São Tomé and Príncipe economy - the Real Estate Sector

The Real Estate Sector in São Tomé and Príncipe- including Investment Opportunities

This detailed analysis provides an in-depth examination of the real estate sector in São Tomé and Príncipe, addressing its current state, market dynamics, investment opportunities, legal and regulatory framework, challenges, and recent developments, as of March 6, 2025. The report aims to offer a thorough understanding for researchers, policymakers, and investors, ensuring a complete overview of the sector's role and prospects in the nation's economy.

Introduction

São Tomé and Príncipe, a small island nation in the Gulf of Guinea off the west coast of Africa, is classified as a lower-middle-income country by the World Bank, with a Gross Domestic Product (GDP) of approximately $0.57 billion in 2022 and a per capita GDP of around $2,500. The economy is primarily driven by the services sector, particularly tourism, which contributes about 27.4% to GDP, followed by industry at 14.8% and agriculture at 11.8%. The real estate sector, while not explicitly detailed in GDP breakdowns, is influenced by these economic drivers, with growing demand for properties linked to tourism development, urban housing, and commercial activities. Given the country's unique natural attractions and emerging market, the real estate sector presents both opportunities and challenges for investors.

Economic Context

The economy of São Tomé and Príncipe is characterized by its small size, with a land area of just over 1,000 square kilometers and a population of about 225,000. The services sector dominates at 73.4% of GDP, with tourism playing a significant role, attracting around 34,900 international visitors in 2019, according to World Bank data. This growth in tourism, particularly in nature-based and luxury segments, has spurred demand for real estate, especially for hotels, resorts, and vacation homes. The country's reliance on foreign donors, funding about 90% of public investment, and its vulnerability to climate shocks, such as floods and rising sea levels, also impact the real estate market, particularly in coastal areas.

Real Estate Sector Dynamics

The real estate sector in São Tomé and Príncipe is emerging, with limited comprehensive data available online, reflecting its small market size. However, based on economic trends and reports, the sector can be broken down into several sub-sectors:

1. Tourism-related Real Estate: This is the most prominent segment, driven by the growth in tourism. Properties include hotels, resorts, vacation homes, and short-term rental properties, particularly in areas like Tofo Beach, known for diving, and Príncipe Island, known for luxury developments. For example, the Príncipe Trust manages properties like the Sundy Praia Resort and Bom Bom Island Resort, indicating a focus on high-end tourism real estate.
2. Residential Properties: There is a need for housing in urban areas, particularly in São Tomé city, due to population growth and urbanization. From expat forums and real estate websites, basic apartments in São Tomé city might cost around $50,000 to $100,000, while luxury villas on Príncipe Island could be in the millions, though these are rough estimates and vary widely.
3. Commercial Properties: As the services sector grows, there is demand for office spaces, retail outlets, and other commercial properties, particularly in business districts of São Tomé city. This segment is less developed but could see growth with increased economic activity.

The mix of high-end luxury developments on Príncipe Island and basic housing needs in São Tomé city, catering to diverse market segments, is an unexpected detail, given the country's small size and economic constraints.

Current Trends

• Tourism Growth: The increasing number of tourists, with a recovery post-COVID-19, has driven demand for accommodation, particularly short-term rentals, as seen on platforms like Airbnb, with listings in São Tomé city and Príncipe Island.
• Urbanization: Population growth in urban areas like São Tomé city has increased the need for residential properties, with potential for apartment complexes and housing developments.
• Infrastructure Development: Ongoing and planned projects, such as road improvements and airport expansions, supported by the World Bank's Country Partnership Framework for FY2024-2029, could enhance real estate development, particularly in tourism areas.

Investment Opportunities

The government has identified tourism and related sectors as priority areas for investment, offering incentives through the National Investment Agency (ANIP) Investment Promotion Agency São Tomé and Príncipe. Potential investment areas include:

1. Tourism-related Properties:
   • Hotels and Resorts: Developing or investing in hotels and resorts, especially in coastal areas like Tofo Beach and on Príncipe Island, where luxury developments are in demand. For example, the Pestana São Tomé Hotel & Convention Center is a notable existing project, indicating market potential.
   • Vacation Homes and Short-term Rentals: Investing in properties for rental on platforms like Airbnb, catering to tourists seeking unique experiences, particularly in natural settings.
   • Eco-lodges: Developing sustainable tourism accommodations in natural areas like Obo National Park, appealing to eco-conscious travelers.
2. Residential Developments:
   • Building apartments or houses in São Tomé city to meet local housing demand, potentially offering long-term rental income or capital gains as urbanization continues.
   • Developing affordable housing projects, supported by government initiatives to improve living conditions.
3. Commercial Properties:
   • Leasing or owning office spaces and retail outlets in business districts, supporting the growing services sector, particularly finance and technology firms.
4. Real Estate Speculation: Given the growing interest in the country as a tourist destination, there is potential for property value appreciation, particularly in prime locations like Príncipe Island and coastal areas, offering opportunities for long-term capital gains.

The government's offer of tax incentives, such as exemptions from import taxes on equipment and materials for approved projects, and reduced corporate tax rates for a certain period, enhances the attractiveness for investors, as noted on the ANIP website.

Legal and Regulatory Framework

Foreigners are allowed to own property in São Tomé and Príncipe, based on general investment laws, with no specific restrictions on land ownership for foreigners, though processes may involve registering with a notary and the land registry, which can be time-consuming, as indicated in the World Bank's Doing Business report Doing Business in São Tomé and Príncipe - World Bank. Investors are advised to hire local lawyers or real estate agents to navigate the process, and there might be restrictions on certain types of land, such as agricultural or protected areas, requiring due diligence.

Challenges for Investors

Potential investors must navigate several challenges:

1. Small Market Size: With a population of about 225,000, the domestic market is small, limiting demand for certain types of properties, particularly commercial and residential, beyond tourism-related needs.
2. Limited Infrastructure: Inadequate roads, water, and electricity supply, especially in remote areas like Príncipe Island, can pose challenges for large-scale projects. The World Bank's CPF for FY2024-2029 aims to address this, but progress may be slow.
3. Regulatory Complexities: Bureaucratic processes and potential regulatory uncertainties may slow down project implementation, requiring careful navigation of local laws and procedures.
4. High Transportation Costs: The remote location increases the cost of travel to and from the country, which can affect operational costs for real estate developments, particularly for construction materials and labor.
5. Currency and Economic Risks: The currency, the dobra, is pegged to the euro, but economic dependence on a few sectors and potential currency conversion restrictions could impact returns.

Promising Areas

• Príncipe Island: Known for its untouched nature, it is ideal for luxury resorts and high-end properties, with existing developments like the Sundy Praia Resort indicating market demand.
• São Tomé City: Offers opportunities for residential and commercial real estate development, given the urban housing needs and growing services sector.
• Coastal Areas: Suitable for beachfront properties and tourism developments, particularly around Tofo Beach, enhancing the appeal for vacation homes and resorts.