High Stakes For High Reward? Real Estate Funds Come To Africa

High Stakes For High Reward? Real Estate Funds Come To Africa

From Reuters via Technology18

High stakes for high return, if you can stick it out for the long term – investors are buying into a boom in sub-Saharan African real estate.

Forecasts for 20 percent net annual returns from investing in shopping malls, office blocks or industrial complexes in countries from Zambia to Kenya is drawing in new investors, despite more immediate concerns in some countries about Ebola, terrorism or political stability.

Investors have already taken a liking to sub-Saharan African dollar debt, encouraging a record $10 billion in sovereign and corporate issuance last year and $5 billion so far this year, according to Thomson Reuters data.

But when even bonds from Kenya and Senegal offer yields of only five or six percent, enthusiastic risk-takers may choose to invest on the ground in Africa.

Momentum Global Investment Management launched a $250 million sub-Saharan real estate fund last year, focusing initially on shopping malls and office buildings in countries such as Mozambique and Rwanda.

The fund has a life of up to eight years, so it won’t be a fast way to make a buck – but Momentum expects it to be lucrative.

“The number one reason (to invest) is return – 18-20 percent on an annual basis, if you are in for the full eight years,” said David Lashbrook, head of Africa investment strategies at Momentum. “The investors we are looking at targeting are institutions who can be locked up for the whole eight years.”

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As Africa’s fast-growing population gains spending power and moves into the cities, demand for real estate will grow, fund managers say. Urbanisation and population growth will boost the number of people in cities globally by 2.5 billion over the next three decades, with much of that growth in Africa and Asia, a recent United Nations study said.

“The desire of the increasingly middle class to meet, socialise, shop and spend their leisure time in facilities or retail developments that are on a par with what you find around the world is not going to abate, it is going to continue,” said David Morley, head of real estate at private equity firm Actis.

Actis has raised and invested nearly $500 million in two real estate funds, with markets including Nigeria, Zambia and Mozambique. Morley is also targeting annual returns of 20 percent or more, around 5 to 10 percentage points more than returns seen in similar mainstream emerging or developed funds.

Read more at Technology18