Tuesday, 20 September 2011

Investor Guide to investing in African Real Estate

Property investors believe Africa’s real estate industry offers unprecedented investment opportunities and is poised for growth going forward.

Accra Mall in Accra Ghana was completed in 2007. This mall was developed by Actis and is managed by Broll.

At the inaugural Africa Property Investment Summit held this week at Sandton Sun hotel in Sandton, property professionals shared expertise and experiences on property investment in Africa.

Hosted by Liberty Properties, one of South Africa’s top commercial real estate businesses and owners of the iconic Sandton City Shopping Centre, the summit was aimed at providing a platform for African real estate professionals to discuss investment opportunities and share experiences and challenges on how to invest in the African real estate markets.

Samuel Ogbu, Liberty Properties chief executive officer, says there is every reason to invest into the African real estate markets. There is improved governance, political stability, securitisation and maturing capital markets of all, which are driven by a population of over one billion consumers who demand attention, he says.

“Africa today is about progress and potential and the key is in knowing how to unlock the opportunities in the African property market for superior returns”, he says.

Africa’s real estate industry is reportedly booming with the retail sector set to drive demand and growth in many parts of Africa’s real estate markets, says Brett Abrahamse, business development manager at Liberty Properties.

“There is a growing appetite for retail and mixed-use developments in the continent,” he says.

He explains that Africa with 53 countries as recognised by the United Nations and with the addition of South Sudan in 2011, Africa is poised for growth in the real estate industry. There is an increased awareness of property investments throughout the continent.

“If you buy the African story then you have to buy the real estate story,” says Abrahamse.

Asked about what makes Africa a lucrative property investment destination, he says there are a few reasons which include shortage of quality property stock, high construction and professional costs, lack of infrastructure, increased demand which is driven by urbanisation, many property development projects are profitable from day one, private equity firms are eager to exit mature assets to dive into new developments with their capital, and lack of finance although this improving.

Savvy property investors and buyers are seeing good returns on property investments in other parts of Africa, he says. According to the World Urbanisation research, Africa’s urban centres are currently growing at an annual rate that is the fastest compared to other regions.

In Lusaka Zambia, Liberty Properties is developing the first fully enclosed mall, the Levy Business Park. This mixed-use development valued at US$200 million is set to open in the last quarter of 2011.

Abrahamse says property sectors such as retail driven by consumer spending and growing urbanisation is what drives property investing in Africa. Other sectors include industrial (driven by resource benefication and labour), hospitality (GDP, globalisation and tourism), office (GDP and economic stability) and the residential property market is driven by population growth and urbanisation.

“Investors and companies are mostly looking at opening shopping centres in other parts of Africa as this sector and the office markets are driving investor appetite for property investments.”

There is a growing appetite for retail and mixed use developments in the continent. For example, Liberty Properties is building the first fully enclosed shopping mall, the Levy Shopping Centre in Lusaka, Zambia valued at US$200 million. Abuja in Nigeria is another example of Africa’s burgeoning real estate landscape. In the next few years the city will attract major investments in property driven by increased consumer spending and business friendly policies, he says.

African real estate markets have huge yields and that attracts investors. According to the Knight Frank Newmark Research, countries including Botswana, Kenya, Tanzania and Zambia have seen yields of over 10 percent in the industrial sector while across all sectors, many countries have attractive and steadily growing yields.

He says potential growth in African real estate markets will be fueled by key infrastructure developments such as communication, quality of telecoms, electricity generation capacity and length as well as quality of road networks.

The research conducted by the European Real Estate Association, indicates real estate is the biggest asset class in the world with 2.4 percent of global stocks in property while 5.5 percent is listed property, he says.

While there are 1000s of listed property companies in the world, only a handful are in Sub-Saharan Africa. The report reveals that in Africa, countries such as Ghana, Nigeria, Kenya and Angola have no listed property companies.

Ikeja Mall in Lagos Nigeria is being developed by Actis and Standard Bank. This mall will open in December 2011.

The report shows that Sub-Saharan Africa listed property has a market capitalisation of $18 billion and 98 percent of that is in South Africa.

“In the past decade we have seen a tenfold increase in the market capitalisation of listed property in South Africa and this is likely to grow in the next three to four years.”

Abrahamse says some African countries including Algeria, Libya, Chad, Ethiopia, Sudan and the Democratic Republic of Congo do not have a stock exchange market.

Some sought-after countries in Africa to buy property in include Ghana (oil and stability), Nigeria (consumer story), Angola (oil, consumer story and urbanisation), Zambia (copper and stability), Botswana (high level of securisation and the CBD shifting towards the airport), South Africa (formal economy and stability), Namibia (oil and stability) and South Sudan (oil, new independence and infrastructure).

Abrahamse is confident that the African real estate markets will be formalised in the next five to 10 years and the continent will begin to see more listed property companies and funds enter the market. – Denise Mhlanga

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