SA corporate banks eyeing commercial property investments in Africa

With the cost of capital climbing and global foreign exchange reserves tightening, South Africa’s corporate banks are picking up the slack and eyeing commercial property investments such as retail and student accommodation on the continent.

Sandile Mpanza, head of commercial property finance, Africa region, at Absa Corporate and Investment Banking (CIB), said the South African investor base was heavily invested in the continent, looking to consolidate alongside opportunities in Europe or the offshore market.

The South African market is a bit ahead in comparison to the rest of the continent. The Reit [real estate investment trust] market in South Africa is well established. You have about 25 to 30 Reits that are heavily invested in commercial property in South Africa and offshore

—  Sandile Mpanza, head of commercial property finance, Africa region, at Absa Corporate and Investment Banking

“The South African market is a bit ahead in comparison to the rest of the continent. The Reit [real estate investment trust] market in South Africa is well established. You have about 25 to 30 Reits that are heavily invested in commercial property in South Africa and offshore,” Mpanza said.

He said Absa CIB expected regional interest rates would taper down, “coming off nicely at 10%”, which would encourage more activity in markets such as Kenya and other regions in Africa.

“Yes, there has been lots of noise in the markets given the tariffs ... but I think the broad consensus view is that people will find each other, and we will then start to see US dollar interest rates coming off a bit.

“I certainly do see interest rates coming off in the East Africa region. Inflation has been steady recently, with rates averaging 3%-6% for the past few years — and that speaks to interest rates having an effect.”

Mpanza said Absa commercial property finance had a presence in Kenya, Uganda, Tanzania and the Seychelles. The world was reaching the end of a hiking cycle, which was great news for markets in this region.

Niyi Adeleye, head of real estate finance for Africa regions at Standard Bank CIB, said the high cost of capital and severe foreign exchange (FX) volatility — caused by macroeconomic stresses in important markets — had been a disincentive for the providers of international capital to many greenfield projects over the past few years.

“However, the FX volatility and macro-stress have also created acquisition opportunities for permanent capital platforms. This ... situation has created attractive asset pricing opportunities, facilitating share and cash transactions for acquisition targets.”

Adeleye said the paucity of international capital was leading to an increase in the flow of domestic capital sources — from family offices and pension funds — with growing liquidity bolstering development of the sector.

Gerhard Zeelie, the divisional executive for property finance at Nedbank CIB, said that in Africa Nedbank Property Finance mainly advances dollars and euros to clients. The higher cost of debt affected clients because cash available after debt servicing had dropped significantly. This affected the feasibility of new projects. 

“The management of foreign exchange reserves differs from country to country. In the past two years we have seen dollar liquidity shortfalls in Nigeria and Mozambique. If clients are not able to convert local currency into dollars it affects their ability to service debt and pay for US dollar-related expenditure.”

He said there was still opportunity to fund good assets on the continent, and this would improve once interest rates started to come down.