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GIAP and others bet big on African real estate

By Charlotte Mathews
Posted on Wednesday, 24 July 2019 11:40

Real estate investors are banking on the growth of the middle classes in cities like Accra. REUTERS/Luc Gnago

Extracting value from property in Africa requires a longer time horizon, according to Thomas Reilly, managing director of Growthpoint Investec African Properties (GIAP), in an interview with The Africa Report.

GIAP is a joint venture between Growthpoint Properties and Investec Asset Management that has the backing of the World Bank’s International Finance Corporation. It launched operations in 2018.

The company is banking on real estate investment trusts (REITs), a vehicle for investing in income generating properties, to be a game changer for the continent.

“They will provide a platform and mechanism for local capital to invest in the real estate sector,” Reilly says.

Rolling out REITs

Many African property investors are expecting the gradual roll-out of REITs across Africa to deliver several benefits, including:

  • Grow Africa’s commercial property sector;
  • Address the current shortage of transparent, well-governed stock;
  • And attract local savings.

Long-term vision

In Ghana, GIAP has commented on draft REIT legislation and has started to play a role in stimulating the growth of REITs.

“It will not happen in the short term. It takes time to get the legislation agreed and approved, put the appropriate structures in place and allow the markets to develop,” explains Reilly.

Another property group, the Grit Real Estate Income Group has identified potential investment opportunities in Africa worth $600m.

REITs across the continent “will create a platform for investment, a market for attracting co-investment and will provide a framework for improved real estate liquidity”, said Grit’s CEO, Bronwyn Corbett, last month.

These investments come despite a downturn in some African property prices, and currency and liquidity issues. Other major property investors on the continent, like STANLIB, AttAfrica and Resilient Africa, are writing down the value of their property holdings, or exiting the African market entirely, except for South Africa.

“Markets are cyclical and investors need the flexibility to be able to ride through those cycles, so the timing of entry is extremely important. Many of those who have suffered losses invested at the peak of the cycle 3-5 years ago and there has been a significant downturn since then, sometimes by as much as 30%. Growthpoint Investec has the advantage that it is investing now, not at the peak of the market,” adds Reilly.

GIAP’s strategy

  • Investing in large African cities with sound governance and strong growth prospects to build a scalable business.
  • Using an initial capital commitment of $212m, GIAP is buying a mall in Accra and exploring opportunities in Lagos, and elsewhere across Africa.
  • Attracting international tenants to mitigate against currency and capital control risks.

“Over time, local currencies may play an increased role and a critical element from the point of view of a group using leverage is to mitigate risk through matching the currency composition of debt to revenue. Where we have local currency earnings, our debt will be matched appropriately,” said Reilly

Bottom line: Africa’s turbulent property markets are still attracting huge investment from major players who think it’s the right time to get involved.

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