In the coming years, the growth in the real estate industry will largely be driven by developments resulting from expansive economic and social changes. Traditionally, Africa’s real estate markets have lagged behind the developed and many developing economies.
As reported by PwC, study predicts that the global stock of investable real estate will expand by more than 55%, from US$29.0 trillion of 2012 to US$45.3 trillion in 2020. It may then grow further to US$69.0 trillion in 2030. This huge expansion in investable real estate will be the greatest in the emerging economies, where economic development is expected to lead to better tenant quality and, in some countries, clearer property rights.
This article presents an overview of certain factors that will engender the growth of Africa real estate sector. Some of the drivers of Africa real estate growth are;
Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns and population growth. Africa currently represents 15% of the world’s population and 3% of the world’s GDP, which comprises mainly of a relatively young population. The continent currently has a population of 200 million aged between 15 and 24 years and this is expected to double by 2045.
Many of the largest cities in Africa are growing rapidly. Nairobi, Kinshasa and Dar es Salaam, for example, are expected to see population growth of over 70% by 2025. Nigeria alone will add 7.6 million middle-class households, followed by Ghana with 1.6 million. Angola and Sudan will add one million middle-class households each. On a scale of urban population and GDP growth, Nigeria is far ahead of the rest.
Population changes will not only affect the demand for goods, but Africa’s fast-growing young population will also drive demand for a different type of real estate – for example student housing, low-cost housing, office buildings, satellite cities, healthcare real estate etc. Demographic shifts will affect demand for real estate fundamentally.
Industrialization will lead to rapid growth in the retail sector
Sustained economic growth has been linked to industrialization; however, just as other industrialized economies like in China for example, Africa faces new opportunities and challenges which include changing global markets and increased automation in manufacturing. As infrastructure development continues, the increased industrialization would make countries more connected, fueling trade between nations and thereby generating demand for real estate such as warehousing facilities.
A recent study found that institutional investors regard the emergence of Africa’s middle class and its growing consumerism, rather than its commodities, as the most attractive aspect of investing in Africa.
Also it has been observed Africa’s retail market is fast developing. This is supported by Africa’s buying strength, which is expected to increase to US$1.4 trillion by 2020. Significant construction activities in respect of shopping malls are underway in Africa. It is expected that the trends in the manufacturing, retail and service sectors will bring about shifts in demand for real estate. The progress of industrialisation will increase demand for industrial premises to meet the needs of the manufacturing industry, together with secondary markets such as housing and retail centres for workers
Infrastructural deficiency has been a major drawback for both local and foreign investors in Africa, as the continent lags well behind that of the rest of the world, although there are exceptions in some region.
The World Bank estimates that Africa’s infrastructure deficit requires investment of US$93 billion per annum, and a recent PwC research suggests that infrastructure spending in sub-Saharan Africa will reach US$180 billion per annum by 2025 at a growth rate of 10% per annum.
Numerous infrastructure development and investment projects in electricity, transport (Road networks), logistics etc. are currently underway across the continent. Ethiopia is building Africa’s largest hydroelectric plant, and Kenya, the world’s largest single geothermal plant.
The continued improvement of infrastructure will support additional investments in other real estate development in the retail and office sectors.
Government Policies and Legislation
The perceived difficulty of doing business in Africa is a key challenge that the continent must overcome in order to encourage greater levels of investment. Political risk is widely regarded as a constraint to investment into developing countries in Africa.
Government policies like property rights, tax structures, trade agreements, and policies guiding local partnerships in Sub-Saharan Africa should be made in ways that will encourage real estate investments. Sustainability is also very important, because certain changes in government policy do not benefit the real estate market.
Africa’s property industry would be uniting at this year’s Real Estate Unite summit. The summit will be providing an important platform for key players (locally and globally) to network, learn, showcase and discuss ways to build the real estate industry in Africa. This event would be holding on the 17th and 18th of October, 2017 at Landmark Event center, Victoria Island, Lagos.
You can also click HERE to register as an exhibitor, sponsor or delegate, and stand a chance to enjoy a 20% discount (closing soon) as part of our Early-bird promo.