28 Jun 2012

Investing in African real estate

South African companies are actively taking real estate investment advantages and opportunities currently on offer within the African continent.

According to the United Nations Department of Economic & Social Affairs report, seven African countries are in the top 10 fastest growing economies in the world, 13 African countries already have a higher GDP per capita than China, 22 African countries already have a higher GDP per capita than India and there are already 650 million mobile phone subscribers in Africa.

According to Stan Garrun, managing director of Investment Property Databank (IPD), South Africa’s commercial real estate sector leads the African continent, with a maturity and sophistication that compares favourably with any developed market.

But, with scores of opportunities for property investment and development arising in Africa, the next decade could see other African countries developing comparable commercial property sectors.

“There are plenty of opportunities for South African property investors and developers in the rest of Africa.”

He says what has been talk for years is now tangible reality with more appetite for risk and higher reward.

The South African Property Owners Association and IPD hosted the second Investment in Africa series in Sandton recently to share information about investing in Africa.

The overall message was that with Africa being a diverse continent of over 50 countries, no size fits all approach can be taken when it comes to investing in the continent.

Head of Commercial Property Finance at Absa, Pieter Steyn, says with the exponential growth of the African economy and the opening of its business markets, diversification into African opportunities should be seriously considered as key element of a short- to medium-term investment strategy.

Each developer or investor needs to decide their own tactics based on core strengths, limits, capital and other resources, as well as risk appetite.

“There’s already a greater movement of South African corporate and property developers into Sub-Saharan Africa and this contrasts with the previous trend of in-country development for in-country retailers and corporate,” he says.

Steyn says many global companies wanting to diversify from their home markets are moving in to grab opportunities on the continent to gain competitive advantage.

Absa sees Africa as a window of opportunity for investors for various reasons

Booming population

Africa is experiencing a population boom and is expected to reach almost 2 billion consumers by 2050 (up from 1 billion in 2010) with over 66 percent in the active working age.

Rising Incomes

Africa’s poverty has fallen from a high of 40 percent in 1980 to almost 30 percent in 2008 due to significant economic growth.

Rapid Urbanisation

Africa is experiencing rapid urbanisation and urban consumers are becoming increasingly sophisticatedand and aspire to upmarket goods and services.

Opening Trade

Improved business environments are opening trade and allowing goods, services, labour and capital to flow more freely among market participants.

Nigeria and Ghana lead the pack in the west, Zambia and Mozambique stand out within the SADC, while Kenya and Uganda are options in the east, with significant development happening or about to begin. Picture - Nairobi Kenya

Steyn notes that according to the United Nations Department of Economic & Social Affairs report, seven African countries are in the top 10 fastest growing economies in the world, 13 African countries already have a higher GDP per capita than China, 22 African countries already have a higher GDP per capita than India and there are already 650 million mobile phone subscribers in Africa.

Africa is poised to deliver the highest population growth globally over the next 90 years, more than tripling from 1 billion in 2011 to 3.6 billion in 2100.

In less than 35 years (by 2044) Africa will add another billion people, according to the report.

The Absa Capital African Local Markets Guide 2012 reveals that seen by many as the ‘last fronteir’, Africa continues to offer opportunities for investors looking toward these markets in search of high yields.

The report notes that with primary commodities still dominating African exports, economic growth for many of the continents’ largest economies remains highly correlated to trends in the commodities market.

Although softer than the 5 percent real GDP growth recorded in 2010 (Absa’s focus countries including Angola, Botswana, Egypt, Ghana, Kenya, Mauritius, Mozambique, Namibia, Nigeria, Seychelles, South Africa, Tanzania, Uganda and Zambia), robust growth continued in 2011 when it recorded 4.3 percent reflecting strengthening consumer demand, a strong focus on infrastructure investment, strong exports and a supportive policy environment.

While property development and investment on the broader African continent does pose numerous challenges of its own, there are undoubted opportunities as well and Absa says it is committed to supporting its clients with their African expansion plans.

Steyn points out that challenges not to be ignored include the fact that several African countries still rank badly on the Corruption and Ease to do business indices, South African government needs to put more effort in improving its trade links with the rest of Africa to make it easier for companies to take advantage of these opportunities and political instability in various African countries remains a concern.

“It is time to take advantage of the Africa opportunities,” he says.

Meanwhile, Malcom Horne, chief executive officer of Broll Property Group points out that investors need to be realistic about challenges and expectations of investing in the continent.

Head of Commercial Property Finance at Absa, Pieter Steyn, says with the exponential growth of the African economy and the opening of its business markets, diversification into African opportunities should be seriously considered as key element of a short- to medium-term investment strategy.

He says the continent is seeing an entrance of new long-term players and Africans investing in Africa.

“Africans are leading the growth in investment – they understand the dynamics of investing in Africa.”

Horne says astute investors will reap the rewards as the African property landscape will be transformed in the next 10 years.

Chief executive of Buna Group, Caswell Rampheri says there’s never been a better time to enter certain African markets but cautions investors to do their homework.

“The starting point is identifying countries with sustainable stable democracies and the absence of war.”

Nigeria and Ghana lead the pack in the west, Zambia and Mozambique stand out within the SADC, while Kenya and Uganda are options in the east, with significant development happening or about to begin, notes Rampheri.

He points out that there is undoubtedly a need for more development in Africa, however, the associated costs and risks are prohibitive and few investors, both local and foreign, have appetite for development risk.

“Creative management is needed if we are to meet Africa’s real estate demand - until African markets reach critical mass there will be little diversity in investment models, such as listed property investment vehicles, which will continue to choke investment.”

Rampheri says mature markets such as Kenya are in the forefront of transforming African real estate investment and are aiming to introduce REITs (Real Estate Investment Trusts), which could address issues of tradability and liquidity.

“It will take a decade or more before there’s enough maturity in other African countries to compare performance with South Africa,” he says. – Denise Mhlanga