Africa's real estate potential

Africa in brief

• Over 40% of Africa’s population is under the age 0f 19.
• Over 50% of Africa’s population lives in the rural areas.
• Over 70% is employed in the Agriculture sector.
• Africa’s population is about1.2 billion
• 39 out of 54 African countries have undergone or are currently undergoing debt review from the World Bank/IMF
• Africa’s population is projected to double by the year 2050.

Established and new territory

One of Africa’s most thriving metropolis which houses one of the world’s best stock exchanges, Johannesburg grew over the course of 100 years first due to mining and now as a result of the growing services industry. Johannesburg, the economic gateway to the continent holds a share of GDP of just under $68 billion with a growth rate averaging 3% per annum. Repo rate in South Africa stands at 5.5%

On the other hand, Luanda, Angola, probably one of the most expensive cities to visit or live in, is growing at a rate just over 6% with a GDP of $33 billion. Luanda's share of GDP is set to triple by the year 2025 while population grows by 70%. Repo rate in Angola is 9.5%.

Angola's growth figures are similar to those of a number of cities across the African continent such as Khartoum (Sudan), Kano (Nigeria), Lagos (Nigeria), Dar es-Salaam (Tanzania) and Nairobi (Kenya). However, despite the variance in the level of real growth in cities from Cape to Cairo, one thing remains apparent in the dynamics of the African real estate industry. There is potential across the board.

High risk, higher returns

The population is rapidly growing, along with it the economy. Though economic growth may not necessarily translate to an immediate change in the standard of living, the demand for real infrastructure remains unmet due to underdeveloped capital markets. Pressure on governments to meet housing demand is unlikely to yield any significant results on a continent on which budget deficits are a common occurrence, leaving the onus upon private investors to meet the demand for real estate products.

According to Knight Frank’s Africa Report 2013 this strong growth is expected to continue and is creating wealthier populations, particularly in the largest and most rapidly growing urban centres. Africa’s mega cities such as Lagos, Nairobi, Accra, Lusaka and Dar es Salaam are increasingly becoming the drivers of its economic growth and, as a result, are attracting growing interest from occupiers, developers and investors.

"Africa’s impressive economic progress is generating a growing need for the construction of good quality property in major cities across the continent. The rising wealth of Africa’s middle class is leading to demand for increasingly sophisticated retail formats and better quality residential property," said Matthew Colbourne, associate in commercial research at Knight Frank.

“I think the demand is approaching about 17 million. The houses that Lagos state have built so far are about 3,000 up to 4,000 so in terms of making any impact, you’ll agree with me that it is more or less a drop in the ocean.” Dipo Davies, CEO Real House Communications

http://mg.co.za/article/2014-05-27-sas-gdp-shrinks-in-first-quarter

http://xfinity.comcast.net/slideshow/news-worldsfastestgrowingcities/10/

http://worldpopulationreview.com/countries/angola-population/

http://www.joburg.org.za/index.php?option=com_content&task=view&id=92&Itemid=9&limitstart=2

http://www.cnbcafrica.com/news/western-africa/2014/06/10/nigeria-tackles-high-property-demand/

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTDEBTDEPT/0,,contentMDK:202600

SOUTH AFRICA PRICES US $2 BILLION INTERNATIONAL BOND

South Africa National Treasury: 10 September 2013


The Republic of South Africa has priced a US$2 billion 12-year global bond in the
international capital markets. The bond was priced at a coupon (interest) rate of 5.875 per
cent, 315 basis points above the 10- year US Treasury’s benchmark bond.

 The transaction attracted bids to the value of US$7.4 billion, more than 3.5 times
oversubscribed. The demand was mainly from investors out of Europe and the United
States. This deal is printed against a difficult global backdrop characterised by rising yields
and widening spreads.

OBLIGATIONS OF PRIMARY DEALERS IN FIXED RATE GOVERNMENT BONDS TO IMPROVE LIQUIDITY IN SECONDARY MARKET

14 Novermber 2013: National Treasury

The Primary Dealers in fixed rate government bonds of the Republic of South Africa are
required to constantly improve liquidity in the secondary market by quoting a two-way
price on the bonds that have an outstanding amount of R10 billion and more.

The outstanding amount on the R2037 (8.50%: 2037) bond has reached the R10 billion
mark and consequently, Primary Dealers are obliged to quote a two-way price on this
bond as stipulated in the rules of the Primary Dealers in fixed rate government bonds of
the Republic of South Africa.

The R2037 (8.50%: 2037) bond should be quoted at a maximum bid-offer spread of
10 basis points and a minimum amount of R10 million between Primary Dealers and
other market participants.

http://www.treasury.gov.za/comm_media/press/2013/2013111401%20-%20MarketMakingBonds.pdf

African Capital Markets I

The 10^th IMN South African and African Capital Markets Conference attracted over 600 delegates from across the globe in on the 22nd of November 2012. Converging at the Westin Grand in Cape Town, were the brains and pockets behind chiseling into shape, Africa’s capital markets which for decades have remained generally untapped.

Still experiencing growing pains, African capital markets akin to the continent’s economy have drawn the world’s attention as fertile hunting ground for higher returns.

“There has been strong development of local currency debt capital markets  in many countries in Africa as well as unprecedented interest by offshore investors for African credit risk as they turn away from near zero interest rates environments in the developed world and search for yields elsewhere.” Megan McDonald, Head  - Debt Primary Markets, Standard Bank

 Around this period last year, the word on issuers, bankers and investors' lips what “Eurobond”. The IMN Conference coincidentally fell just about two months after the historic Zambian sovereign Eurobond.  A USD denominated 10 year bond which raised $750million and was oversubscribed resulting in an order book value of $12billion. Excitement at the prospect of more sovereign and corporate issuances in Namibia, South Africa, Angola and Nigeria was in the air.

Fast-forward, one year later, the IMN conference goes into its 11^th year. Taking a look back at the past 12 months, economic tremors of varying magnitudes have swept the globe but Africa continues to register growth. Critics would render Africa’s growth story nothing to write home about but with liquidity in the capital markets seeking crevices through which to match assets, Africa is on track to catch up with the rest of the world.

Marking the beginning of the 10^th IMN conference for emerging markets in Africa questions that lingered above the meeting revolved around:

• ·         Africa’s institutional capacity
• ·         Underdeveloped markets with relatively undeveloped yield curves
• ·         High interest rates – a deterrent of poverty eradication

In a week, a wider pool of delegates will converge in Cape Town to behold and review the progress made over the past twelve months and project into the future.

·         Are Africa’s capital markets developing too quick too soon?

·         Is Africa transformed institutionally to make current and future investments worthwhile for investors?

·         If Africa has seen inflows of funds in other forms and failed to realise tangible growth over the decades, will the story change now?

·         With many African countries healing from the debt burden lifted under the HIPC debt review initiative, is Africa ready to take on more debt?

·         Africa needs approximately $100billion worth of investment per annum to develop her infrastructure, are capital markets the only solution?  

These are questions I hope we can all explore as we take a close look at financing Africa’s development  at The 11th Annual South African & African Capital Markets Conference.