Africa: Property Investment Review
So much of the reporting these days has been about the U.S. recovery which for right now at least remains robust, tariffs and China or the other hot topic of Britains divorce from the EU and its implications. There is one other potential market for investors, in particular property both commercial and residential, that at times is overlooked: Africa.
In its April 2019 report Knight Frank reviews the latest economic trends for the African continent that could be a potential hotspot for investors.
Expected to bring forward new economic expansion is the African Continental Free Trade Agreement. This will eliminate 90% of the tariffs for goods being moved between 49 countries and it is expected that by 2023 that African households will see incomes increasing to $5000 and thus an increase in demand for consumer products and services. This is expected to also help drive the need for more hotels and logistic property.
With African-based companies continually increasing their continents business presence with two-thirds of the 400 companies in Africa with revenues of $1 billion or more.
Cape Town, South Africa
What has been an investors opportunity in Britain and Europe is now a necessity for the African is in the need of student living property.
The Knight Frank report states:
“Many of the key opportunities opening up to investors stem from demographic trends. For example, a 21% five-year rise in student numbers, and an additional 72 million Africans aged 15-24 by 2028, are supporting rapid growth in student accommodation requirements.”
Urban population numbers show an increase to 1.4 billion are expected by 2048 with an increase demand for middle-income housing needs.
Oxford Economics analysis shows that 17 million African households with incomes of $20,000 or more is expected to rise by 32% with consumers more likely to expand their buying needs with an increase spending for university education.
The demand according to UNESCO Institute for Statistics indicates that throughout the African continent the need for student housing is rapidly increasing. In 2017 there was a 21% increase of 2.5 million university students compared with enrolment numbers in 2012. Counties including Kenya and South Africa see the increased number of university students as the future of economic growth lessening the gap in inequality.
An additional 72 million Africans in the age range of 15-24 with biggest increase, almost 13 million, being in Nigeria are expected for university housing needs.
Anthony Bonnett, Real Estate Director of Maarifa Education says:
“Student accommodation in Africa is not the same as in other areas.”
“Developments usually involve four to eight bunk beds per room with a desk and cupboards and communal facilities such as kitchens, bathrooms and living/study space. The typical rent varies between US$75 and US$100 per person per month, so for a six-bed dorm at the average rent of US$80, a landlord would get $480 for a typical15 sq m room per month.”
The Knight Frank review states:
‘There is already a requirement in Kenya to own land and this will soon be enforced in Zambia and Uganda. For investors wishing to tap into this demand the potential rental income is significant"
Africa, like Britain and many other countries, also has its issues with affordable housing and as economic gains in middle income households improve so does the increased demand for residential property. Almost 43% of the African population or 547 million people are currently residing in urban areas in an analysis by the U.N.The number is expected to increase to 1.4 billion by 2048. As of now construction of affordable housing aimed at this demographic of lower and middle-income earners has not kept pace with the demand for new housing.
Tim Ware of Knight Frank’s Zambia office says:
“The cost and affordability of finance and design has made residential housing difficult to provide on a large scale in countries like Zambia where the market is dominated by self-build.”
“Even quicker and cheaper construction methods such as prefabricated homes have not worked as most owner occupiers prefer the traditional brick or concrete block homes.”
As a result potential home owners turn to self building homes which can take several years but as the middle class begins to increase the demand for investment in new build housing is rising.
Francis Bbosa of Knight Frank Uganda says:
“In Uganda there are opportunities in the middle-income housing segment – those earning USh 0.5 million to USh 1.5 million a month – particularly in the greater Kampala areas of Naalya, Namugongo, Buwate, Kira, Seeta, Kitende, and Najjera.”
Whilst the demand for housing for working families continues to increase the needs for the over 65 age group which is expected to rise by 19.5 million or 43% over the next 10 years. Previously families took the responsibility for care of elderly relatives but purpose built accommodations are becoming more popular.
Knight Frank reports:
“The developments most in demand include a mix of lifestyle amenities and medical facilities. In South Africa, for example, many retirement villages have been built, some within larger gated communities and others as stand alone secure villages.”
A key component of the needs for Africa is the demand of healthcare facilities and investors to provide new operators. Regionally in Africa investors from groups providing for the continents health needs include Saudi-German Hospitals and Emirates Healthcare Group for countries such as Egypt and increased interest in Morocco and Tunisia. For the East and Central Africa operators from Asia are investing with their ‘build-to-suit’ which helps in reduced costs for investment in real estate. South Africas Growthpoint has launched its first property that is principally health care oriented and is planning on listing with the local bourse.
The African nation of Nigeria in order to reach a bed-to-population ratio meeting current global averages will need 32 million square metres of new medical facility investment valued at more than US$82 billion.
Shehzad Jamal Head of Healthcare and Education, Knight Frank Dubai writes:
“However, the healthcare sector is a complex one, with specialist human resource, capital and management requirements. Significant pitfalls await the unwary or inexperienced. Just as no surgeon would rush into a major operation without proper planning – assembling the right team, having all the necessary equipment in place and gaining a thorough understanding of the patient and their background – investors and operators need to be well prepared before jumping in.”
The hospitality sector for business and tourism has seen occupancy levels increase by 61% in 2018 which is a 58% more than the previous year in data by STR Global. The biggest rise was in the north of Africa which had an increase of 6% in occupancy levels in 2018. The Sub-Saharan market sector hotels had occupancy levels at at 60% for 2018. Room rates in 2108 tended to be higher in the Sub-Saharan region at US$127 on average and north Africa at US$91.
Ali Manzoor Head of Hospitality, Knight Frank Dubai reports:
“From a supply standpoint, north Africa has the largest proportion of hotel keys within the continent, followed by southern and eastern Africa. Looking at the development pipeline, the projects that have broken ground account for only 5% of the existing supply, which is limited in relation to more mature markets and suggests that there is significant room for further development.”
With its diversity for business, natural resources tourism and investment opportunities Africas markets are clearly open to those willing to take the chance on its regional markets.
As for Africa overall for potential investors Liam Bailey, Knight Frank’s Global Head of Research reports:
“Africa’s growing economic heft is slowly asserting itself globally, and nowhere more so than in real estate, where opportunities for shrewd, forward-thinking investors and developers abound.”