Political crises, instability in government policies and staggering legislations are a common constraint that has directly or indirectly impacted on the level of foreign investment into developing countries in Africa.
Real estate investors have maintained a bit of caution with respect to investing within the sub-Saharan region, and this is quite understandable to a certain extent since systematic risks are still perceived to be exceptionally high.
Certain factors severely impair the image of sub-Saharan Africa as a destination for real estate investment by foreign investors. Some of these factors are the political and politico-economical influences, currency risks, illiquidity and the low degree of transparency prevailing within these markets among others.
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.
Policies that Promotes Profitable Real Estate Investments
Although survey indicates that the global real estate sector is becoming more transparent, there are too many examples in SSA of opaque and corrupt practices, poor corporate governance and failures in regulatory enforcement.
Investors and tenants are almost left with no option than to look away from such countries that are unable to address these shortcomings and rather set out to invest in more transparent markets. Real estate transparency is fundamental to people’s livelihoods and quality of life, particularly in developing markets and part of these transparency policies should be about having legal and regulatory frameworks that provide basic property rights.
JLL’s ninth Global Real Estate Transparency Index reveals which countries provide the most favorable operating environments for investors, developers, and corporate occupiers.
Real Estate Transparency in sub-Saharan Africa
|Transparency level||2016 Composite Rank||Market||2016 Composite Score|
Source: JLL, LaSalle Investment Management
Higher real estate transparency is generally associated with stronger investor & corporate real estate activity, which implies that the link between transparency and investment could be crucial in the coming years.
The protection of property rights by the government is also a key concern for real estate investors. A strong property rights system is conducive to fostering economic growth, human capabilities, research and innovation, environmental performance, attract investments and the creation of social capital.
A property right is basically the rights of humans to use specified goods and to exchange them. Any restraint on private property rights shifts the balance of power from objective attributes toward behavior that political authorities approve.
The degree of political stability influences incentives to obtain or extend ownership and/or management of the property. From observation and study, a correlation has been drawn between government stability and foreign investment levels, hence, the higher the likelihood of government instability, the lower the level of investment into such economy.
Taxes are sums of money that the government imposes in accordance with some established criterion such as net profit earned, property owned, income received, etc. in order to raise revenue to provide services.
Tax policies are obviously capable of affecting the volume and location of foreign direct investment (FDI), since all other considerations equal, higher tax rates reduces after-tax returns. Legislation and policies should be made to support the introduction or maintenance of certain tax reforms aimed at facilitating trade and investment in real estate.
How investors react to the prospect of changes in tax policy is essentially an empirical matter. Not only can a lack of credibility make effective policy change difficult, but the climate of uncertainty associated with frequent tax changes can, itself, increase the risks and reduce the attractiveness of the long-lived investment.
There is the crucial issue of how to define policies and legislation that will properly position SSA to attract greater investment portfolios within the region and also from foreign investors. This need has therefore informed this call to invite policy makers, legal practitioners, financial institutions, property developers, industry professionals and associations to a special strategy session at this year’s Real Estate Unite conference slated to hold on the 17th and 18th of October, 2017 at Landmark Event center, Victoria Island, Lagos.
To register for this event click HERE.
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