The Dubai real estate market has been seeing funds flowing in from Africa, mostly from retail investors, since the advent of freehold laws. However, the sector is now seeing active interest from listed African institutional investors as well. These effectively represent REIT-based structures that are listed on exchanges.
“Investments in real estate from Africa has increased by over 300 per cent over the last five years. This is from a small base but even more impressive is the fact that in 2017, nearly a fourth of investments were coming in from investors categorised as institutional, suggesting not only the sophistry of the investment decisions but also the long-term duration,” says Hussain Alladin, head of IR and research at Global Capital Partners.
Market stakeholders cite an instance of Turnstar Holdings Ltd, a firm listed on the Botswana Stock Exchange, purchasing a ready, fully leased office building in Dubailand’s Majan cluster for approximately $100 million. There are also funds seeking out buildings in other Dubailand clusters as well as Jumeirah Village. Some of them are even bringing in cash flow to developers as per construction timelines.
The main reason why these African funds are attracted to dollar-pegged markets such as the UAE is a hedge against domestic currency volatility.
“The rise in real estate investment from Africa into Dubai is due to a number of reasons. Rental yields north of five to six per cent mean that the returns are outperforming many African real estate markets. Regular returns as rent collection is much easier and streamlined due to the Ejari system. In terms of data, you must remember that cumulatively, the levels are still very low; however, what we can see is that over the last five years, investment into Dubai real estate has increased by more than three-fold,” observes Uzair Razi, chief investment officer at Global Capital Partners.
Also, established rules and regulations in Dubai make the investment easier to manage for the African investors.
“Typical management fees is also less than in African countries. Political stability in Dubai represents another factor that these companies can take advantage of,” adds Razi.
These institutional investors are mostly looking to purchase retail and office space in Dubai. This is because such buildings offer a stable tenant base and the lease duration is longer, thus offering a greater visibility of cash flow. African investors typically tend to invest in such asset classes in their home countries as well.
Apart from real estate, they are also investing in the sectors of food and beverage, education and healthcare, explains Razi.
“Dubai represents a good opportunity for institutional investors looking to diversify their property portfolio and earn good rental income in a hard and stable currency. There are good property management teams in the city assuring them that their property investment will be looked after. Also, of importance is to be in a market where there is good capital growth. Capital growth is a key attraction for most investors as they might want to exit in the future,” says Maje C. Maje of Apex Properties, a property investment management consultancy in Botswana.
African institutional investments have increased in Dubai over the past two years. This is the time when currency fluctuations were high in Africa as well as political uncertainty, with a number of countries hosting elections.
“We have a significant increase in queries regarding investment in Dubai over the past 12 months. The primary reasons our clients give us are them wanting to be in an active real estate hub, where there exists growth opportunities. Also commendable to them is how Dubai recovered from the property slowdown, giving them confidence on how it is able to bounce back. Another factor in the focus on Dubai is improved legislation which is designed to guard against the 2008 slowdown or minimise that risk and dealing with confident and experienced realtors, who are well-regulated,” says Nayaan Chinoy, senior wealth manager, Capital Bank of Botswana.