1. 60 www.reimag.co.zaNovember 2014SARealEstateInvestor
AFRICA BY ALEXANDRA BURGER
AfricanDouble digit returns attracting interest
T
he double digit returns of African property
funds are attracting significant African and
international interest. Institutional investors
have been investing in African commercial property
for some time and the trend is expected to continue,
driven largely by high returns.The South African listed
property sector has attracted a number of key players
and the listed REITS in Ghana,Nigeria and Kenya will
enable retail investors to access the market more readily.
African property funds are attracting funds from Swiss
banks and other investors in Europe, Switzerland,
Luxembourg and Scandinavia. Even seasoned property
investors are not always keen to invest directly into
unknown territory, so property investor funds or
REITS provide access to the high returns with some
diversification and good management.
Star players
There are “star player” African economies and others
tipped to become star players, often as a result of
economic expansion or discovery of local mineral
resources.The focus is on countries like Nigeria,Ghana,
Kenya, Zambia, Mozambique where there’s significant
potential. The economic growth is wide-spread ie a
number of African countries are experiencing rapid
economic growth,combined with the rise in the middle
class and increasing urbanisation, all contributing to
a rise in spending power. The current rates of return
in foreign investment in certain African countries
are higher than any other developed region. Some of
the countries have fairly developed economies, but
in others there’s enormous growth potential in every
sector including industrial, retail, office and residential.
Property demand
The investment is not really country specific, but
more localised into certain cities, capitals or business
centres with high demographic and economic growth
and around ports, harbours and commodities. Many
corporates are establishing themselves in African
countries and this is leading to increased demand for
offices, while the increased trade brings warehousing
and laogistics spend. There is a supply demand
imbalance for quality real estate. Building is generally
expensive, because so many items are imported, but
the rental values are very high in key areas. Even small
companies establishing in many of these countries
require local office addresses to operate, so there is a
constant demand for office space. Infrastructure spend
has been on the increase, often funded by China, and
this has also improved transport and logistics.
Risk management
When one considers the risks, unfortunately, political
and legal risk looms high. Land ownership must be
certain, which is an issue in many African counties,
including Nigeria. Ideally, the country needs a good
property and land rights record.Good due diligence on
the property and its surroundings is paramount, as is
good relationships with managers and advisers on the
ground.
Tax and development incentives also play a key
role in investment decisions, as do exchange control
restrictions. Angola for example, is a thriving
economy but has very strict exchange control and
currency regulations and only a few banks are actually
represented there. The larger scale developments may
have numerous local and international funders. Local
finance is often problematic for residential property.
The market value of properties isn’t easily ascertainable,
they are generally sold largely on a willing buyer,
willing seller basis.
Of late terrorist attacks in Kenya and Nigeria have
created uncertainty but this is not only an African
problem.Ebola is a serious concern in certain countries
like Liberia and Sierra Leone and for travelling
generally in West Africa.
One asset manager closed a Nigerian focused
property fund three years ago,due to legal concerns and
an apparent shortage of management skills. They have
Property Funds

2. www.reimag.co.za 61November 2014 SARealEstateInvestor
subsequently opened a new fund,feeling confident that
the Nigerian property sector returns are worth the risk
with the rapid growth of the middle class and inflows
from gas and oil exports.
New players
Previously properties were owned and operated by the
same company but this is starting to change.In Nigeria,
for example, there are shopping centres owned by
individuals or families rather corporates. Foreign banks
and asset managers are developing the commercial
property market by bringing in investments, skills
transfer and management models. However, it seems
vital for the operations to be managed properly locally
and not remotely, thus certain international funds have
developed strong relationships/JV with local property
managers.
Its vital that underlying properties have stable
long-term returns with good tenants, which is why
some are focused on properties let to large corporates.
Investment grade property is preferable, if available.
There has also been a rise in hotels and tourism in a few
African countries, as well as luxury residential property
and even estates attracting expats returning for work.
The big question is whether the fund invests in
developments or already-operational property (or a
combination of both). There are many advantages
of investing in funds/REITs including trusted
investment and property managers with good banking
relationships, liquidity in REITS and some funds, high
levels of income distribution, with preferable lower
levels of gearing.
RESOURCES
Hansa Mercator Group
offshore
Where to Invest in Africa
Rand Merchant Bank’s (RMB) fourth annual Where to Invest in
Africa 2014/15 — A Guide to Corporate Investment shows a less
favourable year for Africa’s investment attractiveness ratings.
Not only did the continent’s overall investment attractiveness
deteriorate, but 22 countries received lower scores than the
previous year. A small part of the deterioration seems temporary
due, for instance, to the political upheaval in North Africa.
However, the outcome emphasises that the continent still has a
long way to go in terms of reforms if the recent economic boom
is to be sustained.
RMB’s top 10 most attractive investment destinations in Africa
1. South Africa
2. Nigeria
3. Ghana
4. Morocco
5. Tunisia
6. Egypt
7. Ethiopia
8. Algeria
9. Rwanda
10. Tanzania
The rankings are updated on an annual basis to reflect changes in
the macroeconomic and business environments of 54 distinctive
economies. The methodology underpinning the scoring systems
stems suggests that GDP growth rates, economic size, and
the general business landscape are fundamental investment
considerations.
Regionally, East Africa is by far the darling of Africa. Bursting with
growth-laden economies, it is forecast to grow at an average of
6.3% between 2014 and 2019 but could surpass this if oil and gas
activities come to fruition sooner than anticipated.
RMB’s clients have become increasingly interested in urban
areas as part of their investment strategies, especially the
consumer-driven firms. Some findings include cities like Lagos,
Johannesburg, Cairo, Algiers, Casablanca, Luanda and Tunis and
earmark them as significant contributors to Africa’s overall GDP.