Cracking into the African property market a tough task

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A number of South African companies in particular are eying entrance into the continental property market, such as Sanlam Properties.

 “If one looks at what we’ve done recently, we’ve just launched the Sanlam Africa core real estate investment company and essentially we’ve purchased within mandate to look at commercial and retail assets exclusively across the Africa sub-continent,” Sanlam Properties CEO Thomas Reilly told CNBC Africa on Tuesday.

“We’ve recently acquired the Accra Mall, which is the largest dominant shopping centre within Accra, Ghana. We’ve purchased three towers as well within Dar es Salaam, the capital of Tanzania. If one looks at the prospects for growth, these are absolutely core assets.  They’re dominant within their specific markets, and I think the whole concept of growth is linked to the demographics within the sub-continent, which are extremely compelling at this point in time.”

Reilly however added that a common misconception, especially from a South African point of view, is that the country tends to paint the continent with the same brush, disregarding the various currencies and economic growth forecasts. These aspects are crucial to the continental property market.

Mauritius in particular has rapidly become a key investment destination and a gateway into other African countries, and its prospects in the property market are just as optimistic.

“Mauritius is a small economy. However, like Singapore, it’s positioned itself to be the gateway into Africa. Whilst the prospects on the island themselves are somewhat limited, and to a large degree focused on tourism and the natural beauty of the country, what Mauritius has done very successfully is engage in negotiation of tax treaties with other countries,” said Richard Tait from Afrasia Corporate Finance.

Apart from the economic differences between African countries, dealing with the currency mismatches and the fact that funding is comes from dollar liquidity makes property financing significantly challenging.

 Local capital markets in most African countries are also still underdeveloped, which adds to the strain.

“Before you can start getting equity and debt investments into these property developers, there’s a myriad obstacles that you have to look at, one of it being land acquisition,” said Jose Snyders, Crowie Holdings’ CFO.

Retail development can however take two to three years before construction can be started, as local land regulation, corporate and legal structures that will be put in place need to be in accordance with the country in question’s property and land regulations.

 “By and large the engagement with countries is an issue, for instance on the taxation agreements. There’s been a lot of slowness on some of the countries’ part. For instance Nigeria has had a DTA negotiation for many years but it hasn’t been ratified,” said Tait.

“Mauritius has put together a very coherent set of international tax regulations, which is making it the ideal choice as headquarter for the region.”