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Old Mutual to invest in Nigerian real estate, agriculture

Comments (0) Africa, Business, Latest Updates from Reuters

ABUJA (Reuters) – Anglo-South African financial services firm Old Mutual and Nigeria’s sovereign wealth fund on Friday signed agreements to set up two funds to invest in real estate and agriculture in Africa’s most populous nation.

Old Mutual and Nigeria Sovereign Investment Authority (NSIA) said they would jointly raise a $500 million fund to invest in real estate and another $200 million to spend on agriculture projects in Nigeria.

The West African nation is in the middle of its worst crisis in decades as a slump in oil revenues hammers public finances and the naira. Gross domestic product shrank in the first quarter and the central bank governor has said a recession is likely.

Chief executive of NSIA, Uche Orji, said both parties will each commit $100 million as initial commitment for the real estate fund and $50 million for the agriculture fund.

“We are looking at office towers, commercial real estate,” Orji said. “We are investing equity in agriculture. We are looking at farming with emphasis on export.”

Poor infrastructure and access to capital is a major bottleneck to growth in Nigeria, which has made diversifying its revenue base and reducing a huge import bill its top priority.

“The most important thing is infrastructure. The problem is that its cheaper to move goods from China to Lagos, than move it from Kano to Lagos and that’s because we don’t have the infrastructure,” Finance Minister Kemi Adeosun said.

Nigeria established the Sovereign Investment Authority (SIA) in 2011 with $1 billion of seed capital in an effort to manage oil export revenues.

The new funds, which will stay invested for up to 12-years, will target returns of around 20 percent, Hywel George, chief investment officer at Old Mutual said.

A successful real estate investment in Nigeria can earn an returns as high as 30-35 percent, while rental income yields in cities such as Lagos and Abuja can easily reach 10 percent, developers and estate agents say.

However, navigating through opaque land laws, corruption, a lack of development expertise and financing, a dearth of mortgages and high building costs will take courage and influential local partners.


(By Chijioke Ohuocha. Editing by Ulf Laessing and William Hardy)


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In race to catch up, Rwanda risks property bubble

Comments (0) Africa, Business, Latest Updates from Reuters

KIGALI (Reuters) – When property consultant Simon Ethangatta set up in Rwanda’s capital in 2011, the view from his office was of tin shacks overlooked by modest suburban homes on the wooded hillsides.

Now, some of the slums have made way for mirror-glass office blocks while smart houses spring up beyond in Kigali districts which were once littered with corpses during the 1994 genocide.

“It’s changing so fast,” said Ethangatta, a Kenyan. “These guys are so ambitious.”

To the government, this is proof of Rwanda’s dramatic recovery in the two decades since 800,000 ethnic Tutsis and moderate Hutus were butchered by Hutu extremists.

But the pace of change – part of a ‘Vision 2020’ plan to turn one of world’s poorest states into a middle-income country by the end of the decade – is starting to reveal the risks of going too far, too fast.

As imports are sucked into a nation dependent on farming, foreign aid and modest mineral exports, the Rwandan currency has fallen, some banks are turning cautious on property lending and economic growth – while still strong – has slipped.

All this is threatening to take the shine off President Paul Kagame, a former rebel who masterminded the revival but has drawn criticism from Rwanda’s tiny domestic opposition as well as foreign governments for changing the constitution. This could allow Kagame, who has already effectively run the country for more than 20 years, to stay in power until 2034.

“If people start to question whether he can deliver, there will be trouble,” said one Kigali-based diplomat.



The authorities dismiss such worries and point to the record of change. In the last decade, the economy grew at an average rate of 8 percent a year, one of the fastest in Africa.

This week, hundreds of foreign visitors are attending the World Economic Forum on Africa in Kigali, where four international hotels – two Hiltons, a Marriott and a Radisson – will open in the next three months.

Hundreds of new homes are coming on the market worth $500,000 each – a huge sum for a country where most of the 11 million population are subsistence farmers and the per capita income is just $730, far short of the $1,045 that the World Bank defines as middle income.

The appetite for cars, household appliances and smart phones from an emerging middle-class is adding to the import bill, just as mineral exports have been hit by a downturn in global commodity prices, shrinking dollar income.

Rwanda’s franc weakened 11 percent against the dollar in 2015 and the central bank expects a further 8 percent drop this year. Foreign currency reserves are under pressure, with one diplomat saying they were worryingly low and sufficient to pay for just 3.2 months of imports. The central bank does not publish timely reserve figures.

“Rebuilding reserve buffers will be critical to enhance the country’s resilience to future shocks,” the International Monetary Fund wrote in January.

In a report in April, it said growth remained robust at 6.9 percent in 2015 but cited a “significant loss” of commodity export revenues among challenges facing the land-locked country.

Rapid growth in commercial credit, much of it to fund housing and construction, has also raised fears of a bubble.

Central Bank Governor John Rwangombwa told Reuters he was watching lending levels for signs of overheating.

“For now we don’t see any big challenge because the performance of these loans is still fair,” he said, adding that non-performing loans – where borrowers are significantly behind with repayments – stood at 6.2 percent of total lending in December, a slight decrease from 2013.



But if a bubble were to burst, this could shake the social compact of rising living standards that has maintained Kagame’s grip on power since his rebel army marched into Kigali in 1994.

Diplomats said a referendum vote last year that approved the constitutional change was pushed through with limited debate and the government offers too little room for opposition.

“It’s a very tightly controlled regime. Anybody steps out of line, it’s prison – or worse,” another Western diplomat said. “The Kagame lustre has definitely worn thin.”

Two former senior military officers have been sentenced to up to 21 years in jail on charges of inciting the public to cause an insurrection and links with exiled critics of the president.

Rwanda has denied any involvement in attacks on exiles, including a former spy chief who was killed in 2014 in South Africa, but have called them traitors who should expect no forgiveness or pity.

Kagame himself points out that the constitutional change won 98 percent backing in the referendum.

“If some people seek to stay in power when their people don’t want them – and it has happened, I’ve seen it in Africa – that will always end in a disaster,” he said earlier this year. “Is it the same case with Rwanda? I’m telling you no.”

While the nation still depends on aid for about 40 percent of its annual budget, officials say the economy remains on track.

Credit handed out by Rwandan banks, led by Bank of Kigali, the largest domestic lender, rose 26 percent year-on-year in December, much of it in the form of mortgages.

Some people are less sanguine than Rwangombwa about the rise in mortgages, which estate agents say typically charge a hefty 17 percent annual interest and usually account for 70 percent of a property’s value.

The Independent, a weekly business magazine, reported that 100 small hotels closed last year after failing to repay bank loans. Some bankers have grown wary of bricks and mortar.

“We are being very careful about lending to the construction sector,” one senior executive at a foreign-owned bank said, asking not to be named for fear of offending the government.


(By Ed Cropley. Editing by Edmund Blair and David Stamp)

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Middle Eastern investment in global real estate surges

Comments (0) Business, Featured, Middle East

London real estate

Investment in real estate can be a fickle mistress. The ebb and flow of the cyclical patterns of real estate values can be hard to read at times, and investments, particularly in residential real estate, can lead to decreases or stagnation of your original investment. But some sectors are relatively safe, especially for experienced players who look at the patterns established over many years. Foremost of these ‘safer investments’ are the areas of commercial and hospitality real estate which can both offer big returns when the correct choices of properties are made. And of course, the old adage of any investment in real estate is ‘location, location, location’ and that is especially true when you are looking at the higher end of the market, be it commercial or residential.

Record spending on commercial real estate

Recent research by CBRE, the world’s leading commercial real estate company, highlights rising levels of outward investment in commercial real estate from Middle Eastern countries, and showed that in the first half of 2015 around US$11.5 billion was spent on commercial property worldwide. This far surpasses the previous high of US$9.6 billion recorded in the first half of 2007. Much of this investment comes from sovereign wealth funds (SWFs), particularly those of the United Arab Emirates and Qatar. Of the US $11.5 billion coming out of the area, US$8.3 billion (or 72%) of that came from SWFs.

From a macroeconomic perspective this increase in real estate spending by Middle Eastern investors is not surprising. Oil prices sit at seven year lows and investment bank Goldman Sachs predicts that this situation will not improve any time soon, especially with increases in supply and reductions in demand an ongoing issue. So, with potential revenue decreasing at a steady rate, the fund managers of the Middle East are looking at the best options to invest and receive a high level of return.

The real estate industry will continue to grow

The real estate industry globally has generally managed to weather the recent recessions better than some other sectors. This is partly due to increased activity in Asia which has offset any declines in other areas. Higher disposable incomes and relatively low rates of unemployment in many economies has also been a factor that has protected the real estate industry. Forecasts of the 10 year period from 2010 to 2020 predict that industry value added may increase by 4.5% per annum – well ahead of predicted global GDP growth in the same period. With annual revenue of over US$3 trillion and a global workforce of over 11 million, this is a sector that will continue to grow and adapt to the cyclical patterns of individual markets and economies.

Location, location, location

New York real estateAs mentioned, location is a crucial factor, and it comes as no surprise that some of the world’s major conurbations are the primary beneficiaries of this surge in spending. London leads the field, with US$2.8 billion spent on commercial property in the first 6 months of 2015, with Hong Kong (2.4 billion) and New York (1.1 billion) following in its wake. It is worth noting however that if we examine total real estate investment rather than just that originating in the Middle East, New York is leagues ahead of its English rival with a staggering US$40.1 billion of investment in real estate over the first half of 2015 compared to London’s 19.4 billion and Los Angeles’ 19.3 billion.

Change in focus to hotel properties

As well as the dramatic increase in total investment from the region, there is another distinctive factor in Middle Eastern spending on real estate. In every year from 2007 to 2014, the bulk of investment has been aimed at the office market. As this has reached saturation point in many cities, characterized by empty units, falling rents and an increase in incentive packages to attract tenants, the fund managers and individual investors have shifted their focus to the hospitality sector and to hotels in particular, which offer attractive long-term revenue streams. Of the US$11.5 billion spent in the first six months of 2015, $6.8 billion was invested in the hotel industry, with $2.5 billion being spent on hotels in London and $2.4 billion in Hong Kong. Given that this sector only attracted $1.8 billion for the whole of 2014, this is a significant increase and emphasises the increasing diversity of investment strategies by Middle East based investors.

Middle Eastern money looks for new opportunities

This increase in real estate spending, and indeed the change in focus, does not look like it will abate in the near future. Investment in the Americas looks like it will continue to increase into 2016 as Middle Eastern money looks for new opportunities outside the energy industry and outside its traditional comfort zone of Europe. While Asia appears to be a market that has so far eluded investment from the Middle East – mainly due to the dominance of China in many of the developing economies – one cannot rule out astute investors continuing to cast their net over a wider geographical area.

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