Patricia Cressot, Head of African development and wealth management advisor at Rosemont International talks about African real estate and the market growth prospects for the Financial Afrik newspaper. Find the article in French here.
Real estate is a vector of growth in a context of demographic growth. Is investing in real estate or implementing long-term government programs as simple as a supply and demand equation? Is real estate conducive to the rise of a middle class, to the use by the greatest number of new units?
Key figures, a favourable African economic context
A demographic figure that is enough to make one's head spin: 2.5 billion, such will be the population in 2050 on the continent (UN figures). A more than adequate economic growth: according to the IMF, the growth of emerging countries is 3.9% in 2019 and 4.6% in 2020. In sub-Saharan Africa, 3.5% in 2019 and 3.06% in 2020. The World Bank has designated Ghana, Rwanda, Ethiopia and Côte d'Ivoire as flagship countries. These countries have been able to diversify their growth and competitiveness, and to develop a favourable macroeconomic environment, all of which has been accompanied by a rapidly growing middle class population.
The middle class is expected to grow from 355 million to 1.1 billion in 2050 according to the African Development Bank (AfDB). In other countries, population growth is more stunning: 80% in Nigeria, Angola and Ghana in 2050. If the continent thus has these two key elements: economic growth and population growth, the boom in real estate will indeed be there, and yet.
What are the brakes on the development of the real estate market and more generally of the continent's economy? Can we really talk about African economic integration?
More than 50% of the cumulative GDP is carried by 5 economies in Africa. This makes the continent vulnerable to problems such as the tension on the internal commodities market, state debt, security and migration of the intra-regional population.
In order to eliminate these intra-community tensions, the African Union, officially founded in 2002 to take over from the Organization of African Unity (OAU, 1963-1999), aims to promote economic integration. This continental organisation has 55 member states that make up the countries of the African continent in the context of a large African domestic market: 25% of intra-continental trade is expected.
The main obstacle is the lack of infrastructure. The African Development Bank estimates that the continent needs between 170 billion dollars of investment in the sector. The shortcomings in this sector are the most significant obstacle to the domestic market. Numerous examples demonstrate this every day and the choices of companies are becoming a choice out of financial necessity, instead of giving priority to solidarity with neighbouring countries and the development of their internal market, ecology and a logic of proximity. Indeed, the cost of transport between neighbouring countries is often higher than importing from Europe. The irony is even more ironic.
Cost is a hindrance, but so is the lack of connections, although the two are linked. An intra-continental air connection has been raised as insufficient by the UN. The institution estimates that supply is inadequate and that the lack of infrastructure adds 30 to 40% to the costs of imports/exports. This is one of the objectives of the African Union, "to promote intra-regional connectivity between African capitals by creating a single and unified air transport market.
Towards visa facilitation and free transfer of persons: "remove restrictions on the ability of Africans to travel, work and live on their own continent by transforming restrictive laws and encouraging visa-free travel". This is one of the flagship objectives of the African Union.
Other issues not covered but equally important will be addressed in a future article: economic integration (will the ECO be the driving force for a new breath of life?); and the development of local foodstuffs to reduce external dependence.
Real estate powered by innovation?
The real estate market has grown strongly in recent years and the future looks more technological: the "Proptech" sector will reach 12 billion USD in 2016, estimated at 4.6 billion USD in March 2019, compared to 20 million USD in 2008 (Knight Frank Africa Report 2020-2021).
What is PROPTECH? A new segment of the real estate market, a contraction of Property technology, of several categories: real estate, cities and intelligent buildings (the Smart Cities), collaborative economy, construction (the ConTech) as well as finance (the FinTech).
Statistics show strong growth in this sector with more co-working spaces, online sales, transaction platforms and data management platforms. In Egypt, 124 co-working spaces are listed, 76 in South Africa and 33 in Kenya.
In the Proptech category, it is neither the blockchain nor the green architecture that are favoured, unlike Europe surfing on these trends, but rather in a pragmatic way e-commerce and co-working spaces.
Urbanisation is also a key factor in the increase in demand for residential space. The density of its population puts pressure on the real estate market: 17 countries have a deficit of 1 million units, the youth population is estimated at 1 billion in 2050 according to the UN. The deficit in Kenya is growing by 200,000 units per year, 178,000 in South Africa, and 400,000 in Ethiopia.
Investment in residential real estate is still underdeveloped 2.5% of real estate funds in Africa against 25% in European economies;
Ivory Coast, West Africa Hub
With a population of 25 million, the second fastest growing economy in Africa, foreign direct investment (FDI) jumped from USD 302M in 2011 (end of the war) to USD 913M in 2018. The growth rate is more than favourable with a GDP of 6.7% in 2019.
Despite some fears in 2020, a wait-and-see attitude due to the elections, Ivory Coast is indeed a HUB in francophone Africa because of its middle class and the quality of its infrastructure.
Rental yields vary from 9% for offices, 8% for retail, 12% for industrial real estate and 8% for prime residential rental such as Cocody and Zone 4 (source FRANK KNIGHT, Africa Report 2020-2021).
Senegal, the "French Riviera" of West Africa
Neighbouring countries offer attractive prospects, such as Senegal, where GDP growth is 2.2% in 2019 and property yields range from 6% (residential) to 13% (industrial sector).
In Senegal, during the last decade, the office market has shifted, according to the study, from south to north. The development of office space has been relatively balanced as a result of a small increase in rents.
The ambitious plan to relocate the ministries to Diamniadio, 30 km from the new Blaise Diagne International Airport, is intended to create a dynamic in the coming years around this new centre. According to the study, the industrial market is traditionally located close to the port and on the Rufisque road which runs along the coast to the east. There has been significant development of industrial land in Diamniado through two main programmes, P2ID (Special Economic Zone) and DID. Other areas are being developed such as the Almadies. The Dakar Financial Center should offer 5000m2, office space 13.400m2 and 1.000m2 of shops.
The residential market has seen major development programs of main and traditional apartments in Dakar. There has been an increase in the volume of residential developments, supported by a more optimistic context.
Higher levels of demand are expected to come from the oil and gas sector due to the large number of expatriate staff entering the market.
These two examples in Sub-Saharan Africa show that the local real estate market has a bright future ahead of it, in a favourable context. The brakes thus identified at the regional level will enable this asset class to be developed as an investment.
For more information, please contact Patricia Cressot: p.cressot@monoeci.com
Subscribe to our newsletter and don’t miss our news.
Key figures, a favourable African economic context
A demographic figure that is enough to make one's head spin: 2.5 billion, such will be the population in 2050 on the continent (UN figures). A more than adequate economic growth: according to the IMF, the growth of emerging countries is 3.9% in 2019 and 4.6% in 2020. In sub-Saharan Africa, 3.5% in 2019 and 3.06% in 2020. The World Bank has designated Ghana, Rwanda, Ethiopia and Côte d'Ivoire as flagship countries. These countries have been able to diversify their growth and competitiveness, and to develop a favourable macroeconomic environment, all of which has been accompanied by a rapidly growing middle class population.
The middle class is expected to grow from 355 million to 1.1 billion in 2050 according to the African Development Bank (AfDB). In other countries, population growth is more stunning: 80% in Nigeria, Angola and Ghana in 2050. If the continent thus has these two key elements: economic growth and population growth, the boom in real estate will indeed be there, and yet.
What are the brakes on the development of the real estate market and more generally of the continent's economy? Can we really talk about African economic integration?
More than 50% of the cumulative GDP is carried by 5 economies in Africa. This makes the continent vulnerable to problems such as the tension on the internal commodities market, state debt, security and migration of the intra-regional population.
In order to eliminate these intra-community tensions, the African Union, officially founded in 2002 to take over from the Organization of African Unity (OAU, 1963-1999), aims to promote economic integration. This continental organisation has 55 member states that make up the countries of the African continent in the context of a large African domestic market: 25% of intra-continental trade is expected.
The main obstacle is the lack of infrastructure. The African Development Bank estimates that the continent needs between 170 billion dollars of investment in the sector. The shortcomings in this sector are the most significant obstacle to the domestic market. Numerous examples demonstrate this every day and the choices of companies are becoming a choice out of financial necessity, instead of giving priority to solidarity with neighbouring countries and the development of their internal market, ecology and a logic of proximity. Indeed, the cost of transport between neighbouring countries is often higher than importing from Europe. The irony is even more ironic.
Cost is a hindrance, but so is the lack of connections, although the two are linked. An intra-continental air connection has been raised as insufficient by the UN. The institution estimates that supply is inadequate and that the lack of infrastructure adds 30 to 40% to the costs of imports/exports. This is one of the objectives of the African Union, "to promote intra-regional connectivity between African capitals by creating a single and unified air transport market.
Towards visa facilitation and free transfer of persons: "remove restrictions on the ability of Africans to travel, work and live on their own continent by transforming restrictive laws and encouraging visa-free travel". This is one of the flagship objectives of the African Union.
Other issues not covered but equally important will be addressed in a future article: economic integration (will the ECO be the driving force for a new breath of life?); and the development of local foodstuffs to reduce external dependence.
Real estate powered by innovation?
The real estate market has grown strongly in recent years and the future looks more technological: the "Proptech" sector will reach 12 billion USD in 2016, estimated at 4.6 billion USD in March 2019, compared to 20 million USD in 2008 (Knight Frank Africa Report 2020-2021).
What is PROPTECH? A new segment of the real estate market, a contraction of Property technology, of several categories: real estate, cities and intelligent buildings (the Smart Cities), collaborative economy, construction (the ConTech) as well as finance (the FinTech).
Statistics show strong growth in this sector with more co-working spaces, online sales, transaction platforms and data management platforms. In Egypt, 124 co-working spaces are listed, 76 in South Africa and 33 in Kenya.
In the Proptech category, it is neither the blockchain nor the green architecture that are favoured, unlike Europe surfing on these trends, but rather in a pragmatic way e-commerce and co-working spaces.
Urbanisation is also a key factor in the increase in demand for residential space. The density of its population puts pressure on the real estate market: 17 countries have a deficit of 1 million units, the youth population is estimated at 1 billion in 2050 according to the UN. The deficit in Kenya is growing by 200,000 units per year, 178,000 in South Africa, and 400,000 in Ethiopia.
Investment in residential real estate is still underdeveloped 2.5% of real estate funds in Africa against 25% in European economies;
Ivory Coast, West Africa Hub
With a population of 25 million, the second fastest growing economy in Africa, foreign direct investment (FDI) jumped from USD 302M in 2011 (end of the war) to USD 913M in 2018. The growth rate is more than favourable with a GDP of 6.7% in 2019.
Despite some fears in 2020, a wait-and-see attitude due to the elections, Ivory Coast is indeed a HUB in francophone Africa because of its middle class and the quality of its infrastructure.
Rental yields vary from 9% for offices, 8% for retail, 12% for industrial real estate and 8% for prime residential rental such as Cocody and Zone 4 (source FRANK KNIGHT, Africa Report 2020-2021).
Senegal, the "French Riviera" of West Africa
Neighbouring countries offer attractive prospects, such as Senegal, where GDP growth is 2.2% in 2019 and property yields range from 6% (residential) to 13% (industrial sector).
In Senegal, during the last decade, the office market has shifted, according to the study, from south to north. The development of office space has been relatively balanced as a result of a small increase in rents.
The ambitious plan to relocate the ministries to Diamniadio, 30 km from the new Blaise Diagne International Airport, is intended to create a dynamic in the coming years around this new centre. According to the study, the industrial market is traditionally located close to the port and on the Rufisque road which runs along the coast to the east. There has been significant development of industrial land in Diamniado through two main programmes, P2ID (Special Economic Zone) and DID. Other areas are being developed such as the Almadies. The Dakar Financial Center should offer 5000m2, office space 13.400m2 and 1.000m2 of shops.
The residential market has seen major development programs of main and traditional apartments in Dakar. There has been an increase in the volume of residential developments, supported by a more optimistic context.
Higher levels of demand are expected to come from the oil and gas sector due to the large number of expatriate staff entering the market.
These two examples in Sub-Saharan Africa show that the local real estate market has a bright future ahead of it, in a favourable context. The brakes thus identified at the regional level will enable this asset class to be developed as an investment.
For more information, please contact Patricia Cressot: p.cressot@monoeci.com
Subscribe to our newsletter and don’t miss our news.