PERE GROWTH: Untapping potential in Middle East and Africa

Geopolitical and economic turbulence has driven investors away from the Middle East and Africa, but opportunities can still be found for those willing to take a bet, delegates heard at the PERE Growth Forum: Middle East and Africa on Wednesday.

At the event, which was held in Dubai and PERE’s first conference focused on the region, panelists listed the hospitality and residential sectors, along with real estate debt, as being the most attractive investments in the Middle East and Africa for domestic and overseas investors.

Henry Gabay, chairman and chief executive officer of Duet Group, a global alternative asset manager, dismissed the prevailing fear of an impending slowdown in the region.

“A slowdown in prices is making people nervous. However, we are not going to see a repeat of the crisis we saw seven years ago. While it is psychologically difficult, the fundamentals are nowhere close to those seen in 2008,” he said in the opening panel of the conference.

He spoke about how despite a slump in oil prices and a fiscal deficit, the United Arab Emirates has still recorded around 3.8 percent gross domestic product growth. Similarly, oil importing countries in East Africa have posted 5.4 percent growth, while oil exporting countries such as Nigeria and Angola have posted modest growth of 3.6 percent.

Additionally, the urbanization trend in some of these growth markets continues to remain the most important driver of real estate investments, according to Faisal Khan, managing director, real estate for The Abraaj Group.

For Gabay, the single largest investment opportunity in the region currently lies in middle-income housing. He also spoke about how a shortage of hotels in sub-Saharan Africa has made investing in both luxury and budget hotels a viable proposition if investors are able to team up with quality local construction companies.

All panelists unanimously agreed that debt investments too remain an untapped opportunity.
“Right now there is reliance on the banks for financing,” said Khan. “Development opportunity is being priced in the same way as a completed property even though the risk is different. One needs to move away from bank balance sheets into capital markets.”

Added Gabay: “The market needs to go through debt capital raising. The opportunity exists for senior lending, short term lending and mezzanine finance.”

He reminded everyone that during the 2008 crisis, when European banks did not provide any mezzanine lending, private mezzanine funds were able to lend at rates of around 11 percent. Now, when the Middle Eastern region is showing signs of weakness, those people who move to the debt side in this region also will do well, he said.

However, the macroeconomic fundamentals continue to make it challenging to access these opportunities. Chief among the issues is the currency volatility. For this reason, mitigating the local currency risk has been a key focus for Bronwyn Corbett, chief executive officer of Delta Africa, a property investment firm that launched the first South Africa-listed property fund to be invested in other African markets. In markets like Mozambique and Zambia, for instance, leases are signed in US dollar terms, he said.