The Trillion Dollar Opportunity in Africa’s Real Estate Markets

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In his book, The Mystery of Capital, the economist Henrando de Soto estimates that there is over $9Trillion in trapped capital in land and property in emerging markets. In addition to this,  extensive research on African real estate markets,  have validated de Soto’s claim. 

Undoubtedly Africa’s real estate markets have traditionally lagged behind developed and many developing economies. Experts have shown that the levels of investment in real estate in Africa are low by a global standard and have identified significant challenges and limitations in exploiting significant opportunities. In particular, the lack of documentation, digitization and trust continue to limit the ability of relevant stakeholders to add value, collateralize and trade property in Africa. In view of this, it is essential that relevant stakeholders make concerted efforts to adopt policies, structures and tools that will unlock the vast potential of the African Real Estate.

Indeed, global trends of urbanization, population growth and technology have and will continue to influence the growth trajectory of African Real estate. Interestingly, a report by the PWC released in 2014 predicted this phenomenon. 

According to the report, Real Estate 2020: Building for the Future, some of these global trends are already evident in the African real estate industry, while others will only start to appear in the future. The report outlined the following predictions:

  • The global investable real estate universe will expand substantially, leading to a huge expansion in opportunity, especially in emerging economies; 
  • Fast-growing cities, such as Lagos Nigeria, will present a wider range of risk and return opportunities; 
  • Technology innovation and sustainability will be key drivers for value; 
  • Collaborating with governments will become more important; 
  • Competition for prime assets will intensify further; and 
  • A broad range of risks, including new risks, will emerge.

By extension, while Africa’s prime real estate markets are significantly more attractive than a decade ago, investors still need to exercise a high level of diligence when investing  in order to maximize returns and reduce risk. In view of this, one may ask; 

  • What are the most significant risks within African real estate and how can they be mitigated? 

In truth, Africa is a very diverse continent with different ecosystems that are contingent on geographic, socio-economic, cultural and political factors. However, research has identified broad risk factors that affect the sustainable growth and transformation of African real estate markets:

  • The impact of political instability and changing government policy;
  • Social instability resulting from inequality; 
  • A lack of economic diversity, with an overdependence on natural resources; 
  • Complex legal considerations, such as property ownership rights and investment restrictions; 
  • The volatility of local currencies against the US dollar; and 
  • The timeframe of investments and restrictions on possible exit strategies (e.g. limited institutional investors as compared to more developed markets). 

For instance Ghana, seen as a beacon of stability and development in West Africa, has seen a rapid increase in the demand for property as well as investment in real estate development. However, the pervasiveness of land/ property fraud  in addition to administrative inefficiencies and lack of transparency have limited investor trust in the local real estate market. 

Fortunately, the status quo is changing. New regulations are being put in place such as Ghana’s 2020 land act while private companies are building innovative, technological solutions to provide the trust and transparency needed for sustainable growth in the local real estate industry.

Perhaps the best example of the positive impact of technology on African real estate is the work of Seso Global. Seso Global has built Africa’s most trusted property marketplace which is a unique one stop shop for digital real estate transactions. Through a unique ecosystem of services, they offer buyers access to trusted properties and professional service providers. This allows for a secured end-to-end property purchasing experience along the real estate value chain. Seso Global has partnered with leading real estate professionals to provide transparency to the property market with the aim of unlocking the trapped capital Henrando de Soto wrote about and to scale the real estate industry.

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