure (rail, airports and ports) connected to the main sectors
driving DFI are expected to have a strong impact in other areas of the economy, including
tourism, agriculture and agro-industry, improving logistics and more generally the viability of
investment projects.
Despite this positive growth, Mozambique still has inadequate infrastructure mostly in the housing
sector. To this effect, one would expect that as an individual grows and they start working, that they
would move out of their parents’ house and rent an apartment. For most Mozambicans this notion is
not true as they continue to live with their parents due to unavailability of housing stock. The lack of
adequate supply of housing stock forces the rental rates upwards. Rentals in the Maputo CBD are
currently tagged at approximately US$4,000 for a two bedroom 70m² apartments. A similar type of
apartment can be purchased for an equivalent of up to US$300,000.
Below is a typical urban settlement in Mozambique.
Source: African Development Bank Group website –Urban Settlement

1.3 Housing Parastatal and Mandate

As far as accommodation is concerned the “Fundo para o Fomento de Habitacao” (FFH, the Housing
Promotion Fund) which was created in 1995 by the decree n֯ 24/95 has been limited by the
inadequate allocation of funding from the Ministry of Finance. FFH’s mandate being
(i) Conducting studies and research in the housing sector
(ii) Providing land with associated infrastructure such as roads, bulk water
and electricity supply
(iii) Procuring funding to develop housing projects
In the recent past, the FFH mandate has been expanded to include, inter alia, facilitation of
mechanisms to attract local and foreign financing schemes for government housing programs as well
as establishment of partnerships with developers and funders to achieve this aim. With these
activities, it was anticipated that the FFH will be able to fund its operation in the long-run without
relying on allocation from the Ministry of Finance.
1.4 Picoco III Housing Development Project Overview

The proposed housing development will be the largest residential undertaking of its kind in the
history of Mozambique. It will comprise residential units, shopping facilities, light industrial and
business parks, a healthcare facility, petrol station, public amenities such as schools, a police station,
fire station as well as a clubhouse with various recreational and sporting facilities and restaurants.
The development will feature comprehensive high quality infrastructure such as paved roads, street
lighting, fiber-optic cable for both telecommunication and television, gas reticulation and grey water
systems for irrigation. Incorporated also will be lifestyle elements comprising state-of-the-art
security with controlled access to ensure the safety of resident families and their guests.
The housing units on offer will range from 50m², one bedroom apartments, to a standard two
bedroom apartment, a variety of three and four bedroom apartments to three bedroom townhouses
and a double-storey four bedroom stand-alone house type. The architecture of the units will be
contemporary, spacious and, indicative of refined opulent urban living.
Developed as a modern and affordable lifestyle estate, Picoco III will have a strong emphasis on
“green” living and residents will be encouraged to reduce their carbon footprint where possible.
Picoco III will set the benchmark for mixed use residential developments in Mozambique and in
every instance the development will provide the end-user a valuable asset of lasting quality and
integrity.
2 Site Information
2.1 Location
Picoco III housing development will be located 30km west of the city of Maputo, in the Boane
District of the Maputo Province.
Source: Google maps website; an aerial view of the location of Picoco III Housing Development
project
2.2 Access
The construction of a 5km road to link the Boane District to Belo Horizonte will be the main
accessibility tool. Belo Horizonte then links Picoco III to every other major location and will be fully
refundable by the Mozambican government upon completion. To this effect the development will
also offer shuttle bus facilities on regular intervals between Picoco III and the Maputo CBD, Matola
and the airport. The shuttle buses would be to offer alternative transport facilities to people who do
not want to travel to work in their own cars as well as provide transport to students who prefer going
to schools in the Maputo CBD or Matola areas.
3 Technical analyses
3.1 Site Selection
The location was provided by the Fundo para o Fomento de Habitaciao (FFH) as all land in
Mozambique is owned by the government. This therefore elaborates the fact that this land was
pegged for such a development in the Maputo expansion master plan. Imbani Projects in its
agreement with FFH are required to perform the construction process, engineering, and architectural
designs for the project and post-construction management (facilities management).
This site was chosen as it is the best location for a commuter town where workers can commute to
work around the Maputo province conveniently.
3.2 Housing typologies

A comparison on each of the unit types to assess the unit cost structure as compared to the quantity
of each typology rolled out in phase 1 is laid out below.
3.2.1 Unit type 90A

90A unit type housing unit is a three bedroom stand-alone house of (92m²) ninety-two square
meters. If 100 of these are initially rolled out, each of them will cost US$126,149. However, if the
second option of rolling out 208 housing units under this typology is adopted then the unit cost will
be US$123,368. The selling price of each of these 90A unit type housing units will be US$126,960.
3.2.2 Unit Type 90B

90B unit type housing unit is a three bedroom stand-alone house of (89m²) eighty-nine square
meters. If Picoco III rolls out 200 in Phase 1 construction then each units will cost US$113,081. On
the other hand, if an initial 417 units are constructed then the unit price drops to US$110,587. The
selling price of each of these 90B unit type housing units will be US$122,820. This stand-alone type
of housing unit is ideal for a small family.
3.2.3 Unit Type 110A

Unit type 110A has a floor area of 109m², also is three bedroomed, a stand-alone and is ideal for a
family setup. Given option 1 of constructing 60 Unit type 110A housing units in the first phase of
the project the unit cost of one such housing unit is estimated to be around US$135,931. However,
where 125 units are rolled out the per unit cost drops to US$132,935. The selling price is pegged at
US$152,600.
3.2.4 Unit Type 110B

Unit type 110B has a floor area of 112m², also is three bedroomed, a stand-alone and is ideal for a
family setup. Where 60 Unit type 110B housing units are constructed in the first phase of the project,
the unit cost of one such housing unit is estimated to be around US$145,870. Alternatively the
construction of 125 units drops the cost per unit to US$142,654. These will be sold for US$156,800.

Unit type 130A has a floor area of 130m², also is three bedroomed, a stand-alone and is ideal for a
family setup. The construction of only 20 Unit type 130A housing units will cost US$171,069 per
unit. On the other hand, the increase in initial supply to 42 brings down the unit cost to US$167,297.
They will be sold for US$188,500. Apart from the other above mentioned stand-alone housing units,
the 130A now has a double garage and a study thus more accommodative.
3.2.6 Unit Type 130B

Unit type 130B has a floor area of 137m², is three bedroomed, stand-alone and is ideal for a family
setup. The roll out of 20 Unit type 130B housing units attracts a unit cost of US$169,973, whereas,
42 of these will bring the cost per unit to US$166,226 They will be priced at US$191,400.

This is a four bedroom double storey stand-alone housing unit with a lettable space of 150m². If the
first phase of the project rolls out 20 units of this typology unit cost will be US$187,581. If the
second option however, of 42 is adopted then unit cost is brought down to US$183,445. Selling price
is US$217,500.
NB: the second option (cheaper) in typology mix involved no construction in phase 1 of Unit
Types T2A, T2B, T2C, T3B, T3C, T4
3.2.8 Unit Type T2A

Where 240 housing units of this typology are rolled out in the first phase of the project, T2A
apartments will cost US$73,874 per housing unit. The second option would be 0 (zero) at this stage.
They are two bedroomed apartment type housing units with 68m² lettable spaces. These cannot be
individually built independent of others in a single block. The selling price of each apartment is
US$81,600.
3.2.9 Unit Type T2B

The unit type T2B is a two bedroom flat with 88 m² at an estimated cost of US$101,420 and to be
sold for US$105,600. The number of units projected to be constructed is 40 units. The second option
would obviously be zero units initially again for this one as mentioned above.
3.2.10 Unit type T3B

These differ from the T2B in that they have 3 bedrooms as opposed to the two above. They have a
102m² lettable space and 40 units of these are going to be constructed in the first phase. The
estimated cost per unit type apartment will be US$111,437 and to be sold US$132,600.
3.2.11 Unit Type T2C

The T2C unit type apartment has two bedrooms and has 77m² with an estimated cost per apartment
of US$85,143 to be sold at US$92,400. The first phase has an estimated 80 units.
3.2.12 Unit Type T3C

The T3C unit type apartment has three bedrooms and has 97m² with an estimated cost per apartment
of US$110,185 and to be sold at US$126,100. The first phase will involve the construction of an 80
units.
3.2.13 Unit Type T4

The T4 apartment is a two bedroom flat with 108m² at an estimated cost of US$113,941 and to be
sold for US$140,400. The projected number of units to be constructed is 40 units.
4. Real Estate Market Analysis

4.1 Market Overview
A real estate market study for the Maputo, Tete, Chimoio and Nampula markets is a presentation to
provide a first inside view of the Mozambican Real Estate sector for potential investors. It is not
intended to be an in-depth analysis as it is still at pre-feasibility level. As such the general format is
qualitative rather than quantitative.
Indala took particular care in sustaining its assumptions used in financial modeling and
advisory work on its clients investment projects based on quantifiable and observable data,
including measuring exposure to relevant risk factors /uncertainty.

While still obviously unstructured and lacking the systematic data collection to precisely
monitor the sector evolution, particularly relevant to forecast trends and guideline
investments, the Real Estate sector in Mozambique is most definitely gaining
momentum and real high-return investment opportunities do exist. Equally, significant
risk factors deterring main-stream investors to firmly enter the market do persist and they
should not be overlooked.
4.2 Market trends and prospects

The real-estate environment is characterized by strong growing demand and high rates of
consumption specially residential space (as well as other products such as office or retail), seen by
the low share of vacant space and rental rates that keep growing at 15% p.a. and easily doubling over
the past couple of years in the fastest growing areas and within the relevant segments.
Private sector offer as focused on the higher income segments of the market with lower
segments generally resourcing to own-construction to access new housing;
With demand largely outstripping supply, current real estate market conditions are very
favorable for green-field real-estate developments;
Given the long-term nature of the investments fuelling Mozambican economic growth, it is
reasonable to assume that the real estate market will not get to close saturation for the next 5-10
years particularly in the regions where most large investments are to take place;
With a growing influx of FDI, there is a major supply shortage of high end homes and grade A office
space ,that are targeted primarily at the international market and investor community;
The current stock of quality housing is experiencing a huge pressure from expatriates for 3-4
bedroom, hence supply of houses for this segment strong. Grade A office rental space will remain
difficult to find because of the scale of the offerings and the tendency to offer space to buy rather
than to let.
A major obstacle for the development of real estate assets is the difficulty in accessing financing; the
inexistence of adequate financial instruments (such as fluid/structured capital markets or dedicated
investment funds) determines that most funding relies on debt from commercial banks which, given
the low level of own capital by promoters and relatively high interest rates, seriously limit the
financial capability to develop real estate projects;
Despite the strong signs of a booming – as much as sustained – market, the prevailing high- risk
perception of Mozambique as an investment destination and the general lack of reliable data on the
market adds on to deterring main-stream foreign investors to enter it;
Short track-record of local promoters and uncertainty on exit strategies further determine the
relatively low investment pace on the supply side to accommodate the soaring demand for real
estate products;
Still, demand is strong and prospective returns on real estate projects are extremely attractive.
Fast growth is also fuelling competition among contractors and suppliers of building materials
which combined with increasing scale is pushing down building costs and extending margins for
developers;
The development of the real estate sector is also contributing to the improvement of local
capabilities in all aspects of project implementation/management, from conceptualization and
planning to actual building and market placement, be it in direct technical areas or in its financial
structuring and backing-up; despite this trend, the Mozambican market significantly lags behind
mature markets in experience and expertise;
While overall presenting firm growth indicators, the market is rather thin and overshooting supply is
a risk; off-take agreements from key buyers/tenants, differentiation factors, added- value propositions
are strategies that minimize such risks; good local intelligence is key;
The market demand is generally geared towards rental-type of products as for the greatest part
demand is based on the large investment projects (mining, gas,…) which do not want to add real
estate assets to their core, high-capital intensive investments and/or those expat workers who will rent
before buying property.
4.3 Market Segmentation

Basic Segmentation Vectors
End User Rental/Sale

Built-to-
Build-
rent
Housing Office to-sell
Real
Estate
Warehousing
Logistics
Retail Industrial
4.3.1 End-User Segmentation

4.3.1.1 Housing
The surge of demand in the housing segment of the market is grounded in

four main trends:
i. Substantial and growing FDI fluxes and the technical and management staff
associated with these investments, directly by the investor companies or their suppliers;
ii. Growing middle-class of Mozambican citizens with increasing purchasing power
and wider access to credit;
iii. General high growth rate of the population with a relatively stable stock of built
houses over the previous decades;
iv. Private investors applying excess wealth in real estate assets.
Given the fast growing in demand and prices, housing is also a central priority in
governmental policy. Since most new supply of housing by the private sector is focused on
the higher end of the market, the government has stepped in to encourage solutions to lower
income segments. Such policies concurrently aim at controlling urban development in a
sustainable fashion.
The sub-segmentation of the housing market is crucial when defining the real estate
investment profile and correctly position it in the market. Different positioning strategies
may be equally valid depending on the particular supply and demand trends in particular
areas.
4.3.1.2 Office
Demand for office space is primarily originated by the large corporations directly involved in the
anchor investment projects but is then replicated by the numerous business opportunities they
encompass.
Primary suppliers to these projects are rapidly positioning themselves in
Mozambique driving up demand for office space, including service
providers (ranging from technical consultancy practices to legal advisory,
IT, banking and insurance, within a much vaster array), equipment,
materials and consumer goods sellers as well as manufacturers.
The magnitude of the investments underway are continuous and increasingly pulling a wide range of
SMEs into the Mozambican economy, all demanding for suitable premises from where they can
operate their businesses.
Given the long-term nature of the underlying primary large investments, it is predictable that the
trend is also of durable nature. The dispersion of the large investments along the various pivotal
points where they are settling in makes the trend widespread even in regions where formal economic
activity has been sparse or nearly inexistent.
The increase in demand is not only in the office space (size) itself but also in its sophistication
with service and quality aspects gradually gaining relevance.
4.3.1.3 Retail
The economic growth brings along changes in consumer needs and
habits. The prevailing traditional retail landscape is gradually giving way to
new commercial areas where modern retail is increasingly gaining
relevance. In most urban areas larger operators, with particular relevance for South African retail
chains, are opening new shops as anchor tenants of malls and shopping centers.
The general growth trend of the economy, as far as retail is concerned, is further speeded up by the
increasing numbers of people entering the formal employment market, away from agriculture into
extractive, processing and services industries. With average disposable income on the rise there is a
growing demand for consumer goods and retail is booming, particularly in its modern formats.
Adding to this the expat community is also expanding bringing with them the consumption needs and
habits as much as the purchasing power.
Retail is on the rise as much as the demand for space specifically conceived for it, particularly in the
key geographic areas where economic expansion is strongly felt. The retail chains, keen to expand
in this market, offer the possibility of conceiving real estate retail areas together with their future
tenants, diminishing the investments risks. They are generally ready to enter long-term contracts
which diminish uncertainty over future cash flows from investments in retail parks, malls or other
formats.
4.3.1.4 Warehousing/ Logistics/ Industrial

The need for premises to handle the fluxes of physical goods, processing and logistics, is a
pressing need arising from the economic growth, particularly critical as the large investments depend
on these to materialize. The stakes are high and the ball is rolling. The
large investments are being made in remote and rural areas where little
infrastructure exist.
The urban areas that will serve as the logistical basis are not equipped to
match the challenge and the need for warehousing space is enormous,
even more so in the hubs around ports and rail. From simple storage of commodities in large
quantities (such as coal), to cold storage facilities, warehousing of goods, parts and equipment, there
is a large and growing unsatisfied demand.
The existing infrastructure is just a marginal part of what will be when mining, gas and other
investments reach full scale operations. The gap is wide and offers numerous investment
opportunities, in terms of space/premises required as well as the management and handling
expertise.
From single warehouses to large multimodal logistic platforms, a number of projects are currently
taking shape and will require adequate funding.
4.3.2 Rent/ Sale Segmentation

A central segmentation criterion, with a significant impact on the return profile of a real estate
investment is its market positioning in terms of a rental or a sale product. The general trend
observable in Mozambique is that the bulk of the market is on the
rental side. Most demand is originated by the large anchor
investments which prefer to rent/outsource what is not within their
core businesses, not to add complexity to their management
challenges and to limit initial capital expenditures.
The critical consequence is that most real estate products should be conceived taking this factor into
consideration. If highly geared, the financial charges may eat up a considerable part of the returns
and if not properly financed (adequate time span) they may actually not survive to see the light of
day. On the other hand, the rents are increasing sharply and may yield much higher returns for an
investor with a longer term perspective.
Coincidently, while build-to-sell products face slow market acceptance and penetration, build- to-rent
are in sharp contrast facing an unmet demand willing to pay substantial premiums for not having the
initial capital outflow associated with the purchase.
4.3.3.0 Other Relevant Variables
4.3.3.1 Business Life-Cycle

Unlike more mature real estate markets, Mozambique is rather unstructured although going through
rapid and profound changes. Most projects are in their early stages and being developed in a
somewhat amateur form.
They generally struggle to raise adequate funding and are based in little or no
previous research, lacking the necessary analytical basis on their planning stage.
Projects are built based on the general assumption that the demand will rapidly
absorb whatever is offered. While to some extent that has been the reality, such loose approach will
most probably lead to a number of investment flops, and if not so drastic, most investments will be
far from achieving their potential returns with sub-optimal options being taken.
Existing projects in search for finance and equity partners exist in all major segments, be it
geographically, by product type and size.
A strategy for entering the Mozambican market should take into consideration that most projects will
be presented as green-field and require additional effort to improve them up to being best options.
Such a strategy at this stage makes good business sense although may deter less flexible players from
entering.
For an investor, particularly of a more financial nature, this means that entering the project in early
stages and contributing to its design and financial planning phases may bring additional gains.
Generally most existing projects an investor may consider to participate in still require some effort in
their various components. It does not mean they are not good investment proposals, it just means
that the prospective investor may see advantages in entering at an earlier stage and not expect to
be presented with “ready-to-invest” propositions. Such approach may encompass a significant
up-side not to mention being in itself a clear risk-mitigation strategy.
Scale
Project scale somewhat reflects the development stage of the market. Scale/size of projects is quite
diverse ranging from stand-alone buildings to large urbanizations up to one billion USD investment
schedule. The most common projects are worth up to one hundred million USD (investment size).
5 10 20 40 80 150 300 600
1000
4.3.3.2 Investment/ Exit Strategy
The simple perception that the Traditional Exit Alternatives
market is booming is not enough
to enter it as what an outsider will Corporates
End Market
see is a blurred picture of a
Individuals
changing reality which in financial
Exit
terms is equivalent to high perceived Structured
Investment
risk. Since for its own nature real Markets
Second Stage Investment Funds
estate investments require significant Investors
up-front capital commitments, this
risk translates into limited funding Individuals
available.
The financing of real estate projects is further limited by the fact that the
bulk of the market is on the rental side. While returns are high, the
profile changes dramatically in terms of the time span they occur. In
addition to facing an undefined investment environment, the investor is
asked to wait for long-term prospective returns. It all adds up to deter investors.
There is a great deal of space for further structuring the projects, by creating innovative project-
finance type of solutions to ensure viability and mitigate high perceived risks. For investors willing
to make the effort, the market offers potentially high returns. The traditional resource to commercial
banks debt as the primary source of finance should give way to other possibilities, from equity to
hybrid financing instruments for it is not enough, adequate and local banks exposure to real estate, in
a context of limited capital, seriously hinders their appetite for additional financing the sector.
A serious concern for someone investing in green-field projects is the options to exit the investment.
Thus far the projects have been pretty much developed with the end market (end users) as the
prospective off-takers of the investment.
Yet, with the development of the market and the growing interest it is generating, additional options
are becoming viable, particularly with the formation and entrance of real estate dedicated funds with
a longer term approach, willing to keep the assets in their portfolios as a source of a steady income
stream.
The trend is quite tangible with an increasing number of different funds of different origins
and sizes enquiring on potential investment targets.
As the sector evolves the spectrum of exit strategies will become wider benefiting those who took
the risk in its early stages.
4.3.3.3 Local Intelligence

In a fast changing sector with a short track record, information is scarce.
Statistics and research is poor which difficult the ability of assessing
market potential and risks, identify opportunities and form a clear
strategy. While good investment opportunities exist, thus far most
players in the market have taken an ad-hoc opportunistic approach and
new entrants struggle to gain an up-front vision of the market as a whole
from which to decide on whether and where to invest. The short lived and fast moving environment
makes it is even more difficult to grasp trends and envision the future, key to decide on positioning
investments and products. In such a context what is being projected and under licensing is more
relevant than what can be observed or the data gathered on it, particularly important to understand
the supply side of the industry. Understanding the dynamics of this fast evolving environment is not
only fundamental, it requires creative research approaches to get the relevant information and some
additional effort to access it.
While technical capabilities for the development of projects have been gained by the association of
local promoters to outside experts (such as architects or designers) information gathering still needs
to be done locally, requiring physical presence to understand the market context, access/filter the
investment opportunities, and structure them in a format an investor can understand in order to
evaluate as potential investment targets.
5 Financial Analysis
5.1 Project Costs
This mainly constitutes the capital and operational expenditure. Based on previous experience and
rough calculations the total cost of the initial phase of the project (phase 1 sales/ revenue will fund
subsequent phases’ costs) can be estimated as follows.
5.1.1 Capital Expenditure

Description Cost (US$’000)
1 Construction cost 105 541.2
2 Project Management 2 497.95
3 Architects 4 309.25
4 Civil Engineering 2 718.51
5 Electrical expenses 432
6 Quantity Surveys 1 998.36
Sub-total 117 497.27
Less- reimbursement for access road to Belo Horizonte (5 623.2)
Total Capital Expenditure 111 874.07
Table 5-1 Capital Expenditure Breakdown
5.1.2 Operational Expenditure

1 Disbursements 1 195.61
2 Fundo para o Fomento de Habitacao Administration Fess 5 653.48
3 Developers’ Fees 3 392.09

4 Marketing Cost 1 130.7
5 Insurance Cost 2 261.39
6 Legal Cost 2 261.39
Total Operational Expenditure 15 894.67
Table 5-2 Operational Expenditure Breakdown
5.1.3 Aggregated Costs

1 Capital Expenditure 117 497.27
2 Operational Expenditure 15 894.67
Aggregated Expenditure 133 391.94
Table 5-2 Aggregated Expenditure
5.2 Housing Units Modeling

5.2.1 Unit Costs and Sales Prices
Unit Type No. of Units Living area Unit cost Unit cost Total Costs Sales Price Unit Sales Total Sales
m² US$ US$ per m² US$ US$ per m² Price US$ US$
House 90A 208 92 123 368 1 341 25 701 707 1 380 126 960 26 450 000
House 90B 417 89 110 587 1 243 46 078 123 1 380 122 820 51 175 000
House 110A 125 109 132 935 1 220 16 616 823 1 400 152 600 19 075 000
House 110B 125 112 142 654 1 274 17 831 755 1 400 156 800 19 600 000
House 130A 42 130 167 297 1 287 6 970 711 1 450 188 500 7 854 167
House 130B 42 132 166 226 1 259 6 926 068 1 450 191 400 7 975 000
House 150A 42 145 183 445 1 265 7 643 547 1 500 217 500 9 062 500
Total Houses 1000 127 768 735 141 191 667
Avg House 127 769 141 192
Apart. A 0 68 72 245 1 062 0 1 200 81 600 0
Apart. B2 0 88 99 184 1 127 0 1 200 105 600 0
Apart. B3 0 102 108 980 1 068 0 1 300 132 600 0
Apart. C2 0 77 83 266 1 081 0 1 200 92 400 0
Apart. C3 0 97 107 756 1 111 0 1 300 126 100 0
Apart. D 0 108 111 429 1 032 0 1 300 140 400 0
Total Apart. 0 0 0
Avg Apart. 90 056 103 818
Table 5-4: Unit Costs and Sales Prices
5.2.2 Housing Unit Area and Costs Allocations

Unit Type No. of Units No. of No. of Stand Size Roads + Parking Access roads per Total roads Combined
Per stand stands Units (land) m² Per unit m² unit m² area m² area m²
House 90A 1 100 208 500 100 100 41 667 91 667
House 90B 1 200 417 500 100 100 83 333 183 333
House 110A 1 60 125 500 100 100 25 000 55 000
House 110B 1 60 125 500 100 100 25 000 55 000
House 130A 1 20 42 500 100 100 8 333 18 333
House 130B 1 20 42 500 100 100 8 333 18 333
House 150A 1 20 42 500 100 100 8 333 18 333
Apart. A 4 60 0 500 60 60 0 0
Apart. B2 4 10 0 500 60 60 0 0
Apart. B3 4 10 0 500 60 60 0 0
Apart. C2 4 20 0 500 60 60 0 0
Apart. C3 4 20 0 500 60 60 0 0
Apart. D 4 10 0 500 60 60 0 0
Total 610 100 200 000 440 000
Table 5-4 Housing area breakdowns and cost allocation
Page 35 of 35
5.2.3 Associate Areas and Costs
Unit Type Parks Total project Parking Access road Construction

Area m² Area m² costs US$ costs US$ cost US$
House 90A 18 333 110 000 833 333 1 171 500 16 791 667
House 90B 36 667 220 000 1 666 667 2 343 000 30 104 167
House 110A 11 000 66 000 500 000 702 900 10 856 250
House 110B 11 000 66 000 500 000 702 900 11 650 000
House 130A 3 667 22 000 166 667 234 300 4 554 167
House 130B 3 667 22 000 166 667 234 300 4 525 000
House 150A 3 667 22 000 166 667 234 300 4 993 750
Apart. A 0 0 0 0 0
Apart. B2 0 0 0 0 0
Apart. B3 0 0 0 0 0
Apart. C2 0 0 0 0 0
Apart. C3 0 0 0 0 0
Apart. D 0 0 0 0 0
Total 88 000 528 000 4 000 000 5 623 200 83 475 000
Page 35 of 35
Table 5-4 (continued)
5.3 Economics of the Project

Financial analysis has been done based on the above figures and the following assumptions;
 Cumulative Preference shares/ Mezzanine Loans from Old Mutual Investment Group South
Africa overally worth up to US$11,924,000 raised in a revolving nature in the first 4 years of
the project with a 30 month tenure at 6% p. a and a grace period of months.
 Shelter Afrique will contribute 48 month 7% per anum once off US$10million loan with a
grace period of 18 months.
 Other sources yet to be confirmed total US$12,2million
 All the phases of the project are to be complete 5 years after project commencement date.
 The planning discount rate for the project funds is 10%
 Considering the above the Net Present Value will be US$11 018 000 and the Internal Rate of
Return at 53%.
6 Conclusion
According to the technical, market and financial feasibility studies, this is a very economical housing
project.
As far as the report is concerned a brief summary of the study are included in the main text in order
to emphasize the most important facts only. Any Detailed information is given as annexures.
Page 35 of 35

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2013

Pre-Feasibility Study Report

At Boane, Matola District, Maputo, Mozambique

4.1 MARKET OVERVIEW

Mozambican Population (Millions)

1.2 Mozambican Economical performance highlights:

Below is a typical urban settlement in Mozambique.

Source: African Development Bank Group website –Urban Settlement

1.3 Housing Parastatal and Mandate

1.4 Picoco III Housing Development Project Overview

3.2 Housing typologies

3.2.1 Unit type 90A

3.2.2 Unit Type 90B

3.2.3 Unit Type 110A

3.2.4 Unit Type 110B

3.2.5 Unit Type 130A

3.2.6 Unit Type 130B

3.2.7 Unit Type 150A

3.2.8 Unit Type T2A

3.2.9 Unit Type T2B

3.2.10 Unit type T3B

3.2.11 Unit Type T2C

3.2.12 Unit Type T3C

3.2.13 Unit Type T4

4. Real Estate Market Analysis

including measuring exposure to relevant risk factors /uncertainty.

4.2 Market trends and prospects

4.3 Market Segmentation

End User Rental/Sale

4.3.1 End-User Segmentation

The surge of demand in the housing segment of the market is grounded in

4.3.1.4 Warehousing/ Logistics/ Industrial

4.3.2 Rent/ Sale Segmentation

4.3.3.0 Other Relevant Variables

4.3.3.1 Business Life-Cycle

5 10 20 40 80 150 300 600

4.3.3.3 Local Intelligence

5.1.1 Capital Expenditure

5.1.2 Operational Expenditure

3 Developers’ Fees 3 392.09

5.1.3 Aggregated Costs

5.2 Housing Units Modeling

5.2.2 Housing Unit Area and Costs Allocations

Table 5-4 Housing area breakdowns and cost allocation

5.2.3 Associate Areas and Costs

Unit Type Parks Total project Parking Access road Construction

Table 5-4 (continued)

5.3 Economics of the Project

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