“Infrastructure and Real Estate Emerging Trends in Africa 2017”

 

Africa has a rapidly growing population, estimated to be 2 billion by 2050 with 1.4 billion within the working age, a doubling since 2010. Over 300 million people are now categorized as ‘middle class’, up 27% from 2000. A third of Africa’s population lives in cities but accounts for 80% of GDP; by 2040, half will be living in cities.

 

Africa’s collective GDP in 2020 is expected to reach USD2.6 trillion, with $1.4 trillion in consumer spending and 128 million African households that have discretionary income. Saharan Africa continues to experience an increase in demand for real estate solutions in a very complex structure of emerging markets.

 

In Nigeria, thanks to rapid urbanisation, consumerism and a growing middle-class, demand for retail space has increased during the past 12 months. Many companies are being attracted to Africa by relatively low labour costs, burgeoning economies, growing populations and untapped markets.

 

South African and international retailers are reportedly continuing to enter the retail market in Ghana with a basic line shop rental for shopping centres commanding rentals priced between USD35 to USD65 per square metre per month.

 

Although Africa’s growth prospects are bright, they differ not only country by country but also sector by sector. Perhaps the most fundamental point is that Africa’s growth story is hardly limited to the extractive industries. As many as 200 million Africans will enter the consumer goods market by 2015. Banking and telecommunications are growing rapidly too, and infrastructure expenditures are rising significantly faster in Africa than in the world as a whole.

 

Ghana offers the best Real Estate investment opportunity in West Africa, according to a survey conducted by Clifton Homes of global property experts. The Ghanaian market was judged to be the most attractive real estate investment opportunity in West Africa, expected to deliver the highest level of profits over a short term (2-3 years) or long term (10 year) horizon.

 

Ghana’s growing population, buoyant economy and favourable investment environment make its real estate market increasingly dynamic. In spite of complicated issues over local lending and land ownership, demand for housing spans the entire spectrum of the population, from wealthy Ghanaians and a growing number of expatriates through a rising middle class to lower-income groups.

 

To date, investment flows in the real estate sector in Africa have depended on a number of considerations. Investment is normally favored in markets that benefit from an extensive population with a burgeoning middle class; offer a healthy growth rate and real opportunity for real estate; exhibit relative political stability and regulatory frameworks; ensure security of title to property; and generally offer investor-friendly markets. Such investment parameters have meant that real estate developers and investors have initially focused on markets like that of Ghana, Nigeria, Tanzania, Kenya, Mozambique and Angola, with South Africa being considered a developed market in the real estate sector.

 

A few key markets in Africa are experiencing a minor economic boom.  If we consider Nigeria, Angola and Kenya, for example, each has experienced huge GDP growth, is keeping inflation in relative check and is, on the whole, making it easier to do business. From a real estate perspective there are obviously issues to overcome with alleged higher than average levels of corruption, concerns over title, tax, poor infrastructure, the ability or otherwise to own property and how to get funds into or more importantly out of the country.

 

By 2050, it is forecasted that Nigeria will proudly sit within the world’s top 15 countries by GDP, and is currently the world’s fastest growing economy.  Its population sits at 170 million (2012 figures), the largest in Africa, and its main cities, specifically Lagos, Abuja and Port Harcourt, have become key targets for scalable opportunities. This has led to demand for prime commercial real estate far outstripping supply, keeping prices comparatively high.

 

For example prime commercial space in Lagos is renting at up to USD1,000/sqm/pa, down from a peak in 1998.  Rentals should continue to decrease as more high quality stock comes to the market. Despite this, the comparatively high levels of corruption and security issues ascribed to Nigeria make it a relatively high-risk destination.

 

Luanda, the capital of Angola, can be bracketed in many ways alongside Lagos. Its real estate costs are not only the highest in Africa but are one of the priciest in the world, as cited by Luanda’s prime commercial real estate being the second most expensive in the world behind Hong Kong, at USD2,100/sqm/pa. This is fuelled not only by the low levels of supply (there is currently only some 500,000 sqft of office space in Luanda, increasing to 1.4M sqft by the end of 2015) but also high demand from, principally, the oil & gas sector, and high levels of taxation.

 

Kenya has come through the recent elections relatively unscathed. There is a new confidence in the economy that is witnessing an increase in inward investment and an upturn in infrastructure and real estate construction and upgrading. Although supply is still low there has been a dramatic increase in the number of developments underway with corporations looking outside the traditional Central Business District into outlying areas around Nairobi. Rents are comparatively low when considering Nigeria and Angola, with prime space attracting up to USD210/sqm/pa.

 

Not far behind this leading pack, another cluster of growth economies within Africa emerge, principally, Ghana, Mozambique, Tanzania, Uganda, and Zambia. The main drivers for these markets still tend to be oil & gas, finance and telecoms. Where oil & gas goes the others seem to follow.

 

The private company Deloitte just released its "African Construction Trends Report 2013," which has some surprising conclusions concerning China's engagement in this field.  The report evaluates USD222 billion invested in 322 African infrastructure projects that have a project value over USD50 million and had broken ground by, but not yet been commissioned at, 1 June 2013.  The top sectors rated by investment value were energy and power, transport, mining, real estate and water, followed by gas and oil.

 

Based on this size and time-limited sample, the results are surprising in view of all the attention in recent years accorded to China's involvement in African infrastructure.  Europe/US stakeholders funded 15 percent of the projects and Chinese stakeholders funded 10 percent of the projects in the sample.  This still places China as the most important bilateral funding source, but not the overwhelming player that it is often said to be. European/US contractors built 37 percent of the projects and Chinese construction corporations built 12 percent, again a lower percentage than is often portrayed.

 

Ghana has an encouraging framework for real estate investment, with freely-transferrable capital and profits, but projects have generally concentrated towards the middle and the top of the market, where margins are bigger and demand has remained relatively stable. As a result, a shortage of affordable housing is one of the biggest challenges facing the country, which is otherwise a relatively prosperous and stable part of West Africa. While the gap between supply and demand is most acute at the bottom of the income scale, there is also rising demand in the middle- and high-income segments, in which local and international developers are showing increasing interest.

 

Accra Mall measuring 20 000 square metres in Ghana is the only premier shopping centre in Ghana attracting 7 million shoppers a year. New office developments in Ghana are leaning towards A Grade type prime locations and these are expected to have basic rentals of between US$35 and US$40 per square on completion.

 

In Namibia, the supply of retail space has declined while demand sales have remained stable. Demand for space varies between 150 square metres to 500 square metres and leases escalate at 8 percent annually, according to reports.

 

In Ghana’s incumbent government’s bid to expand infrastructure in 2014, the Ghana Infrastructure Fund (GIF) has been set up to aid finance critical infrastructure projects needed to accelerate economic growth and development. The Minister of Finance, Mr. Seth Terkper, is expected to chair the quasi-fiscal body which will be charged with raising its own funds from domestic and international sources to match private sector funds for infrastructure development.