Africa: the next property hot-spot?

As the Chinese property bubble looks set to pop, Australian and US house prices continue to decline. Investors eye the Sub-Sahara.

The "African Decade" is upon us, notes EconomyWatch. There's substantive evidence to justify this claim as Ghana outstrips even Chinese growth. Much of Sub-Saharan Africa is now growing more rapidly than any other region. There's even a "role reversal" underway as former colonies sniff around firms in ex-colonial powers, as The Economist reported. Flush with Chinese credit, predatory Angolan companies are snapping up Portuguese businesses, as evidenced by the likes of Banco BIC's acquisition of Banco Portugu√™s de Neg√≥cios (BPN). 

With investment in renewable energy projects in sub-Saharan Africa predicted to grow by some 1,500% in this decade, suddenly a continent which languished in darkness will bathe in light. So it's rather unsurprising that, with much of the world's residential markets in dire shape, Africa is viewed by property funds and developers as lush territory.


Tatu City in Nairobi is a good example. Funded by Rennaissance, a Russian investment bank, this US$5bn development of residences, technology park, offices, playgrounds, retail space, stadium and hospital, is forecast to house 80,000 people and accommodate 30,000 day-trippers following completion later this year. Nairobi needed Tatu to start to solve a housing shortage crisis.

In 2007 Bora Capital, a Kenyan real estate management firm, began enticing investment even from smaller savers in publicly traded securities, real estate investment trusts (REITs) and property linked unit trusts.


Rennaissance has acquired land outside the industrial city of Lubumbashi which the bank plans to use to develop a new urban centre. Lumbumbashi is DR Congo's second city with 1.14 million people and is situated in the far east of the country close to the Zambian border. The master plan on which Rennaissance is working envisages in excess of US$10bn funding on the project, more than twice the scale of Tatu City.


Outside both the Ghanaian national capital of Accra and Western Region capital of Sekondi-Takoradi, Rennaissance has also been "working on the design of two projects, each about the same size as Tatu" according to Bloomberg.


Bloomberg also reports that Arnold Meyer, Renaissance Partners' MD of real estate in Africa, says other similar projects are being considered. Rennaissance is discussing the acquisition of land near Port Harcourt, the oil port city in eastern Nigeria, as well as near the Senagalese capital of Dakar and in the Rwandan capital, Kigali.


REITs have gained popularity in South Africa as investors seek tax-efficient mechanisms to fund property growth. According to Ernst & Young, an accountancy firm, South African investors benefited from a 34% return over a three-year period from this type of vehicle, notes The African Executive.


Housing shortages are bound to grow as Africans increasingly urbanise. And as the continent develops a burgeoning urban middle class eager to climb up the property ladder the demand for executive housing will increase. Other investment banks should take advantage of this sector. And as investors and speculators scour the markets and asset classes for opportunities, Africa will likely benefit from their hunger for returns. Most mature economies are experiencing falling or stagnating property markets. By contrast, Africa is booming. 

Poor or inadequate infrastructure, together with precarious security, remain concerns. Yet investors with a high risk appetite won't be off-put. There's growing interest and involvement in Africa from the Turks, Indians and others. And in a world with reduced places in which to invest, Africa will be seen increasingly as a viable opportunity, as Rennaissance's aggressive stance demonstrates.

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