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Price baiting in Somalia as property market crisis persists

Abdiaziz Abdirahman Nur

Somalia’s property market is facing a never ending-crisis, due to a lack of governance in the industry.

Property prices are set by individuals, personally invested in propping up the prices without any justification or code of conduct; since there is no rule book or guidelines to follow, everyone is free to set their own prices.

Two groups control the market, Brokers (Dalaal) and wealthy developers; however, neither can justify the capital growth.

Without any standardised procedure to follow or government intervention, the Market will eventually collapse. I also fear this will create a housing crisis in Somalia; only the wealthy can afford a piece of land. We are currently operating under a free market system, which sounds great in theory, but in practice, creates a wealth gap. If we are all willing participants in the free market system, can we truly blame private businesses or individuals who thrive in this market system?

Historically, property is one of the most stable asset classes to invest in, because supply is limited and demand never ends. The overwhelming consensus is that foreign investment has created a sharp rise in property prices in Somalia.

Most investment comes from expatriates, which is not a negative; the industry needs investment. However, this must not come at the cost of locals priced out of the market.

According to Africa Housing Finance Yearbook (2021), “Access and general availability of data has been identified as a key gap by the Federal Government of Somalia. It remains a challenge to undertake on-the-ground research due to vulnerable conditions and security risks throughout the country.”

Due to the insufficient data available for property prices, I have focused on examining capital growth for example Subject A property located in an inner-city neighbourhood is roughly 450 m², a residential dwelling. According to local agents, it was built in 2005 and is now valued at $103,680.

Source: Deegaamo Real Estate
Text Box: Table 1
Subject A	Property Price	Capital gain
2014	$50,000.00	$10,000.00
2016	$60,000.00
2018	$72,000.00
2020	$86,400.00
2022	$103,680.00
source: Deegaamo Real Estate

Subject A could be replicated all around the country, provided a property has been sold multiple times within the last decade. A capital gain of $74,416 is unheard-of for a country going through internal turmoil. Neighbourhood characteristics have not changed; there are no noticeable infrastructure improvements or national currency changes.

This informal way of buying and selling residential properties could have a ripple effect on the rest of the economy. Property prices need to be controlled and stabilised with a gradual increase over a long period of time. Prices must stay consistent, so the value does not drop significantly when the bubble eventually bursts. Most major institutions are using past performance to determine current market prices for residential properties. Without a standardised formula to follow, we can expect more inconsistency in pricing.

The data presented in Subject A, could be interpreted in multiple ways; some could say it is a natural increase in property prices over a long time. I do not necessarily disagree. The only problem is that no standardised formula shows what the natural increase should be over time. The problem is exacerbated by overzealous brokers whose livelihoods are directly tied to the constant turnover of property.

Brokers frequently approach property owners and advise them to sell for a higher price than they bought a year ago. This increase in capital gain is not justified to the seller or buyer. Property prices have doubled in the past decade and are higher than income and rent.

Property prices do not necessarily fall because they have reached an unsustainably high level – they need a trigger. Interest rate rises (deyn), inflation (sicir-barar), stagnant wages (mushaar), etc, need to be present for the property market to increase. I do not see any of these factors in the Somali market currently, which begs the question, how do these people determine the prices.?

Abdiaziz Abdirahman Nur is a property valuer and developer, reach him via email

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