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Private equity the best route to African property profits

30 Apr 2012

Investors looking to participate in the sub-Saharan Africa growth story should consider property, says 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, fuelling consumer spending. Aligned with this is rapid urbanisation and investment in under-developed infrastructures in fast-growing African cities.”

South Africa, Ghana and Nigeria are examples of countries that have dedicated substantial resources to infrastructure upliftment.

Roper says urbanisation, facilitated by improving infrastructure, makes it easier for developers to optimise utlisation by concentrating property investments in areas where more people live.

He adds: “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.”

The scope for property development in the region is enhanced, Roper says, by the involvement of retailers like South Africa’s Shoprite and Massmart, recently acquired by Wal-Mart, which have an insatiable demand for access to African markets.

However, investing in longer term projects in the region is not always easy. Finding the correct properties and dealing with relatively slow moving authorities can be stumbling blocks.

Although construction costs and professional fees are relatively high, superior real rental yields of over 10% for retail, residential and industrial properties are achievable.

In terms of accessing the sub-Saharan Africa market, Roper says: “Except for South Africa, 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.

“Given the still difficult landscape faced by property developers and investors, it is advisable to partner with a company that has a track record in the countries in which it is operating. Strong local networks as well as support structures are valuable in getting things done and in understanding the nuances that differ from one market to another.”