Real Estate news - Making property profits in "darkest" Africa

Real estate experts give pointers on making money on the continent.

Many of Africa's leaders lament the lack of foreign direct investment, while foreign investors are deterred by risks that could dent their profit margins.

On a continent where most countries are showing economic growth, how can developers and other property industry players participate in returns without losing their shirts?

Follow the Chinese, is the advice of Mike Flax, executive director of Johannesburg stock exchange-listed Madison Property Fund (JSE:MDN) managers. He was speaking at the 2007 Retail Real Estate World Summit in Cape Town.

The Chinese are "pretty good indicators" of where the opportunities lie.

China has been accused by some of colonising Africa by stealth.

They are present across Africa, including in Zimbabwe - where property rights have been eroded and there is no end in sight to President Robert Mugabe's despotic rule.

While Flax seemed reluctant to invest in countries where leaders have extended their terms, like Zimbabwe, he suggested that generally it was a good idea to pay close attention to where China is establishing a presence in Africa.

As the Chinese put in infrastructure, property developers could consider following with shopping centres and office blocks, was Flax's message to about 1 400 delegates.

He said that catering for expatriate communities was a potentially profitable route, as "unfortunately the masses don't have that spending power".

Flax said property investors can "get a feel for where people are going and where multinationals are going". The expats follow, "with certain amounts of spending power".

Unfortunately, in many countries there is no reliable data available so foreign investors on the African continent have to "go on gut feel".

"For us in South Africa, we will follow the commodities' boom and where the new money is going and where money is being generated," he said.

Oil-producing countries, like Angola, are appealing.

Flax said it is unfortunate that many think property development is a major goldmine.

As a result, "everyone wants to participate", he said, referring to corruption.

"It is quite important to avoid the cycle of corruption at all costs. Once you are in, you are sucked into a vortex you can't get out of," he advised the real estate players.

The Madison executive said investing in emerging markets is "all about patience".

If you don't like spending hours at dusty airports and waiting, "don't think about it".

Some delegates from other countries in Africa lashed out at international panellists for failing to invest in Africa.

But Dr Seek Ngee Huat, president of GIC Real Estate in Singapore - which has a mandate to invest government money in property outside his country - said investors within African countries should also put their own money into projects.

In addition, countries "maybe should be a lot more deliberate in marketing to global investors", offering details about opportunities, potential profitability and levels of risk.

Flax said that as soon as property rights are in place, "your risk drops hugely" in a country.

Hernando de Soto, international property rights' expert from the Institute of Liberty and Democracy in Peru, highlighted the importance for governments to document property rights because this allows the sharing of wealth.

Also at the conference, experts and industry players gave the retail real estate industry a collective pat on the back for contributing to economic growth.

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