Those who have kept track of the shifts in economic power and, therefore, in the growth or decline of property values have for the last five years or more reported a steady increase in capital flows, including property investment, to the Far East, the main recipients at the moment being China, India, Singapore, Hong Kong, Taiwan and Malaysia.
Nevertheless, says Lanice Steward, MD of the Cape Peninsula estate agency Anne Porter Knight Frank, the latest Knight Frank/Citibank Wealth Report makes it clear that they see Africa and other emerging economies as places where property investors should now be looking for real growth in the next decade.
What are the views or data on which Steward bases this statement?
“The International Monetary Fund,” said Steward, “predicts that the emerging economies will expand by 5,4% this year and 5,9% in 2013. This significantly outpaces the GDP growth of 1,2% this year and 1,9% forecast for the advanced economies. Citibank’s Chief Economist Willem Buiter has, in fact, predicted that the North American and Western European share of global GDP will fall from its 2010 level of 41% to just 18% by 2050. He also predicts that China will overtake the US as the world’s economy by 2020 and that by that 2050 India will be in the top spot.”
Other fast growers, said Buiter, will be Bangladesh, Indonesia, Iraq, Mongolia, Nigeria, The Philippines, Sri Lanka and Vietnam - in most cases the chief reason for this being that they have exportable natural resources.
Where then does Africa fit into this global picture?
It is interesting to note, said Steward, that just on 80% of the 6,000 high net worth individuals who participated in the Knight Frank survey are either satisfied with or optimistic about the future wealth creation prospects in Africa and although 75% listed local political instability as a potential worry, a high figure, 82%, rated global economic problems as just as threatening.
“To the surprise of many,” said Steward, “residential property values in Africa on average rose by 8% in 2011. Coming off very low initial bases, African property has proved to be a star performer when many Asian countries after phenomenal growth dropped back in 2011. It is for this reason that property companies like Knight Frank are, often with the help ourselves, expanding their footprints into Africa at a fairly rapid rate.”
From a different perspective, according to Derrick Roper, CEO of Novare Equity Partners “several factors support the case for property investment across the region. Economic growth is expected to remain strong, backed by positive demographics and a middle class that is expanding fast and fuelling consumer spending.
“Aligned with this is rapid urbanisation and investment in under-developed infrastructures in fast-growing African cities,” Roper said, adding that SA, Ghana and Nigeria were examples of countries that had dedicated substantial resources to infrastructure upliftment.
Roper said that urbanisation, which was facilitated by improving infrastructure, made it easier for developers to optimise utilisation by concentrating property investments where people lived.
“This young, affluent and urban middle class is looking for modern amenities, from office space to retail complexes and housing. At present the supply of these facilities is limited, with the lack of modern shopping space in many cities in sub-Saharan Africa a good example.”
Indeed, Africa's demographic profile could make it a dream for retailers if spending power continues to rise - or an unfolding disaster for everyone if the labor market fails to absorb its swelling ranks of young people
The scope for development was also enhanced by large retailers like SA’s Shoprite and Massmart, recently acquired by Wal-Mart, which had an insatiable demand for access to African markets, he said.
However, Roper cites numerous challenges: investing in longer term projects in the region was not always easy; finding the correct properties and dealing with relatively slow moving authorities often being just some of the many challenges. Even though construction costs and professional fees were relatively high, superior rental yields of over 10% for retail, residential and industrial properties were achievable
Gaining access to the sub-Saharan market was also a challenge, Roper said: “Except for SA, liquid, listed property investments are rare.
“At present, the best route to gain exposure to the property market in the region is to invest directly or via one of the growing number of private equity vehicles that are starting to make an appearance,” he said.