Africa’s Imminent Real Estate Boom: Driven by Fast Infrastructure Development

 It’s difficult to separate real estate/property from infrastructure because these two are interlinked. Real estate development follows infrastructure development.

Wikipedia defines Infrastructure as ‘the fundamental facilities and systems serving a country, city, or other area, including the services and facilities necessary for its economy to function. Infrastructure is composed of public and private physical improvements such as roads, bridges, rails, ports, tunnels, water supply, sewers, electrical grids, telecommunications (including Internet connectivity and broadband speeds).‘

In general infrastructure form the basis for real estate development. The keys infrastructure needs for a human settlement are power, roads, water and sanitation. These are then followed by communication, health, education and social infrastructure. All these forms of infrastructure support and open up opportunities for real estate development.

As mentioned earlier, Africa is a large continent in size. Africa is larger than the United States of America, China, India, Japan and most of Europe combined. Africa is 11 million squares miles. So, Africa is a massive continent. Hence that infrastructure backlog is a mega backlog that provides a mega opportunity.

There is a growing momentum to bridge Africa’s gaping infrastructure void. The African Development Bank’s (AfDB) most recent estimation of infrastructure needs is between US$130bn and US$170bn annually, but the continent’s available capital is still insufficient to achieve this. Serious investment is urgently required.

The continent currently spent only about US$45bn annually on infrastructure, two thirds of which is domestically financed from taxes. This is a small figure, however Africa is speeding up the ways to attract private capital to accelerate the building of the critical infrastructure needed to unleash its real estate potential. Investment practitioners specializing in infrastructure investment in Africa are increasing each year as they try to match the infrastructure needs of the continent.

The housing backlog in Africa is usually an infrastructure issue. Once infrastructure is installed or upgraded, housing developments naturally grow in as developers take advantage of the installed infrastructure.

One of the biggest challenges faced by for African developers is the availability of infrastructure referred to as bulk services. The absence of and the cost of installing bulk services is a critical component of the feasibility of a property development.

The provision of bulk infrastructure services is perceived as the responsibility of the local government. The past two decades have seen a more and more inclination towards Public Private Partnerships (PPPs). Africa governments are leveraging the private sector in order to bring efficiency and better quality to service delivery. Effective models in the form of PPP are being used to address the bulk infrastructure shortage. This is unlocking real estate developments across Africa.

The current housing shortage is a huge opportunity for property investors. In sub-Sahara Africa the only country that has a successful government subsidy housing program is South Africa. In most Africa countries housing is privately funded through bonds, savings and other private means. Private investors, property entrepreneurs and ordinary people are playing a major role to solve the huge housing shortage.

As more and more private players come into infrastructure investment space, the real estate development field is turning around in many African cities.

Next time we will look at how the constant high economic growth rate is driving Africa’s Real Estate boom.