Real Estate Investor Magazine South Africa May 2018 | Page 40

FINANCE
Financing Property
Development in Africa
Delivering on promise
SELWYN BLIEDEN
Head of Commercial Property
Finance (CPF) Coverage at Bar-
clays Africa
I
nvestors have been told of the “sup-
ply-demand imbalances” that create
opportunities in the African real
estate market. However, correcting and
profiting from such imbalances means
focusing on property development and
this entails tackling the risks of project
delivery.
Current conventional wisdom says
there is persistent unmet demand for
housing, high-grade office, and modern
retail and industrial real estate assets.
This is backed up by statistics from
Christian Benimana, the founder of
the African designer-training initiative
MASS Design, who stated that Africa
needs to build 60 000 houses per day
for the next 35 years to meet its needs.
New home dwellers will need space
to work, shop, and receive healthcare
and schooling. It is widely recognised
that not all demand will be met
through government initiatives.
The private sector
Therefore, the role of private sector
investors and financiers will be signif-
38
icant. However, market participants
have learnt that the reality is more
nuanced than conventional wisdom
and the raw numbers might indi-
cate. Being specific about what assets
will actually meet the real demand
requires deeper understanding that
anecdotal generalisations and mar-
ket-level numbers do not provide.
For example, where demographic
information might show that there is
capacity for more formal retail space
in a city, it may not explain what par-
ticular assets will succeed. There may
already be an over-supply of large re-
gional centres populated by branded
line-stores. Real demand may only
require smaller local neighbourhood
centres with strong grocery retail an-
chors.
If supply-demand imbalances ex-
ist, then development of new assets
is the great opportunity available to
investors in African real estate. This,
in turn implies development risks
are key to addressing the investment
challenges in the African real estate
market. Financiers must acknowl-
edge and tackle these risks if they are
to fully participate in the growth of
the African real estate market and to
serve the key players in this market.
Funding
Development funding is riskier than
funding for existing income-earning
assets: a failed develop ment project
may be almost worthless even after
substantial time and funds have been
spent. In addition, it may be difficult
to predict the success of a develop-
ment. Even experienced developers
encounter obstacles and sometimes
fail to deliver.
Both options of opting-out and
MAY/JUNE 2018 SA Real Estate Investor Magazine
name-lending underserve the market,
bank investors, and all stake-holders
looking for more development to take
place. We propose that banks and oth-
er financiers (such as Development Fi-
nance Institutions and niche funders)
need to have project capabilities in
place. They should also consciously
take on the role of property devel-
opment lenders, acknowledging that
this requires a different approach from
conventional investment lending.
At Barclays Africa, our approach
is to retain a dedicated multi-disci-
plinary team dedicated to assessing
and monitoring construction projects.
The team works closely with design
consultants, quantity surveyors and
project managers based in our juris-
dictions. Their involvement in proj-
ects that we are banking usually starts
well before construction commences.
They review contracting documenta-
tion and ensure that construction and
financing needs are consistent.
Some clients have volunteered
that they feel additional comfort
from oversight provided by the bank’s
team, giving an additional, objective,
expert-view on design and delivery
elements of their projects. In ad-
dition, by building experience of a
variety of projects in multiple juris-
dictions, Barclays Africa is able to
assist the spread of ideas and tech-
nical knowledge between our target
markets.
This approach may not be avail-
able to all potential financiers but it
offers an idea of what we believe is
necessary to deal effectively with the
opportunity and challenges of prop-
erty development funding in Africa:
partnership and continuous exper-
tise-building.
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