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Capital Markets

Developers tipped to liquidate properties for fresh capital

Apartment blocks under construction
Apartment blocks under construction. FILE PHOTO | NMG 

The real estate sector is likely to see an increase in supply heading into 2021 as developers and occupiers look to liquidate their property to raise funds to keep their businesses afloat, potentially depressing selling prices further.

A survey by Africa Property Investment (API) Summit and Standard Bank on the impact of Covid-19 on African real estate shows that the pandemic has aggravated the liquidity crisis in the sector, hence an increase in sale and leasebacks.

The survey was done in seven countries including Kenya, Zambia, Ghana and Nigeria.

“The Covid-19 pandemic has exacerbated the liquidity crunch in countries such as Zambia, Kenya and Nigeria among others. As such, we expect an increase in occupiers seeking to monetise their owned real estate assets and inject much needed liquidity into their businesses,” the survey report stated.

Companies and individuals monetise their existing real estate assets through transactions such as non-recourse financing, sale-leaseback transactions, real estate investment trusts (REIT) conversions and spin-offs, according to global audit firm PwC.

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The report cites the ongoing acquisition of Orbit Africa warehouse in Nairobi by Mauritius-based Grit Real Estate Income Group, which was expected to be concluded by March 2020.

The transaction was valued at more than Sh4 billion.

REDUCED FLOWS

The report said the industry would face an acceleration of pre-Covid trends as the properties in the countries were already struggling with adverse markets due to oversupply, declined demand and low rental yields.

The pandemic has slowed down economic activity affecting sectors, including hospitality, entertainment and retail.

As a result, capital flows to new projects have been reduced with investors deploying funds where the long-term viability of those projects remains sound.

API added that the crisis would see the industry shift reliance from foreign capital and pave way for local institutional investors such as pension funds.

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