Real estate funds: advocacy for the development of dematerialized real estate in Africa

Real estate funds: advocacy for the development of dematerialized real estate in Africa
Real estate funds: advocacy for the development of dematerialized real estate in Africa

In Africa, the need for real estate is increasing every year, driven by ever more dynamic economies. Faced with what constitutes a headache for States and real estate developers, OPCIs could constitute an innovative and effective solution

In Africa, the expression galloping urbanization takes on its full meaning. According to the report Housing Market Dynamics in Africa, one in two Africans will live in cities by 2037. Today the four largest African cities have more than 10 million inhabitants and are home to around 20% of their respective populations. Urban growth has been 2.5% since 1950 and is expected to continue at this rate for the next four decades. This progression is part of an overall dynamic which will see the continent’s population increase to 2.4 billion people in 2050 compared to 1.1 billion in 2O15.

For decision-makers, these figures are a real headache. How can we decently house all these people? How can we provide all activities linked to this influx with adequate workspaces? The current context, marked by global warming and the need to adopt sustainable housing styles, complicates an equation that was already not simple.

One of the solutions could come from real estate funds. A real estate fund is a form of collective investment that allows several investors to pool their money together to purchase real estate. These funds can invest in a variety of properties, such as commercial buildings, apartments, offices, shopping centers, etc.

Investors own shares in the fund, and investment returns are typically distributed as dividends. The real estate fund may also be traded on a regulated stock market.

For investors, such an investment allows them to avoid the risk of stock market volatility. For people wanting to invest in real estate, it provides a secure way to do so. Indeed, real estate funds make it possible to avoid land conflicts and the administrative burden sometimes inherent to this type of project. In addition to this, they offer relatively higher liquidity than direct investment in real estate, an asset known to be very illiquid.

The main advantage of this type of vehicle is that there is almost no competition in the real estate investment segment in West Africa. Indeed, the need in terms of housing and office real estate is struggling to be met by existing solutions. Real estate credit is still in its infancy, and social housing is still a fantasy in most countries. The risk of default makes financing institutions cautious, particularly in the African context where the majority of the population works in the informal sector.

To give an idea, in the UEMOA area, UEMOA banks only grant around 15,000 new mortgage loans per year while the need for new housing is estimated at 250,000 units per year.

This table is beneficial for capital willing to be invested. Especially since States are increasing their efforts to reduce the risk linked to land investment. In Benin, for example, the establishment of a special court dedicated to land disputes is a step in the right direction.

In a country like Morocco, Real Estate Collective Investment Organizations (OPCI), a type of real estate fund open to the general public, constitute real success stories. In 2022, the kingdom had 35 approved OPCIs, 27 of which were managed. These OPCIs held 610 real estate assets for an average physical occupancy rate of 98.9%. The value of these real estate assets amounted to 26.33 billion dirhams (approximately 2.4 billion euros).

Real estate funds are very little present in the UEMOA zone due to non-existent regulations at present. However, the regional financial market regulator the AMF-UMOA is actively working on the creation of a regulatory framework aimed at promoting their emergence in the years to come.

But it must be remembered that OPCIs are not a panacea. Other investment vehicles dedicated to real estate would make it possible to collect the dormant savings of Africans and invest them over time. More than ever, the time is for innovation and dematerialized real estate investment constitutes the next frontier in African finance.

To those who display a certain reluctance in relation to this type of initiative, it may be necessary to remember that finance was born from the need to support and accompany the risks linked to projects and that its very existence is intimately linked to large upheavals that have marked the world over the last three centuries.

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