In terms of property, Africa is the last true emerging market, outperforming the Pacific rim countries – but there are challenges.
According to Ian Fife, property editor of Financial Mail, Africa is the last true emerging market. “Asia is a technically emerging market but with property returns that are not worth writing home about. The same as Russia really. The one market that hasn’t been covered is Africa. None of the major institutional investors are focused on Africa. That has to spell opportunity,” he says. “Real estate opportunities are huge in Africa but they come with obstacles like a lack of infrastructure which is needed before investment can take place, but well worth the effort.”
Mike Flax, founder and CEO of Spearhead concurs that, “There are a lot of opportunities in Africa but it is hamstrung because of land title issues and corruption etc. Therefore it is difficult to become a real player in Africa.”
According to property economist Francois Viruly, Africa is the dark continent.
“In Africa, with the number of people and growth in population, the lights need to go on. Then the property market will get the infrastructure it needs,” says Viruly. “Instead of one man one vote, economic development must get us to one man one volt.
“According to Gross Domestic Product, Holland looks very big while most of Africa disappears off the map.
“The moment that changes property opportunities start arising. Africa is not a continent where nothing is happening. There are a number of countries exploring it at the moment. It is a continent with commodities that China and India want. 20% of US oil comes from the African continent. That must offer opportunities.”
Nick Tyrrell, head of Research and Strategy at JPMorgan’s European Real Estate Group, says that from a European or US perspective there is a lot of opportunity for strong returns in African real estate. “But we also see risky, opaque and inaccessible markets with significant exchange rate risk that is near impossible to hedge and worry, maybe unfairly, about red tape, political risk, and corruption,” he says.
“From my trip to Cape Town I learned that most of these things are not really true of South Africa. But South Africa on its own is just too small a market that is too far away from London or New York to be worth the cost of investing in by itself.
“I came away from Cape Town convinced that South African property specialists should be using their expertise not to take South African capital into Europe and the US, as seemed to be the theme of the recent IPD/SAPOA conference, but rather to attract European and US capital into Africa by exporting South African methods and know-how to the rest of the continent.”
Hyprop Investments’ CEO Pieter Prinsloo disagrees. “We need our methods and know-how locally – there’s enough growth in South Africa to keep us occupied,” he says. “In Africa there are constraints like a lack of infrastructure and a consumer base. Effectively one works from a low-income base.”
Patrick Sumner, head of Property Equities at Henderson Global Investors, says his team is prepared to take on development market risk. “However, because the Real Estate Investment Trust (REIT) structure is not operational in South Africa and because local institutional funds are crowding out foreign investment, I don’t feel there is currently opportunity in South Africa,” he says. “On the positive side though there’s information on South Africa’s successes. IPD numbers need to be promulgated abroad and South Africa needs to continue to work hard on bringing REIT legislation in.”
According to Colin Young, head of Institutional Asset Management at Old Mutual properties, “China is number one in attracting foreign investment, with Africa being fifth”.
“Size does matter when it comes to attracting foreign capital,” he says. “No one else is punting Africa or specifically South Africa – we need to do it!”
Lisa Forshey, a general manager of Absa Bank limited, concurs with Young that the focus has to be on size. “We have to focus on getting South Africa’s stock level to a place where it can attract the money,” she says.
The good news is that despite these constraints, Malcolm Frodsham, director of Research at IPD UK, says that property investors are searching for opportunities and that South Africa is well placed to be a growth hub.
Authored By: Kara Michaels
Published By: Property24