ICS World Summit Tackles Pros and Cons of Development in Emerging Countries

This was the core question discussed by Mike Flax, Executive Director of Madison Property Fund Managers, when this week he joined a panel of high profile international property investors for the Thursday morning session of the 2007 International Council of Shopping Centres Summit at the CTICC.

For the first time in the ICSC's history this conference was held in Cape Town (from 4th to 6th October). Over 2 000 delegates from 40 countries attended. They were offered some 15 talks followed by discussions as well as a tour of South Africa's major shopping centres in Cape Town, Johannesburg and Durban.

Flax's fellow panel members were George Jautze, Chairman and CEO of Ing Real Estate, the giant Netherlands group which operates internationally, Lukas Casey, CEO of IFC (The International Finance Corporation which has headquarters in Washington) and Dr Seek Ngee Huat, President of GIC Real Estate, the Singapore government's property investment arm and one of the major players in property investment worldwide.

The panel focussed on the situation facing property developers looking to diversify into emerging countries. Flax said that First World developers are now showing greater interest in Eastern Europe, China, India and certain African countries for two main reasons: in their traditional operating areas high land and building costs, coupled to over-supply, have made returns unexciting, while in emerging countries those who get it right can achieve significant profit.

In his talk, said Flax, he had discussed mainly the African situation because in the twelve months since he was appointed Executive Director of Madison he had visited nearly a dozen African countries and Madison is confident that it can expand its development operations into some of these.

Right now, he said, the company is working on new developments in Luanda and Windhoek.

Fuelled by the commodities and oil boom, over 40 percent of African countries now have an annual GDP growth of over seven percent. This scenario, said Flax, makes them attractive to developers – but there are problems.

"One of the main challenges", he said, "is the lack of legal structures and sound law ensuring property ownership rights. Many African countries do not even have a Deeds Office and some have not yet grasped the fact that it is essential to guarantee property ownership if you wish to attract investment."

The situation, he said, is particularly difficult for the entrepreneur who in normal conditions would use his property as security for raising further finance to expand and diversify.

Then too, said Flax, in certain African countries there is still a possibility that a change in policy or government could lead to expropriation, a successful land claim or a handover of a significant equity stake. Once a project is initiated, he said, it may be slowed down and have cost overruns as a result of a lack of experienced local professionals, contractors and skilled artisans. Throughout much of Africa, he said, time is still not highly valued and a "hakuna matata" attitude among bureaucrats and business colleagues can be frustrating, while a lack of local suppliers often makes it necessary to import materials and in some cases to deal with corrupt customs officials. Rent and debt collection can also be difficult.

These and other challenges, said Flax, had led to a shortage of first world buildings in most African countries, coupled to exorbitantly high rentals and very high deposit requirements. In Angola, he said, some expatriates are paying US$10 000 per month for a two-bedroomed apartment.

"To be successful in Africa, a property developer needs to be bold and have an insight into local conditions, and if possible a well-connected and reliable local partner – but in recent years we have seen a surprising number of Chinese, British, South African, French, Portuguese, Israeli, Brazilian and other developers making headway in Africa."

The Chinese, Flax commented, had been particularly adept at bartering infrastructural development for commodity rights but in at least three countries, Angola, Ghana and the DRC, they had left large numbers of workers without the right to return home once a project was completed.

None of the difficulties he outlined, said Flax, is insurmountable and the future for retail centre development in all emerging countries is better than it has been for some time. The rewards, he repeated, can be significantly higher than in already developed territories, but it may take a decade or more for the emerging world to attract the massive capital inflows which have gone into the Middle East and Asia. If even a portion of these could be diverted to Africa, he said, they would be substantial help in raising living standards.

Article from: www.eprop.co.za