For private investors in infrastructure and property development, profit margins can be up to 200 percent in parts of Africa but the political environment acts as a deterrent, a stakeholder says.
Kofi Smith is a managing member of Consult Three Architects, a South Africa-based company that packages real estate development opportunities throughout Africa and presents them to prospective investors for consideration.
“Africa is the last frontier — the very last — so it has very attractive growth prospects, yet many infrastructure and property investors are not capitalizing on what it offers as they are too skeptical of the political landscape,” Smith said in a press release published on ITBusinessnet.
Smith discussed the environment for property development in some parts of Africa in a prepared statement.
Why are infrastructure and property development lagging in Africa?
“The main issue is and will always be equity,” Smith said. “Government agencies are not spending a lot of funds on building basic infrastructure thus delaying development processes, but a small portion of the market, the private sector, has been doing very well investing in real estate.”
What opportunities does Africa offer for real estate development?
“The housing sector is very attractive due to economic growth and high influx of multinational companies,” Smith said. “There is a huge demand for affordable housing and middle-income housing. Governments are spending millions of dollars on mixed-use housing/retail developments. Rural retail developments have been a big area of focus in South Africa for example, as the country tries to rebuild previously disadvantaged communities to balance with that of urban areas.”
Which markets and sectors would you point investors to?
“South Sudan and Congo Brazzaville will need to be rebuilt from scratch, though South Sudan has not been so stable recently and we have been advised to put all investments on hold until it stabilises. I believe now is the perfect time for one to engage in opportunities in Congo Brazzaville as it has become very stable.
“In East Africa, Rwanda is doing well economically, while Nigeria is saturated but also has major opportunities due to the population growth and demand.”
“Ghana is really booming and politically stable. Most West African countries are stable, so there has been an influx of multinational companies. However, if you compare Ghana and South Africa — the cost to develop versus the cost of sale — you will find a big difference. In South Africa the profit margin of the typical middle-income housing development is around the region of 20-to-30 percent — that would be considered successful.
“In Ghana, the profit margin can be between 100-to-200 percent. Ghana does not have much of a credit system in place, but investors who go in liquid can make a lot of money. The market is very right for office and high-end housing developments. Retail is also doing well, but getting land in the right location costs a fortune. Demand is so high that it almost does not make the developments feasible.”
What local experience or knowledge is required?
“Investors need to understand the terrain they want to enter. They must form local partnerships to understand each market better, avoid delays in various approvals and take advantage of the established networks they have in place.
“They must also understand the political landscape of the country and align themselves to new policies. For example, for the next 40 years, the South African government has decided to implement developments within specific areas of the economy.”
Consult Three is sponsoring the marcus evans Infrastructure & Property Development MEA Summit 2014, in Dubai, UAE.
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