The Second West African Real Estate Forum was once again in London last week, drawing in professionals from across the industry to discuss the opportunities and the challenges facing African markets, as well as the drivers of the real estate industry in the continent, and how it can move forward.
“A new car or a new fridge?” This was the question attendees were left pondering in a bid to define the West African middle class. A quip, perhaps, but the question highlighted the tone of the conference: the inability, or lack of desire, of international investors to understand the market.
There was unanimity, however, when it came to measuring the potential of the West African economy. Much discussed was the 2016 McKinsey report, titled Lions On the Move: Realising Africa’s Potential, which suggests that, by 2025, African business opportunities would reach $5.6 trillion. For those whose imaginations have been captured, this can create a plethora of opportunities.
The conference opened with an investor shoot-out panel, with Investec’s head of African real estate Thomas Reilly arguing that, currently, West African real estate is primarily driven by
Reilly addressed the issues surrounding the lack of capital in African real estate, despite the pension fund investment.
He said: “Big pension funds are driving investment [into Africa], and the middle east as well. It’s been a strategic change, investors have realised that the cycle is at a low point, so it becomes about funding partners … proving that the strategy is very important.”
In the past 12 months, Africa-focused private real estate fundraising totalled $450 million, with two funds closing, showing a decrease on the $850 million raised in 2016 and the exception figure of $3.83 billion, which was raised in 2015.
However, looking forward to 2018, Reilly expects that fundraising “will be up there”.
Another panellist, David Laskbrook, head of Africa real estate at Momentum, said: “US investors are interested, but when investors see the challenges in Africa over the past 18 to 24 months, they tend to back off.”
Reilly added: “Depth of capital in various markets hasn’t been there … by and large it has been a difficult sell. [Investors] are not prepared to come in and write a $30 million cheque, it’s not worth their time.”
Elsewhere, delegates were treated to a presentation from architect Robert van Kats of Butterfly Housing, designed to address the housing shortage in Africa. The housing firm, which is set to build cheap properties with an emphasis on the ‘green economy’ and ‘progressive social values’, targets the lower-middle income demographic of people hoping to purchase their first fridge, not their first car.
Regarding specific country profiles, Nigeria had its time in the spotlight, with most panels touching on various sectors in the market, discussing its shortage of 17 million homes, and the investability of the country.
A presentation delivered by Faisal Durrani, head of research at Cluttons, highlighted the difference between Nigerian investors based in Nigeria and those based elsewhere.
The survey, which looked at investor appetite in Lagos over the next 12 months, showed a general lack of trust from Nigerian diaspora, with 52 percent looking to invest over the time period, compared to 84 percent of Nigerians whose feet are on the ground in the local market.
Although some contrast is to be expected, the results show that, given the huge potential of the West African market, it is still not accessible enough for international investors to commit on a large scale.
A panel discussing risk management in African development further highlighted this point.
Phil Bonds, director of urban design at Broadway Maylan, said: “It’s best to work in very close local partnerships, and the [local party] needs a full stake in the operations.”
Developing such local partnerships at all levels of investment is needed to mitigate risk, Bonds said.
According to the a report by DLA Piper and CBRE, Real Estate Investment in Africa, which looks into real estate investment in the continent, foreign investors are often unwilling to venture away from the ‘western mentality’.
Another panellist, Mark Whyte, senior partner at Control Risks, suggested: “Long-term sustainable development is key for the future.”
Delegates at the conference also heard how the continent needs more infrastructure investment in order for real progress to be made in real estate development.
Bonds noted a lack of infrastructure in the region, saying: “The world is realising how infrastructure can help countries to reform.”
According to the DLA Piper and CBRE report, infrastructure problems, including power and telecoms, are ‘critical’ for future commercial and residential developments in the African continent.
Overally, the complexities and diversities of the continent are not to be underestimated, and it is going to require international investors with great nous, as well as a willingness to understand the local markets, for real estate to reign.