Cape Verde: Cape Verde

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

The Atlantic Islands of Cape Verde, sometimes known as Cabo Verde, initially attracted attention from international buyers because of their location. Situated 450 kilometres off the coast of Senegal, developers see this string of jewel-like islands as having the potential to become a new Canary Islands. Since 1975, when the islands separated from Portugal, they have been an independent republic.

The interiors of the 10 main islands and 8 islets may be wild and volcanic, but the beaches and constant warm temperatures justify Cape Verde’s new reputation. That more development is needed is certain: the lack of schools and roads mean that this is not yet the place to look for a second home. But the sheer newness of the market means that Cape Verde retains a sense of peace and tranquillity that more developed islands have lost.

The weather is a second attraction. With buyers of second homes often saying that they value sun, sea and sand, Cape Verde may have the edge over the markets in Eastern Europe. The climate here is consistently temperate, never varying much from the average of 25ºC. People buying in Cape Verde can take advantage of similar journey times but better all-year seasons than buyers who turn to the former Soviet bloc.

A final good sign is that the government sees tourism and the second home market as the best way in which to guarantee prosperity for Cape Verde. Tax breaks are offered to foreign investors (the first five years of home-ownership are tax free). The government is also working to promote tourism, to improve infrastructure and tourist amenities. They have even offered tax incentives to property developers. Tourism means everything to Cape Verde, and the government will offer every support to foreign nationals buying here.

Is this a good place to buy?

Direct flights between the UK and Cape Verde are slated to begin in 2006 (routes and carriers are yet to be confirmed), whilst connections to the US already exist. With the need for inconvenient and time-consuming travel connections dispensed with, and with increasing media coverage, Cape Verde will attract more tourists, some of whom will hope to invest in the nascent property industry. Buying into an off-plan development completing in the next two years could potentially place an investor in a position to sell on as tourists look for finished second homes.

Price history

Cape Verde is too new a market for prices to be easily understood. The same apartment that sells for £20,000 ($35,000) on one island or at one beach might sell for £40,000 elsewhere, either because of the developer’s whim or because another buyer has been willing to pay the higher price. Villas that last year were being marketed at £100,000 ($175,000) might now be advertised at £200,000. The market will settle and become more logical, but in the meantime it is worth investigating comparative properties and prices carefully. Ideally you should work with an agent that has the capability to identify the best opportunities.

Which type of property should you go for?

The lack of infrastructure means that it can be difficult to refurbish and furnish an older property to your satisfaction. A furnished off-plan apartment or villa will be an easier option.

Buyers this market will appeal to

Cape Verde suits anyone looking for a holiday home or holiday rentals. Media coverage means that the islands are increasing in popularity and holiday lets could potentially enable you to make a healthy return on investment.

Hotspots

Development so far has been concentrated on the islands of Sal and Santiago, although buyers who take the time to travel to the islands and look around often opt for the gentler atmosphere and the white sand beaches of Boa Vista. For those looking for night life, water sports and a greater level of development Sal, also home to the international airport, is the answer.

Yet the best bet at the moment may be Santiago. The largest of the Cape Verde Islands, Santiago combines bustling nightlife in the capital Praia with space to get away from it all. The island also has more varied terrain than most of Cape Verde and even boasts mountain ranges. A second international airport is under construction at Praia which should boost property prices.

Key risks and opportunities

The prices in Cape Verde may be lower than in the Balearics, but equally they may not always represent a genuine bargain. Some developers may be placing their pricing at the highest level they think will be found acceptable by the market rather than genuine cost. Some villas are now on the market for £250,000 ($425,000) – a price that has more to do with optimism than the realities of the market.

Purchase process

The legal system in Cape Verde is similar to that in Portugal and therefore relatively straightforward. The first step is to obtain a Personal Fiscal Number from the tax office. This is sometimes also assigned if you open a local bank account, a useful but not necessary step. The contracts will be agreed in two stages: first the Promissory Contract (Contrato de Promessa de Compra e Venda) and then the final contract (Escritura).

After the purchase price has been agreed the Promissory Contract is signed and a deposit of 10%-30% is handed over.

Cape Verde is committed to attracting more foreign investment and tax exemptions are offered to foreign buyers which include five years without tax. The deposit is non-refundable but secures the property. Before signing the contract your solicitor should conduct checks at the land registry to ensure that the vendor has the right to sell the property and that it is free of liens and unpaid taxes. A number of documents will also be needed to complete the transaction. From the land registry you have to obtain a registration certificate which describes the legal history of the property, and from the local tax office a document enumerating the yearly taxes which must be paid on the property. If the development is new a temporary certificate will be issued. Finally your solicitor will help you to obtain a license of use, for example confirming that the property is for residential use.

After the promissory contract the next step is to sign the final contract, known as the Escritura. At this time the balance of the purchase price has to be paid, along with transfer taxes (the equivalent of UK stamp duty) and notary fees. Added together, the fees may add up to 2.5 – 3% of the property price, with solicitors fees adding another 2%.

The Escritura has to be signed in the presence of the local notary and is then registered with the Land Registry and the Tax Office. After the change of ownership is registered with the Land Office the property is yours to keep.

Mortgages

As yet, it is not possible to obtain mortgages on off-plan property in Cape Verde, although this may become an option in the next couple of years. Most buyers choose to fund their property through equity release. It is however possible to find a mortgage on homes which have been completed. Some buyers choose to pay instalments as off-plan property is completed and then to take a mortgage on the finished house.

Opportunity rating

Cape Verde offers good long term opportunities as the islands develop into a mainstream tourist destination. The country’s emergence into a leading holiday spot may take some years but there is every reason to expect that it will one day achieve a status similar to that of the Canary Islands.

Rating: $ $ $

Risk rating

Development of the property market is dependent upon government schemes to attract tourism. Should any of these infrastructure projects fail or the government alter its focus, then the tourists may not arrive, leaving investors with empty properties. There are no obvious political or macroeconomic risks. At a specific property level, buyers should be mindful of build quality.

Rating: * * *

© Vacation Work 2005

“Where to buy a property abroad – An investors guide”, First edition 2006 David Cox, Ray Withers, Kate Godfrey.

Reproduced with the permission of Property Frontiers.

Further information on this topic can be found in “Where to buy a property abroad – an investors guide” 1st edition, by David Cox, Ray Withers and Kate Godfrey.

This book is available from all good bookshops nationwide at a recommended retail price of £12.95 or can be ordered directly from www.aninvestorsguide.com for £10.95 including postage and handling (to UK addresses only).

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