Over the last year changes in Africa’s regulatory environments, coupled with constant swings in commodity prices as well as 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. 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,” according to Niyi Adeleye, Head of Real Estate Finance for Africa Regions at Standard Bank.
Given the volatility which Africa’s economies are generally subject to, more patient, long-term strategies for delivering value also need to be adopted and thorough market research, conducted as well as ‘Fit for Purpose’ solutions, applied.
A ‘one-size-fits-all’ approach does not work in Africa and it is crucial that sufficient time and resources are put into understanding the vast and varied markets that call the continent home.
The more traditional private equity funding model has begun to fall out of favour and in order to effectively navigate the current environment, investors are now 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, this limits the depth and size of the investments that they are able to make in that economy,” says Mr Adeleye. “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,” he adds.
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. This demonstrates a level of depth within the markets and, once again, speaks to the evolution thereof, 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.
Real estate investment offers long term, stable return profiles and continues to represent 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 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 and making middle and lower end real estate opportunities more attractive to investors.
“Standard Bank offers in-country presence and insight, a multi-jurisdictional view and capability across 20 African markets. As our clients evolve with the markets in which they operate, so too do we, both in supporting their aspirations and in helping them meet the demands of this constantly changing environment,” says Mr Adeleye.