About the API Summit & Expo

The Africa Property Investment Summit & Expo (API) is Africa’s largest and most premier real African estate event. Having begun in 2010, the conference takes place in Johannesburg annually and now attracts c.600 delegates from over 20 countries – including delegates from outside the African continent. It connects the most influential local and international Africa property stakeholders driving investment and development into a wide range of real estate and infrastructure projects across the continent.

For the last 8 years The API Summit has connected the region’s most senior investors, developers, operators and professionals and has provided the perfect platform to do deals across the region.

As Absa Commercial Property Finance , we are proud to be associated with this event, which aligns squarely with our strategic intent of being a leading provider of Commercial Property Finance services within the African continent.

How African property markets can move beyond the ‘pioneering’ phase

Selwyn Blieden: Head of CPF Coverage: Rest of Coverage- Barclays Africa Group (CIB)

Property pioneers have already taken the first steps in shaping Africa’s urban landscapes, constructing landmark malls, hotels and office blocks that could be called iconic.

This is just the start. Modern, fully functioning cities require a well-oiled system of residential, commercial and industrial development and civil infrastructure, with the real estate skills and services to match. The question is: Who will design, build, manage, maintain - and of course fund - the many different commercial developments that Africa’s cities demand?

The short answer is that a local property ecosystem must emerge to take over from where the big-ticket, mostly foreign, private equity-funded pioneers have left off.

Without an effective, self-sustaining ecosystem, comprising all the key components of a workable property market, the continent’s urban centres could suffer the effects of what is known as “urbanisation without growth”, or “poor country urbanisation”.

That means more urban sprawl with little or no economic growth potential and worsening shortages of urban housing, commercial space and inadequate civil infrastructure.

On the other hand, a well-functioning property ecosystem could enable the kind of orderly, planned and constructive growth that Africa’s property markets need. Such an ecosystem would also give funders the comfort that property investments made today will still be standing in 20 years’ time and that their loans will indeed be repaid.

African funding for African property transactions

When it comes to financing, it seems likely that property markets across Africa will rely increasingly on African sources of funding. One need only look at property transaction trends on the continent to see that foreign funding is in short supply and unevenly spread.

Research commissioned by Barclays Africa Commercial Property Finance shows that between 2003 and 2016, only two of the top 10 African cities that received significant inflows of foreign real estate investment were in Sub-Saharan Africa. They were Lagos in Nigeria and Johannesburg in South Africa. The other eight were all in North Africa.

The continent has a number of African-based funders with the resources to provide financing to property market players. Their ability to do so, however will depend on how smoothly and efficiently the African property ecosystem develops.

Critical components of an ecosystem

Essentially, a property ecosystem should have all the components needed for a well-functioning, nuanced property market that caters for property developments of all sizes and in all market segments. It would encompass planners, regulators, developers, owners and service providers, from architects and engineers through to contractors, construction businesses, environmental impact assessors, leasing agencies and facilities managers. All of them would operate within clear parameters and abide by well-enforced rules and regulations. Funders would observe this and invest accordingly.

At this point, however, there are numerous gaps that need to be addressed before this ecosystem can get off the ground in earnest.

Attributes of well-run ecosystems

One of the hallmarks of well-run property ecosystems is that there are significant players, owners and developers with formal corporate governance structures in place. Another characteristic would be the existence of well-understood contracting mechanisms between sector stakeholders such as lessors, lessees, owners and contractors. However, in certain jurisdictions, family-owned businesses with less established governance structures dominate.

In addition, our research indicates that inappropriate urban planning regulations and inadequate urban service provision deter foreign real estate investment attraction and economic growth within some jurisdictions in Africa.

A common but serious drawback in many Sub-Saharan African countries is the lack of reliable data for risk assessment. It is extremely difficult for funders to control their risk without access to good data on demographics and pricing trends, among others. There is definitely a gap in the market for property indices in Africa.

Another concern for funders is the underdevelopment of the regulatory environment in some jurisdictions, hampering efficient planning, approvals and transfers.

Time for focused conversations

These components will take time to put in place, but the sooner we start having focused conversations about them, the sooner a much-needed property ecosystem will take shape and the sooner our property markets will grow - and grow sustainably.

The signs are encouraging: Barclays Africa research shows that property finance in our target jurisdictions grew by an estimated 13% between 2013 and 2015, which is significantly faster than normal GDP growth. Granted, property markets in Africa are highly diverse, with some growing above 20% and others at zero. There’s no doubt that Africa’s nuanced property markets face challenges, but there are opportunities as well.



Progress made in the Real Estate Sector over the last decade

African Real Estate Opportunities: Next 5 years

African real estate market ability to attract capital from different investor types is a notable development in the last ten-year period. This was linked to the improvement in the macro-economic environment within many African countries, which are still largely commodities dependent.

The last ten-year period includes the financial crisis, which was negative for assets globally, including in Africa. Beyond 2009, there was an improvement in the economic environment for African countries, with a rapid recovery in commodity prices.

What do you believe is the biggest progress made in the African Real Estate sector in the last 10 years?

The interest in African real estate markets on the back of the “Africa Rising” narrative

African real estate market ability to attract capital from different investor types is a notable development in the last ten-year period. This was linked to the improvement in the macro-economic environment within many African countries, which are still largely commodities dependent.

The last ten-year period includes the financial crisis, which was negative for assets globally, including in Africa. Beyond 2009, there was an improvement in the economic environment for African countries, with a rapid recovery in commodity prices. This was a continuation of trends since the beginning of the 21st century in line with the commodities boom. This period attracted an increasing interest in African investment opportunities, including real estate markets, from all types of investors, including Hedge Funds, Developers, Sovereign Wealth Funds and high net worth individuals. The stable macro-economic environment lasted until the second quarter of 2014, beyond which, a general decline in commodity prices was experienced.

Development of REITs in Africa

An important development within African real estate markets over the past decade has been the adoption, in some markets, of Real Estate Investment Trust (REIT) structures as vehicles to enable the participation of diverse investor types. This has also assisted in the development of the real economy within the real estate sector. Although the adoption of the REIT structure has largely been within the South African market, there is still an opportunity for further adoption in the rest of the continent.

Diversification into the Rest of Africa by SA Property Companies and other investors

The South African property sector has matured over the last decade; measured using the South African Listed Property Index (which includes only the top 21 listed property companies on the JSE), it has experienced phenomenal growth from R89bn in 2007 to over R487bn (or $36.5bn) by July 2017 — a compounded growth rate of over18%. The sector has started diversifying its assets across geographies such as Europe (incl. UK), Australia, US and the Rest of Africa, through both direct property holdings in these markets, or acquisition of shares in existing listed companies in these jurisdictions.

According to Avior Research, the SA listed property index’s non-domestic exposure is estimated to be 36%, with Eastern Europe being the largest offshore exposure at 17%. Other offshore funds which recently listed on the local bourse, although not included in the SA listed property index, include Capital and Regional and Schroeder Real Estate Investment Trust.

The relatively small capital allocation by South African REITs to the rest of the African continent reflects certain structural barriers to access the largest capital market in the continent, including:

  • South African listed sector has targeted risk diversification away from Africa Emerging Markets, preferring to target either CEE (fast growth, EU convergence), or developed markets (UK, Germany, Australia). This selection of jurisdictions highlights the challenges of aligning risk and reward in real estate opportunities in Africa.
  • The South African REIT sector is almost entirely yield-focused - opportunities in the rest of Africa are challenging on this measure as high financing costs reduce comparative net yields.
  • South African REITs have sought to increase hard currency earnings over time - although opportunities in Africa have often been US dollar-denominated, currency convertibility and repatriation risk remains elevated (and un-hedgeable) compared to other markets.
  • The fragmented nature of African political and economic centres reduces economies (compared, for example, to Eastern Europe) mean SA management are unable to mobilise sufficiently large amounts of capital to impact their business, nor to leverage the expertise arising from transactions

In light of the challenges above, we believe that investments in real estate by South African investors in the rest of the continent will largely remain a specialist activity for dedicated players (e.g. Mara Delta, Growthpoint ‘Africa Fund’ ), Institutions (e.g. Old Mutual, Sanlam, PIC), and Private Equity (e.g. RMB Westport, Actis). These players will be looking for maturing capital markets in their target jurisdictions to provide an exit at the end of their investment horizon.

The development of investment grade assets in the continent

There has been substantial development of modern shopping centres across the continent over the past decade, as a result of the increasing urbanisation and the resultant development of consumer markets. This has presented great opportunities throughout the built environment value chain, and has contributed towards the development of industries that supply real estate markets, such as construction and other service industries.

A recent report by Knight Frank (Shop Africa, 2016) indicates that there are 26 million square metres of shopping centres in Sub-Saharan Africa, with only 3 million of these located within Sub-Saharan Africa excluding South Africa. Given the high populations in many of the Sub-Saharan Africa urban centres, there is scope for more retail developments in the future, despite considerable differences in per capital income levels within these markets.

The hospitality sector has arguably been one of the largest beneficiaries from the general interest in African investments that occurred, at least, over the last decade. Within the hotel market, the supply of rooms has grown by 8% and 9% per annum for West and Central Africa, respectively; whilst East and Southern Africa have grown by 5% and 4%, respectively, over the period 2008 to 2016 (according to a report by JLL, Oct 2016). The relatively high growth rates in West and Central Africa are off a low base.

Other market commentators project high single digit revenue growth within the hotel sector for the combined key markets of South Africa, Nigeria, Mauritius, Kenya and Tanzania over the next five years. Indicators such as these show the ongoing attractiveness of the sector.

What are the greatest opportunities available in the African Real Estate Sector in the next 5 years?

Residential assets generally

Africa has a growing population that is increasingly young and urban. Rapid urbanization has brought opportunities to many Africans, but has also brought about some challenges, one of which is housing. According to the International Finance Corporation (www.ifc.org), African cities become the new home to over 40,000 people every day, many of whom find themselves without a roof over their heads. Both urbanisation and population growth are expected to increase, presenting opportunities for providers of housing, particularly to the middle class. This is an area where governments, the private sector and multi-lateral agencies may be able to collaborate easily.

Further development of retail mortgage markets

The development of retail mortgage markets is an important and necessary condition, if Africa is to efficiently allocate resources towards meeting future needs of its population in terms of housing. Work remains to be done to meet housing needs in Africa. Research by the World Bank (Policy Research Working Paper 6756: Housing Finance Across Countries – New Data and Analysis, Jan 2014) indicates that Africa lags behind on two key indicators with regards to housing markets, one being housing finance depth and the other being housing finance penetration. The former refers to a measure of total outstanding mortgage loans relative to GDP, whilst the latter refers to a share of the adult population with a housing loan.

The research highlights that mortgage market development is highly correlated to the development of the insurance sector and the stock market – which are sources of long-term funding. Little correlation was found between government subsidies and support, on one hand, to mortgage market development, on the other. Furthermore, government ownership of banks exhibited a negative relationship to mortgage market development (as assessed by the aforementioned indicators of depth and penetration).

The key take-out is that further development of mortgage markets in Africa can be achieved through comprehensive policy interventions that promote the development of capital markets and the insurance sector. Markets for which these factors are positive are likely to experience mortgage market development and would be ripe for growth in the housing sector.

Logistics and industrial infrastructure

The development of investment grade retail properties referred to earlier is symptomatic of a general formalisation of the retail market in Africa. This formalisation is in order to meet the needs of a growing middle class and increasing general consumer spending. Research conducted by Knight Frank in 2016 (Logistics Africa, 2016) showed that the growing middle class and consumer spending were identified by logistics industry professionals as a factor of equal importance to mineral and resource demand in driving demand for logistic services. These factors were rated as key drivers of logistic market demand within Sub-Saharan Africa.

Investments in industrial real estate such as warehousing are not only linked to trends in consumer spending, but also to the capacity of the real estate to benefit from general accessibility. The latter relates to proximity to major transport routes, such as airports, major highways and port infrastructure, and is related to the factors measured within the global Logistics Performance Index produced by the World Bank (LPI Index). Africa has made some progress, however there remains an opportunity to improve general accessibility within African markets in order to unlock the potential of the industrial real estate sector.

API Interview Video

Selwyn Blieden: Head of CPF Coverage: Rest of Coverage- Barclays Africa Group (CIB)