A webinar organized by API events to discuss the impacts of real estate investment implications across Africa reveals the state of property market across the continent following the onset of COVID-19 and makes some predictions for the future.
The online event saw key industry players from real estate advisory, development, banking and private equity speak on various topics ranging from market fundamentals to valuations, financing and currency implications, risk management, social impact and after-effects.
Impact on Operations
Landmark Africa MD Paul Onwuanibe said the pandemic had taken about 35-70 percent of trading off the markets but the financial realities for each client will be different. He said clients that have resilience buffers such as more capital reserves are better placed.
Onwuanibe said retail and hospitality sectors are the most vulnerable but office and industrial segments appear to be more resilient.
“We still don’t know the impact of Covid-19. If it lasts for 3-months that will be more digestible, if it lasts longer like 6 months or more, that will be harder to take in,” said Niyi Adeleye, Head Real Estate Finance for Africa Regions, Standard Bank Group.
“The reason why remote working appears successful is because everyone is locked up. There is no replacement for social interaction and normalcy should resume once this is done,” he added, refuting the idea that remote working may take over working on site.
Impact on Investments
“Currently rates are high and volatile and the solution for lenders usually is conservative lending,” said Niyi Adelaye hinting that accessing to debt capital may be more limited.
“The volatility makes it difficult to have highly leveraged assets in Africa,” he added
He said that one way of dealing with volatility is applying a portfolio approach that enables assets to collectively develop a resilient buffer for the portfolio in and of itself.
The Standard Group banker said that the volatile market conditions in most of sub-Saharan Africa is counterproductive to the paradigm for private equity where high Internal Rates of Return (IRRs) and positive cash flow within a short time period are the favoured measures of viability.
Commenting on the state of African real estate markets, Niyi Adeleye said, “it’s still difficult to predict yields and risk-free rates following market activity due to the low volumes of trade in most African markets. The question remains what is the real cost of an asset?”
He said there are no systematic and comprehensive data platforms to rely on, no benchmarks. “We’ve got to build it from the ground up,” he said.
According Ilaria Benucci, Head of Construction and Real Estate for CDC Group, the instability of African currencies has also presented a significant challenge to international financiers and private equity.
“The sustainability aspect of African investments is tied to domestic currency lending,” said Niyi Adelaye, commenting on the technicalities of importing finance brought about by volatile currency exchange rates in countries like Nigeria.
The stability of market fundamentals will depend on how fast people recover their livelihoods.
Thomas Schultz, Director of Africa Real Estate for Investec said the shape of an investor before the crisis will determine how one comes out from the crisis.
“We’re collectively in survival mode, we really want to get through this together,” said Schultz regarding the landlord-tenant debate.
He said taking legal action on delinquent tenants is the wrong approach at the moment. “You don’t want to be chasing your tenants in court 3-6 months from now,” he added.
“Interest waivers would undermine financial institutions. There is no one size fits all solution for the situation. Developers and banks have to meet in the middle,” said Standard Bank’s Niyi Adeleye.
CDC’s Ilaria Benucci also advised that landlords would do well to maintain flexibility and engagement with tenants.
Deals & Valuations
“It’s difficult to have a crystal ball now. There are still tenants progressing with the paperwork but it has become difficult to do the physical work. Most clients however, have put off all activity,” said Thomas Schultz of Investec.
The panel agreed that the crisis could have an adjusting effect on market valuations to more sensible levels both in terms of price and discount rates.
Ilaria Benucci said housing is expected to be the more relevant after now with a possible spike in demand for low human density assets, logistics and storage.
Landmark CEO Paul Onwuanibe said the aftermath of the pandemic may tilt the markets more in favour of impact investments.
“People will be more cautious about investing in offices and retail that are operated traditionally,” said Paul.
He said real estate investors must usually make some core assumptions, and some of those assumptions might change in Africa post-COVID-19 where sustainability, social and environmental impact could increasingly play a part in the reason for the decision on where to invest capital.
On how long the crisis may last, CDC group’s Ilaria Benucci said, “It’s difficult to draw a conclusion right now. I don’t see this ending 3-4 months from now, what we expect is a gradual lifting of the situation.”
The webinar was co-hosted by API events CEO Kfir Rusin and JLL Head of International Capital for sub-Saharan Capital, Thomas Mundy.