FINANCE

A GOOD TIME TO INVEST IN AFRICA

A boom in affordable housing in Uganda and government incentives for the residential sector in Kenya present signifi cant opportunities for both small and large investors looking to tap into offshore opportunities in the African property market, writes MOSES LUTALO, managing director of Broll Uganda

Real estate investment trusts (REITs) offer smaller investors, who are typically more risk-averse, an ideal opportunity to build a more balanced and diversifi ed portfolio. Listed investment vehicles provide a softer entry for smaller players so they can manage their risk and any potential liquidity issues by ensuring suffi cient returns.

The residential sector is an ideal proposition for large players – typically institutional investors with access to long-term funding. There is a huge demand for affordable housing in Uganda and Kenya. In Kenya, the government has introduced incentives for investors to encourage them to enter the space, and the returns are good. Institutional investors with major strong balance sheets and long-term capital will have the most success here, as demand continues to outstrip supply.

Niche asset classes like data centres, healthcare facilities, cold rooms and logistics centres are also ripe for diversifying a portfolio. It depends on how the investor wants to structure the investment, the risk appetite and the desired return. This will determine if they play within the affordable housing space, opt for listed property investments or go for niche sectors like large industrial warehousing.

There is no “one-size-fi ts-all” model for offshore investment. A medium-size private equity fund may have anything from $10- to $40-million to invest. These fl exible investors can invest in listed funds, while taking on a $20-million affordable housing project at the same time, for example.

Long-term capital requires a long-term outlook, with a typical return on investment window of three to ten years. These sorts of investors are willing to wait for the economic cycle to turn in favour of real estate and then, crucially, exit at the best time.

The Ugandan economy has seen an upsurge since the general election in January, with projects such as signing of the oil pipe line deal. Despite the impact of COVID-19 on the economy, growth is expected to be north of fi ve to six per cent. When that happens, the real estate sector will pick up due to the increased gross domestic product per capita. As a result, investors will be able to take well informed positions on real estate as an asset class whether residential, commercial or retail.

Also prompting offshore investment is the current shift from rental to home ownership. Any investors geared towards real estate that can offer a good gated community or a planned neighbourhood with a large masterplan of about 20 to 50 acres will defi nitely attract buyers in the medium- to long-term.

NICHE ASSET CLASSES LIKE DATA CENTRES, HEALTHCARE FACILITIES, COLD ROOMS AND LOGISTICS CENTRES ARE ALSO RIPE FOR DIVERSIFYING A PORTFOLIO.

OFFSHORE INVESTMENT GROWTH IN THE AFRICAN MARKET

Investing in the African property sector makes business sense even

during transitional uncertainty, writes LEVI LETSOKO

Moses Lutalo

Africa’s growth potential is

obvious for investors to see, believes GREA CEO Greg Pearson. Africa, a continent constantly recovering from the effects of global challenges such as recession and COVID-19, attracts investors and multinational companies to comb through its markets to capitalise on the upswing.

“The African property sector is still in its infancy, with demand for A-grade commercial properties, especially bespoke developments such as logistics parks, data centres and warehouses, outstripping supply,” he says.

“There is a greater focus on sustainability and community involvement from international investors. Property developers, owners and investors are realising that their responsibilities extend beyond the fence line of the development,” says Pearson.

“Technology will increasingly play a role in how property managers, investors, owners and consumers interact. There is a strong demand to develop buildings that are future-proof from a technology and lifestyle point of view.”

“THE AFRICAN PROPERTY SECTOR IS STILL IN ITS INFANCY, WITH DEMAND FOR A-GRADE COMMERCIAL PROPERTIES, ESPECIALLY BESPOKE DEVELOPMENTS SUCH AS LOGISTICS PARKS, DATA CENTRES AND WAREHOUSES, OUTSTRIPPING SUPPLY.” – GREG PEARSON, GREA

INVESTMENT OPPORTUNITIES IN SUB-SAHARAN AFRICA RISING

While the property sector recovers and adjusts to a world changed by COVID-19, optimistic investors are seeking reasons to invest in the sector, despite the gloomy picture painted by doubtful observers. By LEVI LETSOKO

Having witnessed listed property’s boom as the best performing asset class over the last 25 years, Andrew Dewey, MD of Swindon Property Group believes that looking at the past is the best way to forecast the sector’s possible peak.

“From a direct investment perspective, the volatility created by COVID-19 has caused an approximate 20 per cent write-down on the valuation book for the majority of the sector, with the office and retail sector hardest hit,” says Dewey.

“Therefore, there has been no better time to invest wisely in the direct market coming off this low base, provided you have done your research and accurately weighed up the valuation.”

Dewey has observed that property investment has been largely ignored over the last few years, stating that only US$2-billion was raised from investors compared to US$11.9-billion raised by private capital in the same period.

Because property is an always-in-demand asset class, Dewey is confident about the prospects for small and larger developers, as well as investors with an interest in the sub-Saharan region.

“Property owners and investors who are fully engaged with the market, monitor the demand and supply chain, continue to invest in cost-saving technology and maintain a working relationship with their tenants will stay ahead of their competitors,” he concludes.

“FROM A DIRECT INVESTMENT PERSPECTIVE, THE VOLATILITY CREATED BY COVID-19 HAS CAUSED AN APPROXIMATE 20 PER CENT WRITE-DOWN ON THE VALUATION BOOK FOR THE MAJORITY OF THE SECTOR, WITH THE OFFICE AND RETAIL SECTOR HARDEST HIT.” – ANDREW DEWEY,

SWINDON PROPERTY GROUP

WHY OFFSHORE PROPERTY IS A SOUND INVESTMENT

SCOTT IRVING, general manager of Carrick Property, shares why investing in offshore property is a sound way to externalise your wealth

One of the key tools to

minimise investment risk is a diversified portfolio. Spreading your investments across asset classes, geographies, currencies and industries is one of the few time-tested strategies for investors. Offshore property, in particular, is becoming increasingly attractive as a strong diversifying investment option due to its growth and inflation-beating returns and potential for regular income.

The protection of capital and the gradual appreciation of that capital have to be at the forefront of the investment process. Investing in offshore property as an asset class is a sound way to externalise your wealth and balance your portfolio. It’s outperforming other products on the market and currently producing good returns. Depending on how you gear the property, you can borrow at three or four per cent and get

Scott Irving

a five to eight per cent yield on a new development in the UK, for example.

We are seeing more and more high-net wealth families investing in offshore developments, whether it’s a buy-to-let investment, an occasional residence for visiting children who are studying overseas, or for retirement.

Much of your success in global property investments will, naturally, depend on which market you invest in. Markets such as the UK, France and Mauritius are popular with South Africans seeking a hard currency income.

BENEFITS

Investing in an offshore development has many benefits. • Long-term wealth generation. In a good property investment, returns over 10 to 20 years can outperform many other investments. • Accessible financing: being able to leverage the property at very low financing costs in terms of small, fixed-rate mortgages. • Property is a tangible, stable asset class. • Economic and political stability and therefore greater levels of protection. • Offshore wealth accumulation. Funds can be used for your children’s education or as part of your retirement planning. Purchasing, financing and managing an international property portfolio can, however, be full of pitfalls, red tape and stress. Investors should always seek the services of a professional advisory firm.

CARRICK PROPERTY