For many years, property has been a safe haven. It is an asset that guarantees appreciation over time. However, due to the investment amount required, many middle-class buyers are able to own only one property at a time – at most. More affluent people have the privilege of investing in more than one property, sometimes in several cities.
But thanks to the stock market, individuals are licensed to buy real estate shares, which are far more reasonable. However, there is a certain amount of risk attached, depending on the cycle of the property market.
Before I go into the real estate sector of the stock market, I want to look at property in Africa in general. Property can range from a house to an office, from retail to commercial space.
As African countries develop at a phenomenal rate, due to resource exploration, the need for property infrastructure has escalated. Africa, which was once a continent that investors shied away from, has become a rough diamond. More and more investors are attracted to the sub-Saharan reg-ion’s Gross Domestic Product (GDP) growth of more than 5%.
According to real estate agency RE/MAX: “There has been a massive shift towards encouraging foreign investment in Africa and the continent is on the move. Large businesses are seeing the potential that the continent is currently yielding and are eager to expand into the region and take full advantage of the opportunities.”
Furthermore, a McKinsey report states that the continent’s consumer-facing industries are expected to grow to $400 billion by 2020‚ representing Africa’s largest business opportunity. The rapid urbanization and the blossoming middle class in Africa are contributing to the success factors for retail. Modern shopping malls and office complexes are being built across sub-Saharan Africa.
Property investment is growing rapidly, particularly in Nigeria, Ghana, Kenya, Mozambique, Uganda and Zambia. It is attracting a lot of property developers, private equity funds and high-profile global investors. As a result, shopping malls are mushrooming in Nigeria, Kenya and Zambia.
South African retailers are also exploring the potential in the rest of Africa, with MTN, Shoprite, Woolworths, Game, Standard Bank and Pick n Pay moving north to expand their businesses.
Shoprite, which aims to have bet-ween 600 and 800 stores in Nigeria, partnered with the Resilient Property Income Fund to build 10 shopping malls in the West African nation in 2010. The deal was worth more than R1 billion ($100 million) and also involved Standard Bank and construction giant Group Five Holdings. Shoprite has also opened stores in Maputo, Matola, Chimoio and Beira in Mozambique.
Other retailers like Walmart-backed Massmart‚ Pick n Pay‚ Woolworths‚ Mr. Price‚ Foschini Group and Famous Brands are also expanding into Africa. Pick n Pay set the ball rolling after opening stores in Mozambique in 2011, and another five in Zambia.
Woolworths has a mixture of franchise, joint-venture and wholly owned stores in Africa. The company is negotiating to buy its franchise business in Botswana, which comprises 22 stores. Currently, Woolworths has a presence in 12 African countries, including South Africa.
As the hospitality sector reaches maturity in South Africa, many hotel groups are eyeing the rest of the continent, which seems to have a lack of quality hotels. Protea Hotels recently signed a deal that will see it moving into Rwanda. It is also building new hotels in Zambia, Ghana, Nigeria and Uganda at a total cost of more than $100 million. Protea is planning to expand into at least three more countries within the next couple of years.
Research conducted in 2013 by the W Hospitality Group consultancy has reported that the companies leading the way are Hilton Worldwide, with 6,230 rooms in its African pipeline; Carlson Rezidor with 5,947 rooms; Accor with 5,165, and Marriott with 3,900.
Housing in Africa is a necessity, but nowadays the type of house takes precedence. Property owners are becoming more lavish and certain areas in the continent’s cities are appreciating exponentially.
Some of the properties in Lagos, Nig-
eria, which has a population of about 20 million people, are among the most expensive in the world. Two-bedroom flats cost more than $1 million in upmarket areas.
The most popular units fall within a price bracket of N20 million – N35 million ($124,000 – $218,000). Nigeria’s middle class, which makes up about 23% of the population, earns about N80,000 – N100,000 ($500 –$620) a month, according to a report by investment bank Renaissance Capital.
In addition, Nigeria’s construction and real estate sectors are growing at more than 10% and 12%, respectively, which is a big winner for local companies.
In Kenya, the economic recovery that started in 2003 influenced a
revival of real estate prices. At first, only the luxury market capital values were rising, but recent indicators show a resurgence in the lower middle-income segment.
After five years of stability, house prices are increasing significantly. According to real estate company Knight Frank, the Nairobi sales market can be divided into two. The first consists of the owner-occupier buyers, which dominate the KSh10 million – KSh20 million ($115,000 – $230,000) market, which is where most of the transactions occur. The second is the investors and speculators that operate above KSh20 million ($230,000), and are mostly wealthy individuals and institutions. Foreigners in Kenya can freely buy ‘commercial class’ land, which is land for income or revenue-making purposes.
JHI Real Estate has had to open several branches in Mozambique as the country experienced a strong demand for retail that reached the masses. It has other projects on the cards, including plans to transform downtown Maputo. The 380,000m² FACIM (Maputo International Trade Fair) development is located on prime land and will include retail stores, hotels, offices and a residential component.
With its picturesque islands, private investors are looking at buying residential properties in Mozambique as second homes. Prices range from $275,000 to $1 million, depending on the ocean view.
Now that I have given a brief outline on how development in Africa is becoming opulent, let us look at the property real estate shares on the stock market. Not forgetting the construction companies, for without them, there would be no property development.
When applying my technical analysis expertise and looking at property in the longer term, the construction sector, as I said recently on CNBC Africa, is my “new black”.
The Construction Index lost almost 60% of its value in the 2008 crash and has been struggling to replicate the same bullish momentum it had before. Instead, it has traded sideways over a five-year period. How-ever, recently, the index has breached the major resistance trend line that has kept the bear trend at bay for the past five years.
This is a significant move, which seems to have warmed the hearts of many investors who were reluctant at first to dabble in an industry marred by negativity and recurring bad earnings.
With the construction sector showing some green shoots, we expect the index to recover its previous losses and possibly repeat the bullish years of 2003 to 2008. In other words, current levels are very attractive, and this bullish call is a one- to five-year forecast – a buy-and-hold investment.
This call applies to the Real Estate Index as well. I have analyzed a few construction shares listed on the Johannesburg Stock Exchange (JSE) below, which I find to be good long-term investments.
Group Five Holdings broke out of a five-year bear trend. I expect upside above 4,650cps to add further gains to the 6,200cps highs of 2008. However, a short-term retracement may be on the cards, thus presenting another buying/reloading opportunity.
Murray & Roberts Holdings has recently broken out of a four-year bearish base, with potential upside to the prior high of 6,000cps.
Basil Read is gradually clawing back its previous losses. A move above 1,035cps looks attractive, with potential gains to 1,370cps. Upside beyond that level would end the five-year bear channel, with the target set at 1,830cps.
Besides the property and construction shares listed on the JSE, this industry is rebounding in Africa in general, driven by demand locally and internationally.
Property prices all over the world are bouncing back from lows and are likely to retest previous 2008 highs. It seems as if the burst of the real estate and construction bubble in 2008 is patching up and reflating, but hopefully in a more gradual and practical manner. Investors have hopefully learned from their previous mistakes.