Despite not attracting much of the investment spotlight over the last ten years, African real estate is becoming increasingly popular as an investment asset class as skylines grow in major cities.
Webber Wentzel’s Africa Group Head, Roddy McKean, said: “We are now seeing a growing recogni¬tion of the opportunities in African real estate from a broad range of investors - from private equity funds to property developers and financiers.
“Over the last ten years, much of the publicity about investment in Africa has been focused on the opportunities in the natural resources, infrastructure, telecoms and financial services sectors. “But more recently we are seeing an increasing number of investors focusing on the consumer story as economies on the continent develop, average disposable income increases and urbanisation accelerates.”
Investors are increasingly targeting African real estate as they seek to take advantage of opportunities in a relatively uncrowded market and general misperceptions about risk.
“The reality however is that a number of savvy investors have been investing in this asset class for a long time and are now reaping the rewards of their foresight. This has been demonstrated by the recent sale by Actis of its interest in the Accra Mall following from its previous sale of the Palms Retail Mall in Nigeria.”
He added that there are a growing number of opportunities in African real estate from retail and office buildings to hotels, business parks and large scale residential developments.
“It is obvious that real estate in Africa's major cities, like Accra, Dar es Salaam Lagos, Lusaka and Nairobi, is on the move. These cities are transforming their skylines with new retail malls, hotels and office buildings. The rapid urbanisation that is taking place has even led to the creation of new mini-cities such as Tatu City in Nairobi and Eko Atlantic City in Lagos.”
McKean noted that the perceived risks which often worry investors - such as political risk, lack of corporate governance and transparency, corruption and the like - are not necessarily particular to Africa and are generally found in all emerging markets.
“Thinking of Africa as too risky is simply an outdated notion. With a careful and focused approach, it is possible to address investor concerns and minimise risks, but doing one's homework on individual countries and projects is absolutely vital.
There are however some fundamental ‘must haves’ when considering any investment.
“Choosing the right local partner is key to any investment in Africa. Extensive due diligence on the market and your partner is vital.
McKean said that if one is dealing with government it is also essential to fully assess country and political risk and to evaluate the impact of regime change on a project.
He noted: “There are many different legal systems in place. Africa is a continent of 54 countries, each of which has its own mix of political, cultural, religious and language factors”.
“Each country has its own legal system and its own laws governing the ownership and the taking of security over real estate.
“There are many examples of African coun¬tries that have no system of freehold owner¬ship. In some of these countries all real estate vests in the state or in the governor or the president although the rights to use and develop land can still be granted under leasehold, such as in Angola and Ethiopia, or by way of concession or a right of occupancy.
Almost all African countries limit foreign ownership in real estate, either by limiting the duration of rights granted to foreigners or foreign entities, or by imposing other restrictions limiting ownership rights.
“Because real estate investment is relatively new to many African countries and some tax systems in Africa tend to be relatively unsophisticated in global terms, certainty with regard to tax treatment can be difficult to attain.
“Nonetheless, with appropriate advance planning and a detailed understanding of the tax playing fields in the target jurisdiction, it is possible to design relatively tax-efficient deal structures for African investments,” McKean concluded.