Abu Dhabi, UAEWednesday 23 September 2020

Africa a land of opportunity for property investors

Knight Frank identified seven major African countries that it said presented opportunities for investment in retail, commercial property, logistics and the hotels market, but buyers are warned to take great care.
Majid Al Futtaim is opening new Carrefour supermarkets in Africa. Sarah Dea / The National
Majid Al Futtaim is opening new Carrefour supermarkets in Africa. Sarah Dea / The National

UAE investors have been urged to follow in the footsteps of the Majid Al Futtaim Group and the Landmark Group by pursuing property opportunities in East Africa.

Peter Welborn, the chairman of property consultancy Knight Frank’s African operations, insists that “there has never been a better time to invest” in the continent.

Speaking at a recent event held alongside Dubai Multi Commodities Centre (DMCC), Mr Welborn said the huge population growth underway in Sub-Saharan Africa will mean that by the end of the current century, the continent will contain 40 per cent of the world’s population.

GDP in Sub-Saharan Africa is likely to rise by more than 4 per cent in 2016, following a recent dip related to its oil-exporting countries. IMF forecasts for 2017 to 2020 suggest a GDP growth in Sub-Saharan Africa of 5.3 per cent a year.

Knight Frank identified seven major African countries that it said presented opportunities for investment in retail, commercial property, logistics and the hotels market. These were Ethiopia to the north, the Ivory Coast and Nigeria to the west, Kenya and Tanzania to the east, and South Africa and Zambia in the south.

Lagos is Africa’s biggest city, with a population of 12.6 million and a United Nations forecast that it will reach 18.9m by 2025, partly because of birth rates, but also increasing urbanisation. The UN says the amount of people living in cities in Africa is predicted to grow to 62 per cent by 2050 from 42 per cent last year.

Mr Welborn said that there were currently only three major shopping centres in Lagos, equating to about 121,000 square metres of space (although another 240,000 sq metres is in the pipeline).

“If you’re not in retailing in Africa, you’re missing an opportunity,” he said. “If you look at what’s happening in Nairobi, in Zambia; If you ask yourself, out of a population of [12.6m] in Lagos, why are there only three shopping centres? In South Africa, you’d have 300.”

Kabil Jobanputra, a director and the head of real estate for Middle East and Africa at Standard Chartered Bank, said: “There’s a huge influx of global equity coming into Sub-Saharan Africa. Globally, there’s a flow of funds that has been dedicated to Sub-Saharan Africa, and real estate specifically.

“That equity as of 2015 was around US$2 billion, and is expected to be $4bn to $5bn over the next two to three years.”

Eugenio Battella, a partner at the Germany-headquartered law firm Rödl & Partner, which has bases in three African countries, plus associate offices in 13 more, argued that investment in Africa requires great care, especially if it involves land or property.

He said that foreigners are not typically entitled to buy land or property outright, but can acquire them on long leaseholds.

“The general system in Africa is that the land belongs to the state. You are entitled to use the land according to certain concessions for a certain period of time.”

He also states that registration of title deeds and thorough due diligence is necessary before completing deals, and that in some countries transparency or even formal paperwork trails may not be easily accessed.

Similarly, he advises that acquirers need to check their tax and environmental obligations prior to acquisition, as new owners can find themselves responsible for costly clean-ups even where pollution may have been in existence for years.

“Due diligence is mandatory to understand who is the seller, who is entitled to sell and [even] if the land exists. I’ve seen a lot of very, very strange cases around Africa – owners of hotels that are not owners anymore because the land was not belonging to the seller for instance. I’ve seen communities selling land to investors and the legal representative for the community was not entitled to execute anything, so he had no power,” Mr Battella said.

He advises that anyone thinking of buying undertake a thorough checklist, including “physical inspection of the property by the buyer, proof of the title, confirmation of the sellers’ identity, original documents and compliance”.

“Don’t think it’s just a matter of cost and time. It is mandatory. It is a part of the investment. If you don’t perform due diligence, you will have bad surprises.”

Ben Woodhams, the managing director of Knight Frank’s operations in Kenya, highlighted the opportunities in retail in East Africa as a good starting point.

The Majid Al Futtaim Group and the Landmark Group have taken space in new malls planned for Kenya and Tanzania, such as the Two Rivers and The Hub malls in Nairobi, and the Dar City development in Dar Es Salaam.

Majid Al Futtaim is opening new Carrefour supermarkets, as well as Magic Planet family entertainment centres and Vox Cinemas. Landmark is opening Babyshop units.

“In a sense, you could say that the hard work has been done. The UAE is already in East Africa [and] that trail has already been blazed.”

He said the East African nations of Kenya, Tanzania and Uganda are all in the same trading bloc, and that the increased equity funding flowing into African real estate was already manifesting itself in the form of new shopping centres.

“If you were to come into Nairobi five years ago, you would see a number of well-established malls and it would be very difficult for you to penetrate. But right now we’re seeing so many malls being developed that as a retailer, you would be able to go into multiple malls at the same time.”

According to Knight Frank, Dar Es Salaam, which has a population of 4.8m, currently only has 107,000 sq metres of mall space, with a further 235,000 sq metres in the pipeline. Nairobi has a smaller population of 3.8m, but a larger middle class with higher disposable income. It has 391,000 sq metres of malls built and 470,000 sq metres in the pipeline.

Mr Woodhams said oversupply was not a concern, as the density of mall space per person remained way below western levels.

For instance, Norway has 906 square feet of space per 1,000 people, which is the highest amount in the world. Nairobi has 104 sq metres, Uganda’s capital Kampala has 98 sq metres and Dar Es Salaam has just 22 sq metres per 1,000 people.

A mall culture has grown, which failed to be shaken even by the terrorist attacks on the Westgate mall in Nairobi in 2013, in which 67 people were killed.

“In some markets, like Dar Es Salaam, which are really just coming out of the ground now, we’re going to see tremendous movement,” Mr Woodhams said.

A report published by the Economist Intelligence Unit on behalf of the Dubai Chamber of Commerce in November titled “Beyond Commodities” found that trade between Gulf countries and Sub-Saharan Africa in 2014 totalled $19.7bn, which represented just 2 per cent of the Gulf’s total exports.

However, investment is growing. Gulf firms invested $2.7bn in Sub-Saharan Africa in the first half of 2015, more than in any prior full year.

Gulf investors already own 20 hotels, with the likes of Saudi Arabia’s Kingdom Hotels and Kuwait’s IFA some of the most active buyers. In manufacturing, the UAE’s Abraaj Capital and pharmaceuticals firm Julphar have already made inroads, while in logistics DP World and Aramex are in several markets.

Etisalat also has majority or significant minority stakes in telecoms firms in Nigeria, Ivory Coast, Niger, Sudan, Tanzania, the Central African Republic and Togo, among others.

The report argued that the Gulf’s airlines were already providing a lot of the new tourist traffic to Africa, and that there are major opportunities to provide Africa’s growing middle class with other important services, such as private education.

Large infrastructure programmes such as Egypt’s recent Suez Canal widening and the $11bn plan to create a huge new container port in Tanzania will help to get more goods in and out of the market.

Mr Welborn said that with new ports and a road and rail network that is gradually improving, there would also be many more opportunities created in warehousing and logistics.

He believes that after an initial wave of investment in East Africa, many firms are now venturing further afield.

“We’re seeing more requests for West Africa opportunities from the Gulf than we have in the past five years. I can think of two NDAs we have signed recently for West African projects.

“I would suggest the next stage of development in Africa is going to be West African-driven, with equity coming from the Gulf.”

mfahy@thenational.ae

Follow The National’s Business section on Twitter

Updated: March 30, 2016 04:00 AM

Editor's Picks
THE DAILY NEWSLETTER
Sign up to our daily email
Most Popular