Many people are of the opinion that there has been a bubble in the real estate market in Mauritius that is due to burst at any time and that the Integrated Resorts Scheme (IRS) projects are to the detriment of Mauritius and its future generations. I surely do not pretend to have the crystal ball (quite frankly in these difficult times, I would think the crystal ball is no way near anyone’s palms), but I beg to differ.

Firstly, Mauritius only opened its property market four years ago to international buyers with foreign exchange purchasing power. In that short space of time, the initial IRS projects were developed by local landowners and took almost two years to take off the ground and three years when products were ready to be sold. Hence, in reality it is only in 2007 onwards that foreigners (i.e. end buyers) started to become aware that buying a piece of property in Mauritius is real.

This was a blessing in disguise as from the time the housing crisis hit the United States by the fourth quarter of 2007 and then with ripple effect to other markets (United Kingdom, East Europe, Dubai) in 2008. Foreigners buying in Mauritius have not been looking at Mauritius from a speculative angle, but rather for either secondary holiday usage or else use Mauritius as a way to relocate their wealth. Hence, due to limited time, Mauritius is not exposed to the bubble or deep speculating as other markets such as Dubai or Morrocco that have been opened for more than 10 years. In fact, Mauritius is in a great position to learn from those countries so that Mauritius can leverage as much as possible from its limited property market.

Real demand but limited supply

An Integrated Resort Scheme in Mauritius

Secondly, Mauritius being a small island and limited by land area, one should try to compare land prices to small states such as Singapore, and Hong Kong. Let us not go too far. Let us compare prices with our closest neighbours at Reunion Island. What one would see is that prices in Mauritius are way down. I am not saying that we must be at par because this might be to the detriment of locals. But the gap or opportunity (depending on how you see) is huge and this is where both public and private sectors should think how best to leverage on this price differential.

Thirdly, we know that more than 2,000 expatriates who have been living in Mauritius for more than 3 years can buy at least one property in Mauritius. If ever all these expatriates decide to buy, it will be impossible for them to find decent residential units readily available. Already it is a nightmare whenever an expatriate comes to Mauritius to rent a house. The supply is not there. Hence, from 2010 onwards, there will be real demand if the expatriates decide to exercise their rights of buying a property in Mauritius. This is no bubble as someone will need to build the stocks for these potential buyers.

Fourthly, many Mauritians who left Mauritius in the 1970s and 1980s are now at the age of retirement and have amassed decent wealth in the United Kingdom, France, Australia or Canada. These are potential buyers who want to come back to Mauritius either to retire full-time or else hop between their primary residence and Mauritius on a regular basis. These are people who want and can afford to buy villas, or apartments near the sea-front. Once again, this is real demand with foreign exchange purchasing power.

Fifthly, despite the South African rand going belly up, high net worth South Africans have made a strategic decision to move part of their wealth via Mauritius, and they are not prone to the issues of mortgage financing or liquidity squeeze. Again real demand!

Sixthly, let us look at the IRS projects: how many have happened on the ground? Very few as not more than 500 units have been sold. This is because you need capital upfront to do these big developments. Any Tom, Dick and Harry cannot do IRS developments. What does this mean in the short to medium term? There will be limited supply of IRS villas which is the case already. What does this mean? It is a controlled environment whereby limited supply of villas in a country that is restricted by supply of land that will sustain value.

More foreigners will bring positive benefits for Mauritians

The issue has always been: where can Mauritius pitch itself? Is it the US$1 million to US$2 million bracket or the US$5 million bracket? This I will leave to IRS developers to know their products better than myself bearing in mind that apartments of 80 square metres in Hong Kong can cost US$5 million upwards.

Some regular commentators are always criticizing whether it is the IRS schemes or what Government does or tries to implement as policies to attract foreign direct investment. What I struggle to understand is why the same people are not able to propose solutions. What does Mauritius have as options? No one owes us a living and in today’s world, everyone is looking after one’s own interest. This is even exacerbated since there is a sense of protectionism that is arising from this global financial crisis and recession.

Personally, I firmly believe that the more foreigners we have living in Mauritius can only lead to overall positive benefits for Mauritians, especially the masses. Let us imagine if we have 50,000 foreigners spending USD 4,000 per month, this would mean USD2.4 billion. If we add the multiplier effect, can we double the GDP? Absolutely! And the more foreigners living in Mauritius, the more it will help the small and medium enterprises and the masses.

Mauritians have always been scared of foreigners. We want their money but we are worried that they might take over. Look at Singapore, Hong Kong, Dubai and see how many foreigners live, work, play and retire in these countries. They must be doing something right!

By Kevin Teeroovengadum

Kevin Teeroovengadum is a South Africa-based analyst.