Real Estate Investment in Africa: Is the Honeymoon Over?

26 JUN 2017

A look at some of the key findings in the joint DLA Piper/CBRE Real Estate Investment in Africa report:

There has been a general improvement in “ease of doing business” ratings in some countries over the past five years.
This should provide a better environment for investment and development, but a number of structural and operational challenges remain across the continent:

The election of Donald Trump as US President in November 2016 represents a significant change in policy direction in at least two areas:

a move towards fiscal expansion - support to domestic growth, however lack of policy detail, low prioritisation of international development, isolationism of trade, style of government, and currency exchange rates have produced uncertainty; and
a move towards a more protectionist trade position - likely to disrupt international supply chains and possible cuts to overseas aid budgets.
Afrcian countries should consider how to make themselves more attractive to US and other businesses as a harmonised economic bloc.

The fall in oil prices has impacted most countries at some level, and in countries with higher levels of oil-dependency, such as Rwanda and Angola, more substantial impacts are evident.
Overall, the fall is certainly encouraging a more long-term approach to the oil industry, as well as greater diversification
Inter-country co-operation will be important, but this will require greater consistency of systems and policies across markets.

There is a consensus about the importance of adequate infrastructure, with the components of infrastructure deemed most critical for both commercial and residential developments being water, sanitation, power and telecoms.
A classic example of inadequate infrastructure hindering projects is Nigeria. Examples of success include Mozambique and Uganda.
Public-private partnerships will need to play a role and several African countries have begun looking to some form of PPP structure. However, in many instances the poor quality of legal infrastructure is a restriction. The challenge is to make a public-private endeavour an attractive proposition for both parties.

Generally across Africa, there is strong demand for, and undersupply of, housing for low-middle income groups. In part this is a function of traditional construction models. It could be a significant opportunity for developers.
Overall the potential exists to reconcile the delivery of quality-appropriate buildings and boost the flow of institutional and other funds into Africa markets. The mechanisms to do so need to be reactivated, focussing strongly on:

Local currency mortgage markets, with banks bearing the costs of any associated hedging, so as not to penalise locals borrowers;
Overcoming the reluctance of some governments to embrace PPPs;
Upfront development of adequate infrastructure to promote confidence in project delivery and encourage the flow of project funding; and
Developing a policy and funding framework conducive to meeting the growing demand for affordable housing.

This report follows a previous collaboration between DLA Piper and CBRE Real Estate Investment in Africa: The Struggle Between Perception and Reality. DLA Piper and CBRE will be hosting a roundtable discussion on investment in Africa during DLA Piper's annual Africa Week later this year.

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