For many years now Africa has been a relative minnow with regards to international investment despite the fact there has been great progress in recent times. Property outfit Knight Frank recently published a report covering the region, confirming forecasts that the population of Africa will quadruple by the year 2100 to a mind blowing 4 billion people!
As a consequence, a number of international investors are now looking towards Africa as their next port of call. So, why is there so much interest in the African real estate market and do the economics of the situation backup this optimism?
Trends in Africa
While Nigeria often receives very negative press, regarding alleged scams and criminal activity, it is worth noting that it has the largest economy in Africa with an estimated GDP approaching $600 billion. If we compare this to the second largest economy in Africa, South Africa with a GDP of $341 billion, this puts the situation into perspective. As a consequence, researchers are now looking towards Africa as the next potential real estate hotspot with significant long-term potential.
If we look at the current forecasts for worldwide economic growth the Africa region is expected to have 13 of the world’s 20 fastest-growing economies over the next five years. When you take this into consideration it is perhaps a little strange to find that real estate investors are only just now waking up to the potential of investment in African property?
Historically the region of Africa has been based almost wholly upon commodities and while this will continue we will also see more developments in manufacturing and services. As a consequence, experts believe there will be significant investment in African infrastructure and as a consequence property development in the short, medium and longer term.
The expected growth in African economies is based upon the fact that the regional will house approaching 40% of the world’s population by 2100 with nearly 50% under the age of 35. The ongoing investment in education across Africa is set to pay major dividends for the country, the population and investors from all over the world. In simple terms, the demographics of Africa seem almost perfect for long-term economic growth which will lead to a very prosperous real estate market.
Historically there has always been a degree of political risk when looking to invest across many African countries. A limited regulatory regime, volatile currencies and a political system which often limits democracy have not exactly been magnets. However, there is no doubt that over the last few years the African people and governments across the region have finally realised that democracy must become more prominent in order to give international investors and businesses the confidence they need to invest.
In many ways the short, medium and long-term potential for Africa is overshadowed by derogatory and negative headlines across the worldwide media. While this situation is starting to change, and the facts and figures speak for themselves, many of the old stereotypes of years gone by still exist in the minds of some investors. If the demographic and economic forecasts are correct then Africa will become a major player on the worldwide economic stage. Then, as always happens, enormous investment in homes and businesses will be required.