Opportunities for investment in the continent should be studied and seized
Changes in Africa’s regulatory environments over the past year, coupled with constant swings in commodity prices and heightened political and economic tensions, have resulted in ongoing volatility in the continent’s real estate markets.
Despite this, fundamental demand-supply imbalances continue to present a largely attractive long-term investment outlook and thereby drive demand for real estate investment opportunities, says Niyi Adeleye, head of real estate finance for Africa Regions at Standard Bank.
As a consequence, there has been significant interest from both domestic and international investors as well as some – albeit marginal – growth noted in the market during this period.
“This growth points to an evolution in the continent’s real estate sector, as well as to the urgent need for investors in this space to adapt their approach in line with this evolution and to seek out more economically sustainable ways to participate effectively in these markets,” Adeleye says.
Given the volatility which Africa’s economies are generally subject to, he says more patient, long-term strategies for delivering value need to be adopted.
Thorough market research must be conducted and “fit for purpose” solutions applied. A one-size-fits-all approach does not work in Africa, so it is crucial to understand the vast and varied markets on the continent.
The more traditional private equity funding model has begun to fall out of favour and investors are increasingly taking portfolio views and evolving from short-term to more permanent real estate investment structures.
“When the size of an economy does not allow for the scale that investors are looking for, the depth and size of the investments they can make in that economy are limited.”
Adeleye adds: “We are, however, now seeing a shift towards more diversified markets and the evolution of previously untapped asset classes, as well as the emergence of a new breed of investor class.”
Historically, the markets have been dominated by developers or development entities creating assets but “property aggregators” are now buying properties out at reasonable levels of discount and creating investment theses for them to achieve their return objectives. He says this demonstrates a level of depth within the markets and, once again, speaks to their evolution, which is creating a demand for new asset classes and triggering the start of a new cycle of development and acquisition, with increased sustainability built into the structure.
Property investment offers long-term, stable return profiles and represents an exciting opportunity for the deployment of local savings for broader investment and economic growth. And while African real estate investment has traditionally focused on the top end, global quality opportunities aimed at attracting hard currency funding, these markets are, today, rapidly developing the infrastructure that connects their economies to the world, Adeleye says.