Investors eye real estate across Africa

A growing consumer middle class, helped by rapid urbanisation and shifting demographic trends, is driving property demand and growth opportunities in the real estate industry across the continent.

“Foreign and local investors are seeing the growth potential of Africa, spurred by rising consumer spending of Africa’s developing middle class”, says Gerhard Zeelie, Standard Bank’s head of real estate finance for the rest of Africa. “Economic growth and investments in infrastructure are opening up previously inaccessible markets.”

Among the African countries that are realising opportunities for real estate investment are Nigeria, Ghana, Kenya, Mozambique and Zambia. Although lower commodity prices have affected growth forecasts for some of these countries, there is still a shortage of quality real estate assets, he says.

However, real estate investments in African markets are not without risk, he warns. Among the risks are the effect of unpredictable regulatory changes, complex legal regimes, volatile local currencies, and limitations on investment timeframes and exit strategies.

In particular, regulatory uncertainty precipitated by the ever-shifting policy environment is having a negative effect on investor sentiment.

“It creates a climate of risk aversion, with some investors reluctant to commit themselves to developments with long planning horizons. Instead, they hedge their bets by adopting wait-and-see approaches.”

Yet, despite these risks, many investors and developers are taking a long-term view to a market’s macroeconomic outlook, rather than viewing short-term cyclical shocks in isolation.

However, investing is not a one-size approach, he says. “It’s critical to identify the countries and sectors that offer the best opportunities and match them with their own expertise.”

An important factor to consider is the sustainability of generating foreign currency returns in markets that are experiencing increasing commercial and regulatory pressures to move to local currency economies.

Yet, in a number of markets, demand for high-quality retail, office and residential space continues to outstrip supply, he says. International and local developers are looking to increase their exposure across markets in Africa, and for opportunities to establish a strong retail foothold in cities where little or no formal retail exists.