Real Estate Investor Magazine South Africa May/June 2019 | Page 45
F In all cases the factors mentioned above are positive for
the property markets we are targeting: either the broader
economies in which they are located are strengthening (as
indicated by stronger exchange rates) or the property finance
markets are becoming more active and formalised.
The investment proposition, often-repeated to prospective
funders, regulators and local partners, was that by pioneering
landmark projects international investment and development
teams would go some way to bridge this gulf. But few of those
presenting this thesis have shown the success they predicted
for themselves and their investors. It bears repeating that not all African property markets
are alike and data covering multiple markets may often
conceal wide-ranging differences between those markets
and nuances within markets. In the case of the countries we
have been studying, there are two where the bank-financed
property market has actually declined since 2015. These are
Mozambique and Uganda.
or a long time, the most prominent players in the Af-
rican property sector have been private equity or other
institutional investors. It is also true that there has been
an obvious gulf between demand and supply in all property
sectors (commercial, industrial and residential) across many
markets on the continent.
Asset realisations have taken longer and have been less
profitable than expected. Some institutions have chosen to
exit direct African real estate investment entirely. With few
exceptions, large South African REITs that expressed broader
African ambitions have either closed their African operations
or indicated that they intend to do so. Given its uneven
performance record, an observer of the market might question
the market-theses that seemed to be so alluring only a few
years ago.
Despite this, we still believe that there is evidence to show
that the African property market has evolved, just not in
the way and for the segments previously expected. It is up
to investors, financiers and other stakeholders to adapt their
approaches to pursue the opportunities this market offers.
For the past years we at Absa have been tailoring our
business approach to cater for the range of real estate
investment activities that we have seen taking place in our
target markets. This has meant that we have been monitoring
a wider market than that represented by the large multi-
jurisdictional players that for some years dominated African
property media coverage and were most visible at industry
conferences.
Our analysis shows that since the end of 2015 the
domestic bank-financed commercial property market in our
active African jurisdictions (which we identify as Botswana,
Zambia, Mozambique, Kenya, Uganda, Tanzania, Mauritius,
Seychelles, Ghana and Namibia) has grown in US dollar terms
at a compounded rate of 9.5% per annum. This represents an
acceleration in growth since the period 2012 to the end of
2015 the same market grew by 8.3% per annum.
This means that since 2012, and even more so since 2015,
growth of bank-financing to many African property markets
has been faster than the growth of the underlying economies
in these jurisdictions. Such growth could only have been
possible if some combination of the following factors had
been in place: the number and size of bankable projects and
clients has increased; banks have become increasingly willing
to undertake property finance; and/or the currencies in which
property loans have been denominated have strengthened.
In Mozambique’s case the decline (of 8.8% per annum)
would be expected given the broader debt-crisis in the country.
In Uganda the decline has been an annual 2.1% - less than
the decline in the local currency over the period and thus
indicating a market that is, at least, growing in local currency
terms.
The largest property finance market on our list is Kenya
which on its own holds about 46% of the total commercial
property financing pool within the markets we service. Its
commercial property finance growth rate has been at 9.6%
over the past years. Its currency has been relatively stable,
ranging only from 99 to 105 Kenyan Shillings to the US dollar
over the period. The growth has achieved is largely, therefore,
a function of real growth in bank funding and property
investment activity. In our experience, growth in this market
has been led by market participants that would in South
Africa or similar banking markets be classified as commercial
or local corporate clients rather than institutional players.
In conclusion, it is evident that even though the most
prominent segment of the investment-grade African property
market has shown signs of strain, the broader bankable
property market has been growing significantly and in the case
of key markets such as Kenya, the growth is the result of real
property activity and risk-taking.
For banks and other financiers, future growth may require
broadening their target-range of clients and adapting their
credit and service models for strong local players. For equity
investors, potential focus may be on finding ways to get
effective exposure to this same category of market participants.
Opportunities exist for those who are willing to adapt their
approach and their guiding beliefs regarding this market.
SOURCE: ABSA
Selwyn Blieden is the moderator of the Investment Panel
at the 6th Annual East Africa Property Investment (EAPI)
Summit taking place on 10 & 11 April at the Radisson Blu Hotel
in Nairobi.
SA Real Estate Investor Magazine MAY/JUNE 2019
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