My First Impressions Of African Real Estate

Important Note

This is the third article of our series on African REITs.

You can read our announcement article, explaining why we are considering investing more heavily in Africa by clicking here.

You can then read our second article, explaining how AI could significantly accelerate the economic growth of Africa, and how our Top Pick Helios Towers (HTWS / HTWSF) is positioned to profit from it by clicking here.

In today’s third article of this series, I share my first impressions of being on the continent:

My First Impressions Of African Real Estate

It has now been about 2 weeks since I arrived in Africa.

I started up North (Egypt, Tunisia, Morocco), then made my way West (Senegal, Ivory Coast, Ghana), and now I am in the South (Namibia, South Africa), planning to head East in a few days.

The goal of this trip is to first and foremost gain a better understanding of the continent, its different countries, and its economy.

You can watch as many documentaries as you like and read online reports, but you still ultimately need to go there and see it in person to gain a feel for the country.

Most importantly, does it feel too exotic/early to be investing in there?

My first impressions are mixed.

I have gotten a rather positive impression from some countries, but felt that some others were still too chaotic for me to feel comfortable investing.

So far, I have been rather positively surprised by Tunisia, Morocco, Namibia, and South Africa, but less so by Egypt, Senegal, or the Ivory Coast, for example.

But getting a feel is, of course, just a first step.

Beyond that, I have met some local professionals along my trip by simply walking into the offices / retail shops of leading real estate brokerage companies to ask questions after having done some of my own research online.

The first conclusion is that I will stay away from potential direct real estate investments. Many of these markets do not yet have any REITs, and therefore, I have also been exploring some private investment options, but I have come to the conclusion that these are just too risky and complex at this stage, especially if you don’t have boots on the ground and very good local market knowledge. There are just too many scams, a high risk of corruption, and an unreliable legal system, especially for foreigners who don’t speak the local language or understand the local culture.

Many local companies are pitching turnkey property investment opportunities, with them taking care of everything from the sourcing to financing, renovating, managing, and everything else. But these services come at a steep cost of up to 10% of the purchase price, and more for the management and eventual resale. There are also very steep ancillary costs, especially for notary fees and registration taxes in many cases.

Prices are also not as low as you would often expect, especially in the desirable locations. One of the key takeaways of my research so far has been that the price difference between the best properties in prime locations and the average property in an average location is massive. Far bigger than even in most developed countries.

It also makes sense when you think of it. These countries have much bigger wealth gaps than developed countries, with a minority earning a fortune, while the majority remain poor in most of these countries. There is no big middle class like in most European countries, for example.

As a result, the prices of very specific neighborhoods and property types will get bid up to levels that almost rival the property prices of developed countries, while the rest remains very inexpensive.

The problem is that if, as a foreigner, you were to invest in these countries, you would likely want to invest in the best locations, but there are hardly any bargains there since the rich locals and expats have already bid up the prices.

What about African REITs?

What are my first impressions of them?