Experts are backing REITs as the next frontier for large-scale real estate investments on in Africa’s expanding property markets.
Originally a preserve for South African real estate markets, recent years have carried the REITs wave to other countries including Kenya, Morocco, Ghana and Uganda most of which have recently achieved REIT status or are in the final stages of doing so.
In fact, further breakthroughs have been realized in diverse African capital markets such as Nigeria’s listing of its first real estate linked Bond on the FMDQ Securities Exchange while Botswana’s listed property sector now has more than seven trading counters, events signaling progress towards market maturity.
“The cap rate compression achieved by these REITs in a listed environment presents significant value-unlock for investors. Our experience, having listed Grit on the main market of the London Stock Exchange, underscores a definite appetite for African real estate,” said Bronwyn Corbett, Chief Executive and co-founder of Grit Real Estate Income Group.
The Grit CEO believes that while there is interest, investors are still very selective about location.
“This is especially true for international investors who appreciate that Africa is a continent consisting of 54 odd countries. Geographic selection is, therefore, as important a property fundamental as choosing the appropriate asset class and location. Our approach has always been to be asset agnostic, focusing on what we call ‘investment grade Africa’ which includes Morocco, Mauritius and Botswana, and ‘high-growth Africa which is made up of Ghana, Kenya, Mozambique, and Senegal,” said Corbett who will be at the API Summit set to take place on 2 and 3 October 2019 at the Sandton Convention Centre
“The various African countries all have different demand drivers, political climates and growth trajectories. The ability to select those property countries that will outperform through the cycle is key”, Nesi Chetty, Fund Manager of Stanlib.
Recent trends have seen a rise in action by African pension and insurance funds in property markets. This interest is expected to be a critical driver for the next phase of Africa’s housing and real estate next investment cycle.
“In countries with funded pension sectors, the size of the pension assets are growing, and the need for diversification in itself dictates that consideration be given to alternative asset classes of which housing and real estate is one. In each of these countries, there is a huge deficit in housing, particularly in the affordable housing space. Various countries are taking initiatives to address the housing gap, but sadly the role that pension funds can play does not appear to be fully appreciated, and more can and needs to be done,” said Sundeep Raichura, Zamara Group Chief Executive.
He said, “There is a limited appetite to invest across jurisdictions other than South Africa, although Kenyan pension funds are taking more of a regional outlook, and there is an interest in investing across East Africa. Here, vehicles like REITs would make good sense”.
Kfir Rusin, Managing Director for API Events, the host of the API Summit, said that investing in African property is, to a certain extent, considerably less complex now, due to the rapid rate of market formalization, transparency and greater understanding of the continent’s unique markets and its needs. He said that the short-term nature of private equity models have often proven a poor match for African property investment and focused on the wrong development priorities.