Africa’s real estate sector poised for steady growth

The African real estate market is poised for steady growth, with a projected worth of US$15.98 trillion by 2024. The residential real estate sector, valued at $13.39 trillion, is expected to dominate the market. To delve into the latest trends and challenges facing the real estate sector amidst local and global headwinds, CNBC Africa spoke with Marjorie Kivuva, Co-Founder & Partner in Real Estate & Finance at Tarra Agility Africa in Nairobi, Kenya. Kivuva highlighted several key trends shaping the African real estate landscape. One significant trend is the increasing focus on low-cost housing to cater to the youthful population in Kenya and across the continent. Developers are concentrating on affordable housing options in urban areas to meet the growing demand from first-time homebuyers. This demographic shift has led to a surge in short-term rentals post-COVID, creating stiff competition in the market for high-quality developments offering enhanced security features. Notably, South Africa has also witnessed a similar trend in short-term rental properties, reflecting a broader regional shift towards this market segment. Furthermore, Kivuva discussed the imbalance between supply and demand in the commercial real estate sector in Kenya. The rise of remote working and co-working spaces following the pandemic has resulted in an oversupply of office buildings in urban areas, leading to a significant drop in demand for commercial properties. Conversely, the residential real estate market has experienced a surplus in supply, accompanied by pricing pressures on buyers due to economic challenges. Inflation, coupled with a depreciating currency, has intensified the affordability crisis, making it increasingly difficult for households to invest in real estate and save effectively. Kivuva also highlighted government interventions such as tax policies and incentives aimed at addressing the housing deficit and stimulating growth in the real estate sector. Inflationary pressures and currency instability have further complicated the real estate landscape across Africa. While Kenya has witnessed a sharp increase in inflation, resulting in reduced disposable income and diminished access to mortgages, South Africa has maintained relative stability in this regard. In contrast, Nigeria grapples with a 28-year high in inflation, amplifying income constraints and fiscal challenges. The depreciation of the local currency has prompted Kenyan diaspora and local investors to explore opportunities in foreign real estate markets with more stable currencies. The Middle East stands out as a popular destination for high-net worth individuals and institutional investors seeking investment alternatives. The ease of obtaining residency permits and property ownership, coupled with enhanced travel connectivity, has made the Middle East an attractive prospect for diversifying real estate portfolios. Looking ahead, the future outlook for real estate in Africa remains mixed. Rising interest rates and global inflationary pressures pose challenges for local investors, particularly in markets where affordability and currency fluctuations impact investment decisions. However, opportunities exist for those leveraging hard currency to explore stable markets like South Africa, known for its robust hospitality and short-term rental sector. The trend of African investors increasingly diversifying their real estate portfolios beyond the continent underscores the need for a balanced approach to mitigate risks and maximize returns.