Nairobi top as Africa reels in investors

By PETER MUIRURI

Nairobi is one of the continent’s emerging business hubs owing to its strategic location within the region. Her main competitors are Johannesburg, Cairo and Lagos.

As the real estate sector continues to set the pace for economic growth worldwide, Africa is the continent to watch as far as wealth creation in the segment is concerned.

According to the newly released Wealth Report 2014 by the world’s largest independent property consultancy firm, Knight Frank, the continent is home to half of the world’s luxury market.

The worldwide assessment report says the last few years have seen a radical re-evaluation of how the rest of the world sees Africa in view of its economic growth and new business hubs that are reeling in investors in real estate.

The report says Africa is not just a place to live but also a popular place in which to invest, accounting for 24 per cent of investment portfolios by the world’s richest. 40 per cent of the respondents said their clients had increased their allocation to property last year.

And Nairobi is among the best. “This [Nairobi] is the most important African business centre between the Mediterranean and Johannesburg. International companies recognise that there is too much going on in Africa to run their entire operations out of South Africa.

Google, JPMorgan Chase, Colgate-Palmolive: they’re all here,” says Anthony Havelock, Knight Frank’s Head of Agency in Kenya.

The report, which is based on the responses from the world’s ultra-high net worth individuals (UHNWI), states that the continent is ripe for the expansion of its wealth portfolio in comparison to the established markets.

“It is in Africa where we expect to see the greatest growth, with almost half of the respondents anticipating higher levels of luxury purchasing activity. The new Luxury Opportunity Index highlights the continent’s growth potential. Of the top ten locations identified in the index, five are in Africa,” states the report.

Despite the continent’s long standing reputation of poverty and bad governance, the rich just got richer with many choosing to invest in real estate. The report says the number of Africans with an asset base of $30 million (Sh2.5 billion) is set to grow by 53 per cent by 2023, representing the largest jump across the rest of the world.

Wealth creation
According to Ouliana Vlasova, the chief analyst at WealthInsight, the continent can no longer be ignored as far as mega investments by the world’s richest people is concerned.

“Africa’s potential for wealth creation should not be underestimated, given the amount of foreign investment it has received and is likely to receive in the future,” she says in the report.

Key drivers of the new wealth creation in the real estate sector are the major infrastructure projects that have become the hallmark of sub-Saharan Africa.

In Kenya, for example, the Lapsset project that seeks to connect Kenya with her northern neighbours has been cited as a vital cog in the large construction projects along the coast.

Kilifi, one of the proposed resort cities under the country’s economic blueprint, Vision 2030, boasts a number of high-profile real estate developments that have drawn investors from Kenya and beyond. Some of these include Vipingo Ridge, Mandharini, Ocean Seven and Mambrui.

According to the report, Kenya scores highly when it comes to the key drivers that are pulling in investors in real estate. Areas cited as key to the economic growth include offshore gas exploration, emerging technology hubs, modern shopping complex and the large mobile phone penetration.

Africa, analysts say, is the last frontier where there is more disposable income as a result of an expanding middle-class. People now want to shop in better retail spaces and experience the fine dining that was a preserve of the Western elite.

The boom has created a need for bigger supermarkets. Major hotel chains from around the world are busy setting shop on the continent, with Nairobi leading the way. 

Financial analyst Aly-Khan Satchu says Africa’s huge population and the economic expansion witnessed within the last ten years are catalysts for foreign investors in real estate.

“We must realise that we are now doing business in a global market and the continent cannot be isolated anymore.  Previously, Africa had no exposure but things have changed going by the robust stock markets across the board. Investors have come to have a tolerance for the continent’s potential,” he states.
Issues of stability

But despite the high levels of optimism with regard to Africa, issues of political and monetary stability may stand in the way of achieving the desired results. In the past, shifting sands in the political field have worked against a steady flow of investors.

Paradoxically, the mineral-rich nations on the continent have also been the politically unsteady in recent decades.

“Investors want to put their money in countries where laws and regulations don’t change suddenly, and there is currency stability. It is important to be business friendly to attract overseas money,” Peter Welborn, Knight Frank’s Managing Director for Africa states in the report.

According to Charles Kibiru, Managing Director of Thika Greens Limited, foreigners are attracted by the political goodwill existing in the country. Nevertheless, he says that for our real estate sector to attract more such players, the government ought to reign in on the runaway interest rates.

“It is good that foreigners have shown some good interest in the sector going by the enquiries we are receiving.  However, we must remember they will only come where they are assured of making a profit. An investor in real estate develops property so as to sell but this is being hampered by high interest rates being charged by financial institutions,” says Kibiru.

In addition, he says, though the austerity measures being put in place by the government are being hailed as the panacea to getting out of the country’s economic quagmire, they might hurt the built industry if not managed properly.

“While the move is well intended, it can have spillover effects in the industry. Low currency circulation means low uptake of the products in the market, a move that will affect both buyer and seller,” he says.

With such positive global projections, it remains to be seen how governments in Africa will create an enabling environment for investors interested in the real estate industry in a continent with the highest housing deficit.