Q&A with Lethabo Setata, MD, Africa Real Estate Consulting

Lethabo Setata is managing director of Africa Real Estate Consulting, a business he founded in 2022. Based in South Africa, Lethabo previously worked for Grit Real Estate Income Group, a listed real estate investment trust, and JLL Africa, a real estate services firm.

Chipo Muwowo: Tell us a bit about your professional background and the work you're currently doing through Africa Real Estate Consulting.

Lethabo Setata: Absolutely. I've been involved with a couple of real estate companies that operate across Africa. My journey started with Grit Real Estate Income Group, a real estate investment trust (REIT) listed on the Mauritian and London stock exchanges. I then worked for a consulting firm called JLL Africa. After that, I started my own company Africa Real Estate Consulting.

To date, my work has covered a variety of things: market insight studies, research, assessments, feasibility studies, market entry strategies, capital raising, as well as working with investors to facilitate strategic real estate asset acquisitions. We pretty much cover all real estate sectors — residential, diplomatic housing, affordable housing, office, data centres, healthcare, industrial, logistics, retail, and hotel & hospitality across Sub-Saharan Africa.

Chipo Muwowo: Typically, who are your clients?

Lethabo Setata: The client base is quite diverse. We work with real estate developers, investors, development finance institutions (DFIs) and other institutional investors. Basically we support any company or organisation that wants to enter Africa. We also partner with other consulting firms in consortium-led approaches for projects that require a confluence of diverse skills.

Chipo Muwowo: Where are you seeing growing interest from a real estate perspective?

Lethabo Setata: I would say it depends on the asset class because different markets are presenting different opportunities. For instance in East Africa, one of the major economic hubs there is Nairobi, the capital city of Kenya. There is quite a growing middle class and a thriving tech scene. This is fuelling demand for modern housing and commercial space. And there are many players that are going in. I know the International Finance Corporation (IFC) is pumping a lot of capital into affordable housing in Kenya.

Other markets like Cape Town in South Africa continue to attract international investors due to its robust vacation rental market. From beachfront properties to trendy apartments to vibrant student accommodation options, there are many players who are exploring Cape Town from a hotel acquisition point of view. The hotel and hospitality sector is still bouncing back from the Covid years but there is optimism.

Other areas where there is growing investment interest include medical facilities, particularly after the Covid pandemic itself. For many developers, healthcare is seen as a defensive asset class so they’re pumping capital into it. Companies like Grit are pioneering new facilities such as the Curepipe Artemis Hospital in Mauritius.

Diplomatic housing is also gaining traction mainly because of the fundamental nature of hard currency transactions, long-term leases, and strong counterparties in the form of multinational companies as well as embassies. Data centres are also growing at an unprecedented rate.

So yes, the African market is quite an interesting one to watch. There’s a wealth of opportunity in different asset classes and different markets. Africa is definitely not a one-size-fits-all opportunity.

Chipo Muwowo: Are there particular asset classes where you’ve actually seen a slowdown or a decline in interest or growth?

Lethabo Setata: At the moment, I would say retail falls under that category. Some companies are continuing to invest in retail asset classes because they believe in them bouncing back. I mean, you know that Africans generally have a big spending culture so that will never really away. But there are companies that are actually reducing their exposure to the sector having experienced Covid.

Chipo Muwowo: Besides Covid, another big macro trend over the last few years has been rising interest rates in the US and the knock-on effect on other markets. What are you seeing in terms of impact from that?

Lethabo Setata: Earlier this year I was attending the Africa Property Indaba which is a large gathering of real estate developers, investors and other property players working in Africa. There was a lot of talk about interest rates. As you know, the cost of borrowing has in recent years become prohibitive for many developers. An additional challenge is that most of these companies do their transactions in US dollars, or other hard currencies, which makes deleveraging their portfolios somewhat expensive. So, yes definitely a high US interest rate environment adversely affects real estate investment and acquisitions in Africa.

Chipo Muwowo: The REIT sector has grown quite rapidly over the last few years in different African markets. South Africa is obviously the largest. Can you just tell us a bit about the attraction of REITs from an investor perspective?

Lethabo Setata: REITs provide substantial, stable dividends yields through a steady stream of income plus the potential for moderate long-term capital appreciation. They are required by regulation to distribute most of their income back to shareholders. In comparison to traditional real estate investment properties themselves, REITs are exposed to major stock exchanges in which investors can trade them just like stocks. This generally increases their level of liquidity. There’s also an element of transparency that comes with REITs. They need to have independent directors, analysts and auditors, as well as business and financial monitoring. This provides a certain level of protection when it comes to the oversight of their performance and future prospects.

Chipo Muwowo: Talk to me about loan-to-value ratios. How do investors go about making sense of them and assessing a REIT’s debt level?

Lethabo Setata: For each and every market, there’s a benchmark. So, you have to do a benchmarking analysis for different rates by comparing similar players in that particular market. Once you find a benchmark, you need to understand the rate that you’re targeting. How is it performing in relation to the others? Most players are targeting an LTV ratio of between 35% to 40%. The LTV ratio itself gives you a risk assessment ratio. Typically, the higher the LTV ratio, the higher the risk associated with the company.

For detailed recent research on Africa’s real estate markets, read Knight Frank’s The Africa Report 2024-25.

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