Real Estate Investment in Africa: Is the Honeymoon Over?

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

Ease of doing business

  • 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:
    • currency and foreign exchange;
    • transparency of title;
    • ease of establishing local partnerships; and
    • adaptability and accessibility of local market practices.

US election impact

  • 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.

Oil price

  • 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. 

Infrastructure

  • 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.

Real estate investment

  • 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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