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S.A. Real Estate Investment Firm Eying Shopping Malls Across Africa

S.A. Real Estate Investment Firm Eying Shopping Malls Across Africa

International and regional retailers foray into new African markets to tap into a growing  middle class, with a growing appetite for quality goods and convenience needs, is fueling the construction of shopping malls on the continent.

Among the retailers seeking to expand in Africa include Wal-Mart’s South African subsidiary Massmart, Kenya’s Nakumatt and other South African retailers like Woolworth, Pick n Pay and Foschini Group.

High economic growth rates propelled by resource discoveries across the region and opportunities brought about by use of technological advances such as mobile money has see an increase in the number of people entering the middle-class category.

One-year old Africa Land Investment (ALI), a real estate investment company owned by Johannesburg Stock Exchange-listed property firms Hyprop (87%) and Attacq, previously Atterbury Investment (12.4%), is seeking to tap into this developing trend by buying shopping complexes on the continent by providing an exit option to individual developers and private equity investors who own shopping malls in Africa.

Kevin Teeroovengadum, the chief executive at ALI, says the firm intends to build a $500 million war chest in the next three years that they will use in their buyout venture. ALI currently owns the $140m Manda Hill Mall in Zambia’s capital Lusaka. the mall is the biggest in sub-Saharan Africa, outside South Africa.

Finding Big Defensive Shopping Malls

“Our strategy in the next two years is to go and find big defensive shopping malls that we can buy and grow our portfolio to half a billion US dollars.” Teeroovengadum told How We Made It In Africa on the sidelines of a recent East Africa Property Investment Summit in Nairobi.

“Given that we have bought in Lusaka we are going to be looking at other opportunities in Zambia, but there you have got limited opportunity because it is not a big market. We are going to be focusing on West Africa; we are very keen to get into the Nigerian market. In East Africa we are looking at the region as opposed to a single country… but we still need to be in Kenya. Nairobi is going to be an important market for us to look at.”

He added that the company is seeking passive income in high-growth economies such as Kenya and Nigeria which hare registering economic growth of 6 percent to 8 percent.“In the rest of Africa we can buy income producing assets in a growing market.”

Teeroovengadum saidthere are not many malls up for sale in most countries but this is likely to change over the next few years. “It’s very limited opportunities, but on the other hand there are very few buyers who have got funding like we do to go and do those deals. We estimate in the next year or so you are going to have at least two or three assets per country that will be available for sale.”

Tax and Terrorism Challenges

Some of the challenges the firm is likely to face in buying real estate in different countries on the continent include ‘tax leakages’ due to difference in property rights in different countries. This, Teeroovengadum said, makes the process of acquiring these malls a very slow and painful process.

The threat of terrorism will also be a major concern especially in high risk countries like Kenya and Nigeria. Last September’s attack on the Westgate shopping mall in Nairobi in which 67 people were killed has ignited debate on safety in malls which host thousands of people at any given time.

“There are countries and cities where you have higher risk. In Zambia we have got no risk of terrorism at all. If we buy in Nigeria we will probably look at Lagos and Abuja but not further up north [where Boko Haram attacks are frequent],” Teeroovengadum told How We Made It In Africa.

“What we are hoping is that when we have a $500 million portfolio, a mall in Nairobi will only represent maybe 20 percent of that so that if something happens it doesn’t impact the whole portfolio.”