The fund would likely seek to raise between $300m and $500m, says Boynton from Cape Town. The key, he says, is “economy of scale to achieve a compelling price point.” Affordable housing, he says, can remove a burden from fiscally stretched African governments.
Preparatory work for the possible new fund has been carried out in Kenya, where the International Finance Corporation estimates a housing shortfall of 2m units.
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The Oxford Business Group estimates that by 2050, Africa will need to create homes for 900m new urban dwellers. The OMAI fund may also decide to invest across sub-Saharan Africa, with the probable exclusion of South Africa, Boynton says.
- The plan will be to build new housing and convert existing structures for residential use.
- OMAI has already done this in South Africa, where it has mostly concentrated on urban developments near Johannesburg and Cape Town, using partners to build shopping and educational facilities.
- OMAI would sell or rent the residential housing in the new fund.
- Zimbabwe-born Boynton adds that the fund could be broadened to include affordable education provision.
Covid-19 and retail
One consequence of the Covid-19 pandemic, he says, is that existing clients now take greater interest in what is happening at portfolio companies. OMAI has been keeping up to date and has built “stronger relationships” with investors as a result. Clients have shown more interest in sustainability and renewable energy, he says.
- OMAI has about $3.4bn under management in private-equity and infrastructure investments. These include Pulse Urban Properties, Crystal Park and CUF Properties in South Africa.
- It also has Southern Africa “impact” funds which aim to improve lives while achieving an investment return in affordable housing, education and retirement accommodation.
- At the start of 2020, OMAI hired a London-based client director to find European partners to invest in sub-Saharan countries. For now, Covid-19 has “dampened” European interest in Africa investment, Boynton says. “Investors have pulled in their horns.”
- Still, OMAI hopes in the medium term to extend its client outreach to continental Europe, the US and Hong Kong, Boynton adds. “The fundraising will pick up some time in the future.”
South African strategies
In South Africa, retail investments have been hard hit, especially in clothing and food, Boynton says. Some retailers in its portfolios have struggled to pay their rent, with landlords often agreeing to share the risk by moving to revised rental agreements based on turnover, he adds.
- Landlords, in turn, are often leveraged funds with their own obligations, he says. But “putting small retailers out of business is not in anyone’s interests.”
- The bounce in retail activity since the end of lockdown has been “surprisingly strong,” Boynton says. Ready-made food investments have also performed well.
- The “huge worry” for Boynton is the danger of the kind of second wave of Covid-19 seen in Europe. The ray of hope is that while European temperatures are now ideal for Covid-19, South Africa is approaching its summer.
- Boynton also draws hope from Africa’s younger demographic structure compared with Europe.
The Bottom Line
Massive future demand for affordable housing in Africa creates a strong case for Old Mutual investing in real estate.
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