Chronicle EditorPROPERTY pioneers have already taken the first steps in shaping Africa’s urban landscapes, constructing landmark malls, hotels and office blocks that could be called iconic. This is just the start. Modern, fully functioning cities require a well-oiled system of residential, commercial and industrial development and civil infrastructure, with the real estate skills and services to match. The question is: Who will design, build, manage, maintain – and of course fund – the many different commercial developments that Africa’s cities demand?
The short answer is that a local property ecosystem must emerge to take over from where the big-ticket, mostly-foreign, private equity-funded pioneers have left off.
Without an effective, self-sustaining ecosystem, comprising all the key components of a workable property market, the continent’s urban centres could suffer the effects of what is known as “urbanisation without growth”, or “poor country urbanisation”.
That means more urban sprawl with little or no economic growth potential and worsening shortages of urban housing, commercial space and inadequate civil infrastructure.
On the other hand, a well-functioning property ecosystem could enable the kind of orderly, planned and constructive growth that Africa’s property markets need. Such an ecosystem would also give funders the comfort that property investments made today will still be standing in 20 years’ time and that their loans will indeed be repaid.
African funding for African property transactions
When it comes to financing, it seems likely that property markets across Africa will rely increasingly on African sources of funding. One need only look at property transaction trends on the continent to see that foreign funding is in short supply and unevenly spread.
Research commissioned by Barclays Africa Commercial Property Finance shows that between 2003 and 2016, only two of the top-10 African cities that received significant inflows of foreign real estate investment were in sub-Saharan Africa. They were Lagos in Nigeria and Johannesburg in South Africa. The other eight were all in North Africa.
The continent has a number of African-based funders with the resources to provide financing to property market players. Their ability to do so, however, will depend on how smoothly and efficiently the African property ecosystem develops.
Critical components of an ecosystem
Essentially, a property ecosystem should have all the components needed for a well-functioning, nuanced property market that caters for property developments of all sizes and in all market segments. It would encompass planners, regulators, developers, owners and service providers, from architects and engineers through to contractors, construction businesses, environmental impact assessors, leasing agencies and facilities managers. All of them would operate within clear parameters and abide by well-enforced rules and regulations. Funders would observe this and invest accordingly.
At this point, however, there are numerous gaps that need to be addressed before this ecosystem can get off the ground in earnest.
Attributes of well-run ecosystems
One of the hallmarks of well-run property ecosystems is that there are significant players, owners and developers with formal corporate governance structures in place. Another characteristic would be the existence of well-understood contracting mechanisms between sector stakeholders such as lessors, lessees, owners and contractors. However, in certain jurisdictions, family-owned businesses with less-established governance structures dominate.
In addition, our research indicates that inappropriate urban planning regulations and inadequate urban service provision deter foreign real estate investment attraction and economic growth within some jurisdictions in Africa.
Selwyn Blieden is Head: Africa Coverage, Commercial Property Finance at Barclays Africa Group.
Online Reporter