Real estate in Africa: Possibilities for property pioneers

For the past 15 years, Global Real Estate Institute (GRI)-hosted conferences have been meeting points for the world’s leading real estate players. This year, international investors and developers congregated for the first Africa GRI conference in Nairobi, Kenya.

Holding a GRI conference in Africa is an indication of the increasing importance that investors and developers in the real estate sector are placing on sub-Saharan Africa as a largely untapped region within which to invest and build.

The aim of the conference, held in June this year, was to explore the opportunities of doing business together and to identify the principles of successful and sustainable growth in the real estate sector in Africa. The conference focused on discussions around investors being ready to open Africa’s investment doors; where to invest beyond South Africa; hotel and retail developments in East and West Africa; and, significantly, private equity in African real estate.

Opportunities to invest

To date, investment flows in the real estate sector in Africa have depended on a number of considerations. Investment is normally favoured in markets that benefit from an extensive population with a burgeoning middle class; offer a healthy growth rate and real opportunity for real estate; exhibit relative political stability and regulatory frameworks; ensure security of title to property; and generally offer investor-friendly markets. Such investment parameters have meant that real estate developers and investors have initially focused on markets like that of Ghana, Nigeria, Tanzania, Kenya, Mozambique and Angola, with South Africa being considered a developed market in the real estate sector.

While the participants at the GRI conference generally acknowledged that sub-Saharan Africa offers significant opportunities in real estate, participants pointed out a number of challenges experienced by developers and investors. Many of these challenges have been around for many years and include infrastructure (or the lack thereof); title security; a scarcity of professionals qualified as quantity surveyors, town planners, architects and sworn valuers; and development financing. Because these challenges hamper development, the importance of urgently addressing these issues was stressed at the conference. On the other hand, participants made it clear that for those investors willing to look beyond the challenges, the yields are promising.

Financing real estate growth

Developers raised the important issue of a lack of financing for real estate development, which is desperately required to satisfy, for instance, the three million square metre retail gap in West Africa and the lack of affordable housing across the continent.

Jeremy Cleaver of CDC Group, a participant at the GRI conference, remarked that, historically, development finance institutions (DFIs) and multilateral development banks have provided a significant portion of the capital required for real estate. The situation is now changing, with international and African pension funds, sovereign wealth funds and African private equity and real estate funds becoming significant players in the sub-Saharan region. New emerging market investors, such as regional and Chinese investors, have furthermore been bringing liquidity into the continent.

There is also a growing recognition of the need for domestic finance to play a more significant role in real estate development, with rent being paid by tenants in local currencies. In Zambia, for instance, the recently promulgated Statutory Instrument No 33 of 2012 aims to reinforce the use of the kwacha in all domestic transactions by stipulating that the Zambian kwacha must be the sole legal tender for all public and private transactions.

Typically, investors who have financed their Zambian developments, whether retail, office or industrial parks, in foreign currency (usually in US dollars) would necessarily require the rentals to be received in dollars in order to service the dollarised funding. While such legislation may have resulted in some investors placing their real estate pipeline investment into Zambia on ice, investors are noticeably still willing to entertain creative solutions to deal with the kwacha value fluctuation. The legal validity of some of these solutions has not yet been tested.