Pace of new property developments in Africa could pick up
How we made it in Africa talks to Kevin Teeroovengadum, a director for real estate at Actis, about the trends in the continent's property industry.
Emerging markets private equity firm Actis has in recent years been involved in many of Africa’s more high-profile property developments. The firm has backed Nigeria’s first ever modern shopping centre and has recently announced that it will invest in East Africa’s largest retail mall to be situated in Kenya’s capital Nairobi. How we made it in Africa talks to Kevin Teeroovengadum, a director for real estate at Actis and one of the speakers at this year’s Africa Property Investment Summit, about the trends in the continent's property industry. More shopping malls to be built in Africa
Some retailers that have opened shop in Africa have suggested that their expansion on the continent is being held back by the scarcity of suitable retail locations – ie shopping malls. But if there is such a strong demand for modern retail locations, why aren’t we seeing new malls being developed at a more rapid pace?
Teeroovengadum says that before 2010 there hadn’t been a significant interest from international property developers to invest in sub-Saharan Africa. South African developers were focused on their local market due to the football World Cup, while European firms were concentrating on Europe and the Middle East. However, the recession in Europe has prompted some European real estate companies to look at Africa for growth opportunities. Post-2010 many South African property players have also turned their attention to the rest of the continent.
“You need to understand that to develop a shopping mall takes quite a lot of time, especially if you are dealing in multiple countries where you’ve got different regulations, different laws, issues with title deeds, etc. So these are things that are going to take time,” says Teeroovengadum. “But if I look at today, and compare it with five years ago, there are far more players involved in the real estate sector. We can really see that happening on the ground. I think if we fast-forward two or three years from now, you are going to see more shopping centres being built in places like Ghana, Nigeria and Kenya – the big economies …You are going to see a fast-tracking of property development happening in Africa.”
Consumers looking for convenience
In most of sub-Saharan Africa, with the exception of South Africa, the penetration of modern shopping malls is relatively low. Many people still have to go to various locations for their shopping needs.
However, according to Teeroovengadum there is a trend towards convenience where a variety of products can be found in one facility. “What we are seeing is that people are looking for convenience, so they are looking for a place to go, one place, where you can shop for everything – for your food, for your clothing, for your white goods. Clearly we are seeing in all the markets where we have invested a type of evolution of people moving from informal to formal shopping centres."
Funding remains a challenge
Teeroovengadum notes it is still challenging to access funding for property developments in many parts of sub-Saharan Africa. Although some developments in South Africa are funded with up to 100% debt, in the rest of the continent developers often need to put down around 50% in cash.
“There are very few banks at this point in time that understand property finance, and are willing to lend 10 to 15 years. But even on the financing side it is becoming more and more efficient as markets become stronger, local banks become stronger, and we are seeing this happening already in markets like Ghana, Zambia and Nigeria ... So it is happening,” he says.
International investor interest
While Africa is attracting the attention of more and more international investors, interest in the property sector remains relatively subdued. “There is an increasing appetite for investors to invest in Africa. There isn’t a week where you don’t see an article about Africa, and the growth opportunity, and increasing foreign direct investment, etc. Generally, on a macro level, you are seeing more investors looking to invest in Africa,” says Teeroovengadum.
“However, when it comes to property it is a different situation. The universe of investors gets quite small, to be quite honest with you, especially when you talk about international investors. The reasons are multifold. A number of these investors didn’t make good returns over the last decade because of the asset bubbles in the US, Europe and Middle East – so they’ve been burnt in some way or shape or form in the last couple of years. They are very hesitant about investing more into property. Those who are willing are typically your development finance institutions, those institutions that have long-term money for Africa. You do have a couple of international pension funds who are looking at investing in Africa, but there are very few today,” he explains.
Exit strategies
There have been concerns about the ease of exiting, or cashing out of, private equity investments in Africa. Despite the fact that Actis recently sold its 85% shareholding in Ghana's Accra Mall, Teeroovengadum says that exiting property investments in Africa remains very challenging.
“I can tell you that it is not easy. If you look back a couple of years ago, it was non-existent. Now at least we are seeing a couple of deals being done. We are seeing increasing interest from South African property funds that are looking for quick access in good markets. We are hearing more and more international investors talking about setting up pan-African funds. But at this point in time, I can tell you it is not straightforward. There are very few buyers.”
Investing in strong economies
How does Actis decide which African countries to invest in? “We look at the strength of the economy, so … markets like Nigeria, Ghana, Kenya, Uganda, Zambia [and] Mozambique.” Teeroovengadum says these countries have strong fundamentals such as large populations, high GDP growth and increasing GDP per capita.
Strong legal frameworks are also essential. “You are buying land [so] you need to know whether you are buying a clean title deed, whether you can build, whether the bank can mortgage the property. We tick all these boxes,” he says.
Growing demand for office space
Africa’s growing economies and the entry of multinationals are boosting demand for office space. It is for this reason that Actis has invested in office developments in cities such as Lagos, Accra and Nairobi. “With multinationals coming in for oil, copper, etc. – they need proper offices and that is something where we invest quite a bit of money,” notes Teeroovengadum.
The Africa Property Investment Summit, the biggest event on the African real estate calendar, is fast approaching with limited bookings available. The two-day event, taking place in Johannesburg from 4-5 September, will be held at the beautiful Sandton Sun Hotel. The conference package (R6,750/US$845) includes all lunches and refreshments, an invitation to the gala dinner, parking and full access to all research, presentations and documentations. For booking information visit www.apisummit.co.za. Special offer for How we made it in Africa readers: 10% discount for the first 20 readers to register. To take advantage of this special offer email Marie Coetsee on marie@apisummit.co.za or +27 11 408 5695.