A RECENT study on the property market in Africa by leading real estate firm, Knight Frank, highlights the growing demand for property in Africa as well as the disparities in rentals across the region.
Ritesh Anand Column
According to the study, growth in demand for property is being driven by strong economic growth across a number of African countries. This growth has not gone unnoticed and has attracted the attention of an increasing number of property investors and corporate occupiers.
Since 2000, Africa has averaged growth of over 5% per annum, with the sub-Saharan African region averaging growth of close to 6%. The larger emerging economies of this region, such as Nigeria, Kenya, Angola and Ethiopia, have increasingly been the key drivers of the continent’s growth.
Over the last two decades growth has been driven by strong commodity prices and the recent fall in commodity prices is likely to dampen growth prospects. Despite this, growth in Africa remains robust with the IMF projecting growth of 6% in 2016. Africa will remain one of the fastest growing regions in the world.
“Africa is on the move”, said US President Barack Obama when he opened the Global Entrepreneurship Summit, held in Kenya recently.
Africa’s growth story is also being driven by demographic trends and urbanisation. Africa’s population is rising rapidly at a time when population growth is slowing in other global regions. UN projections suggest that the population of Africa will almost quadruple to more than four billion by 2100, with nearly one billion of these people in Nigeria alone. This is arguably the single most important demographic trend that will shape the world over the course of this century.
Sub-Saharan Africa’s largest cities are some of the fastest growing urban areas in the world. UN forecasts suggest that the populations of Lagos, Kinshasa and Luanda will all grow by more than 70% during the 2010-2025 period, while Dar-es-Salaam, Kampala and Lusaka are expected to double. By most estimates, Lagos has already overtaken Cairo as Africa’s biggest city and its population may be close to 40 million by 2050, making it a true global megacity.
According to the study, the growth of Africa’s cities is creating a need for increased volumes of good quality commercial and residential properties of all types. Retail property development has been encouraged by the rise of the urban middle class, as well as the expansion of South African retailers such as Shoprite and Pick n Pay into the rest of Africa. Modern shopping malls are a relatively new phenomenon in much of Africa: Accra Mall, for example, the first to be built in Ghana, opened in 2008. Its success has helped to encourage further development, with the larger West Hills Mall opening in Accra in late 2014.
Many African countries remain challenging places in which to do business. The World Bank’s Doing Business Survey, which ranks the regulatory environment for small and medium-sized businesses globally, places 21 African countries among its bottom 30 in the world. However, improvements are being made in many countries, and the example of Rwanda is a beacon having made a series of reforms to business regulations over the last decade; it now stands in the World Bank’s top 50, above some western European countries.
It is not surprising that Zimbabwe has the lowest rentals in the region. Office rentals in Harare are less than half of Lusaka while retail and industrial rentals are around 30-40% lower. Residential rates are almost 60% lower than Lusaka. An average four-bedroom house in Lusaka costs US$3 500 per month versus US$1 500 per month in Harare. Over the last two decades, economic growth in Zimbabwe has been depressed negatively affecting the property market.
The weakening of the Zimbabwean economy has led to poor office take-up in Harare and high void rates, in excess of 30%. The recently completed Old Mutual and Celestial office parks along Borrowdale Road have delivered 26 000 square metres of office space that remains largely unlet. Office rents have stagnated, as occupiers have struggled to meet rent and service charge costs, currently in the region of US$8-10 per sqm per month.
Recovery in the commercial sector (offices) will depend on an aggregate increase in demand for office space, propelled by corresponding increase in office-based firms from the commercial service sector.
Currently, retrenchments, downsizing (right-sizing), company closures, informality in the central business district (CBD) and migration to residential areas and office parks are working against recovery.
ZimRe Property Holdings has announced its intention to divest from the CBD to allow them to focus on office parks. While Pearl Properties are considering turning some of their CBD office space to residential suites in-order to maintain/improve occupancies and yields.
Zimbabwe’s manufacturing sector capacity utilisation — a measure of the extent to which the country uses its installed productive potential — has fallen to below 40%. A number of manufacturing companies have folded or curtailed production. With the supply of industrial space exceeding demand, industrial rents and capital values have softened. As a result of the depressed economic activity and high cost of capital, investment in the sector has been low. Industrial property prices have been stagnant since 2013 and if current economic trends continue prices are expected to decline. The high rental arrears level is a strong indication that current rentals are above what the market can afford to pay.
Residential market activity has been restricted by the absence of long-term mortgage finance and poor liquidity. Expensive mortgages are offered on a selective basis, typically for 10-20 years at rates between 15-18%. This is unaffordable to most Zimbabweans. House prices and residential rents are falling as a result of the weak demand and low income disposals. The residential property sector could do well with better access to finance, and flexible financing terms as well.
CABS, in partnership with the City of Harare, have, for example, reduced their deposit requirements to 10% from 25%. This is a positive development for the sector.
The need for high quality commercial and residential properties will only increase as the economies of Sub-Saharan Africa grow. Their rapidly growing economies are catching the attention of increased numbers of property investors and corporate occupiers. Africa is no longer viewed as a region of long-term economic distress, but is increasingly seen as a continent of opportunity.
Zimbabwe risks being left behind as the demand for property across Africa grows. Prices are positively correlated with economic growth. Let’s fix the economy and the property sector will take care of itself. The property market presents an attractive opportunity for long-term investors.
While property prices may fall further in the short-term, the medium to long-term prospects for Zimbabwe’s property market are very attractive. Zimbabwe needs to catch up.