Africa’s Imminent Real Estate Boom: Where to Now

As a continent Africa’s growth seems unstoppable; powered by resources, fueled by an ever-growing consumer base, driven by technology and reinforced by innovation. Indeed, these are the best of times for the continent. 

For example, in the east, Kenya’s farmlands are being developed into huge estates that look like small cities. Some sections of Addis Ababa city look like one big construction site, with cranes doted in the sky. In the west in Nigeria it’s about numbers, large houses, mega developments and new cities mushroom from nowhere and grow rapidly in a few years. In South Africa it’s the post-apartheid black middle class (black diamond) that is pouring into the economy with a high appetite to accumulate assets. The once excluded portion of the population has been included into the main stream economy causing reconfiguration of the country’s economic demographics. 

The economies of countries like Ethiopia, Rwanda, Libya and South Sudan are excited with the post conflict developments. On the other hand, several African countries discovered petroleum or natural gas reserves in the last few years. These are some of the recent stories as the continent develop forward. 

In this final article of the Africa’s Imminent Real Estate Boom series I will point out some of the major trends that have an impact on Africa’s real estate development.  

• Increasing role of private equity investments. Private sector investment and innovations are catalysts for sustainable development. Private equity investment has matured in South Africa, however as you go north most investments are family business driven. However, the private equity funding system in Africa is growing into maturity. This is creating structured funding vehicles that reaches far wide in the continent.
•  The emerging African middle class. Africa’s emerging middle-class is entrepreneurial by nature. Intra-Africa investments are increasing as Africa’s emerging middle class are discovering and taking advantage of regional opportunities. The information age has changed the perception of Africa from a dark continent to a continent of opportunities. And many of the perceived risks are being demystified.
•  The role of Public Private Partnerships (PPP) in unlocking real estate developments. They are mainly in infrastructure investments like power generation, transport, communication water and sanitation, but also in housing developments. A joint development approach by government and the private sector harnesses the effectiveness and efficiency of the private sector and still achieve the national goals.
•  Traditionally the role of the government was to provide housing. The housing backlog in Africa cannot be achieved by a government. The private sector is now recognized a major key player. African governments should make policies and relevant supporting systems that create an environment that support housing developments, especially for all economic groups.
•  Real estate developments increase the government income base through rates and tax hence it is in the government’s interest to support new developments. That’s why more and more African governments are seeking ways to fast track developments.
•  Africa currently faces a serious housing crisis. The shortage of suitable affordable accommodation is pushing up rent and property prices in several cities and towns across the continent. As a result this is making the continent one of the most promising places in the world for real estate investment.
•  The PropTech Revolution. We are in the information age. Information has never been so accessible at this level to the general public. With information comes more innovations and ideas. The PropTech revolution is disrupting the real estate industry continent-wide. It brings blockchain technology, artificial intelligence, smart building, sharing space, real estate fintech amongst others. In South Africa two bank have launched apps that cuts out the estate agent completely by allowing their customers to sell properties to each other. The ordinary people welcome the development since it cut costs by about 10%.
•  Naturally Africa is positioned to receive the best in terms of solar energy. However, it does not generate enough electrical power to fuel the continent, resulting in frequent power cuts. Developer are exploring ideas of possibly taking entire developments off grid by using renewable energy sources like solar.
•  Transportation PPPs on the rise. The recent years have seen more Sub-Sahara African countries joining South Africa on PPPs in transport related infrastructure such as toll roads. The model seems to be working and gaining momentum. PPPs on other infrastructure are being explored.
•  Affordable housing finance. Banks give bonds or home loans based on risk profile of the borrower. Therefore, the high income and middle income are likely to get a bond from the bank, unlike the low-income group which has a high risk profile. The private sector’s involvement in affordable housing is minimal due to low margins. In order to compensate this, some governments are offering incentives to private developer like land at no cost or installing the bulk services. Africa needs innovative business models for affordable housing developments that have creative funding methods, cost reduction measures and mass production.
•  Green Building Initiatives. The continent is taking time to embrace the green building initiatives mostly due to the associated costs compared to the anticipated long-term benefits. For such a dynamic continent the long-term view is often ignored.

Many challenges still obstruct real estate and infrastructure development in Africa. They include weak legal, regulatory and institutional frameworks; weak infrastructure planning and project preparation; ineffective governance; and corruption. As a result, the private-sector investors have to navigate through these obstacles.

Africa is not one country. It is a continent with many countries that have diverse cultures, tastes and preferences. One-size-fit-all approach will certainly not work. The products have to respond to the diversity of the market. Do your market research and collect you own data. You are unlikely to find all the data in one place. Never underestimate the benefits of collaborating with who those on the ground and partnering with local experts. 

I hope the points above sparked ideas to think on the way forward. Thank you for taking the time to read these articles. 

This is our home. This is our Africa!