By Gerhard Zeelie; Head of Property Finance Africa: Nedbank CIB
It’s no secret that Africa can be a challenging place to do business. Property investment is certainly not exempt from these often unique challenges, however, given the significant, and growing, number of opportunities available in many African countries, the rewards to be gained from such investments can massively outweigh the complexities involved in making them.
Of course, when it comes to successful property investment in Africa, there are a number of these complexities that need to be carefully considered, and fully understood, before moving forward with one’s investment plans.
Apart from the obvious, universal, considerations that should pre-empt any property investment – including growth prospects, risk evaluation, supply and demand and full due diligence – there are three other major factors to which the prospective property investor in Africa must also apply their minds.
The first is the practicality of the opportunity from an ease of doing business perspective. There are a number of practicalities to investing in Africa that some global investors may never have had to consider before. For one, it’s important to assess how accessible the investment destination is, both from an air- and road – travel perspective. Then there is the issue of ease of entry into the country, and to what extent your movements and actions will be hamstrung by bureaucracy once you’re there.
Then there is the issue of corruption to consider. It’s no secret that corruption exists to a greater or lesser extent in many African countries, and the prospective investor needs to have a clear understanding of the level of corruption he or she will face, and how tolerant they are willing to be of such activities. This is of course not to imply that investors need to feed into corruption, but just that they need to be fully aware of it and accept that it may have the potential to delay or limit their investment or property development efforts.
Thirdly, there is the legal regime of the country being considered. As any international investor will attest, there’s much more to legal matters than compliance and bureaucracy. In most countries, the legal environment determines the complexities involved in investment, and as a result, has a significant impact on overall investment costs. Africa is certainly not exempt from these legal ramifications and, in fact, the often significant legal complexities in many African countries prompt numerous investors and financiers to use Mauritius or the UK as the legal jurisdiction for their transactions across the continent.
Of course, this doesn’t remove the requirement for the execution of security to take place through the local legal system, which can add to costs, particularly when it comes to registering security to access bank funding and when assets are refinanced subsequently by a different financier.
As is clear from all of the above, Africa can be a challenging investment destination. However, none of these challenges or complexities are insurmountable. In fact, with the right investment partner, that has extensive knowledge of African property markets and experience in smoothing over the difficulties, taking advantage of investment opportunities in many of the countries on the continent is not only viable, it’s potentially lucrative.
Yes, it may require patience, tenacity, and a fairly strong constitution, but the potential rewards are definitely there for the savvy investor with the right attitude, an eye for unique opportunities, and a considered approach.
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