Real Estate Investor Magazine South Africa August 2013 | Page 57

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nvesting in property in Africa, a continent
with 54 sovereign states, is a topic more
suited to an encyclopedia and a constantly
updating one at that. With recent articles on
Africa’s growth surge in Time, The Economist
and the “Lions on the Move” report from
McKinsey Global Institute that the “rate
of return in Africa is higher than any other
developing region”, investment interest has
piqued.
African countries have such widely diverse
political, economic and social systems that
investments in each country require a fair
amount of research and taking local advice is
paramount. Accordingly, this article seeks to
highlight a few interesting factors which could
play a role in deciding whether to make an
investment in a country, the process required
to acquire the propert y and the ongoing
management issues.
Some countries, eg Nigeria and Ghana, are
enjoying a rapid expansion and increase in
property values and rental yields. Ironically
these increases may be driven by other factors
such as increased cost of doing business, goods
and services. Lack of infrastructure, including
poor roads, transport systems, power and
basic amenities, is still a significant barrier to
growth in many countries but foreign investors
such as China and India and international
corporations have been actively developing
some regions. Political factors remains to
many the primary concern when considering
investments in the continent.

Legal system
African countries’ legal systems generally
emulate their colonial history, for example,
the former British colonies are common law
legal systems while the former French and
Portuguese colonies’ legal systems are civil law
(ie based on the Napoleonic Code). In East
Africa the countries have a combination of
Islamic and civil law. In fact, many countries
combine elements of both and there is a notable
movement to include common law aspects,
which are considered as more favourable to
foreign investors.
In addition, A frican governments are
increasingly accepting and encouraging
arbitration as an alternative to court process. 16
African countries including Nigeria, Botswana,
Zambia and Zimbabwe are signatories to
www.reimag.co.za

the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards
(“New York Convention”).

varying, for example in Ghana they are low
while in Zimbabwe rental income is taxed at
progressive rates up to 35%.

Right to own land

Exchange control

In many countries there are absolute and
limited restrictions on the rights of foreigners
to own land. For example, foreigners cannot
acquire farmland in Zimbabwe and Namibia.
Many states in Nigeria only permit foreign
ownership on approval by the Governor
with certain conditions and the payment of
prescribed fees. The Kenyan constitution
and the Kenya Land Act 2012 has restricted
investors to holding only leasehold land for a
period not exceeding 99 years.

Exchange control is still a feature in certain
countrie, for example, exchange control
approval is required to own propert y in
Zimbabwe and Namibia and endorsement of
the title deeds as “non resident” are required to
allow the foreign owner to freely transfer the
property proceeds.

Swaziland, as one of the last remaining
monarchies, is an interesting case in point. The
King, on behalf of his subjects, holds all the
land in the Kingdom in trust. Male citizens
can acquire a lease over land by pledging
allegiance to one of the 350 chiefs. Women
can only apply to hold land if married in
community of property. Foreigners may, with
government approval, apply for a lease through
land holding corporations controlled by Swazi
directors.

Investment protection
There have been over 400 bilateral investment
protection treaties signed between African
countries and developed countries. Nigeria has
entered into over 20 treaties with countries such
as the UK, France, Germany, the Netherlands,
Italy, Russia, Turkey and China. Some treaties
have similar provisions but the scope of each
treaty should be considered as some have only
limited application.
Cer ta in count r ies have enac ted loca l
leg isl at ion (for e x a mple t he Nig er ia n
constitution) protecting people’s right to
own property and forbidding compulsory
acquisition. In Zimbabwe, foreign investments
are not really encouraged with current laws
mandating that businesses cede 51% of
shareholding to Zimbabweans.

Financing and taxation
Finance for properties in African countries
can be difficult to obtain or severely limited.
A s w it h a l l proper t y invest ments, t he
applicable acquisition costs, rental income
tax, estate duties, capital gains tax should be
considered. Taxes of rental income are widely

Land registration
W h i l e s o m e A f r i c a n c o u nt r i e s h a v e
sophisticated title deed systems, in others
(eg Kenya), not all land is registered thus a
thorough title deed search is essential.

Transfer process
Certain c