Currency volatility and lack of liquidity were the two main factors hindering real estate capital flows into sub-Saharan Africa in 2016, according to a report by real estate advisory firm JLL.
They’re some of the reasons why real estate capital flows have been shifting from sub-Saharan African to Eastern and Southern Europe.
Nigeria and Zimbabwe in particular struggled because of a shortage of US dollars.
While transactional volumes of prime real estate in the sub-Saharan Africa region for 2015 were around $400 million, transactional volumes in 2016 slowed to about $170 million.
Yield compression experienced in Central and Eastern Europe was driven by South African investment groups investing in Eastern Europe at the expense of opportunities closer to home, to the sum of around $1.5 billion in 2016. This was more than the total investment volumes recorded in Kenya, Nigeria and Ghana for the past five years or so.
Experts at JLL have said Nigeria should be witnessing major investment into its commercial property industry, given its large economy relative to the rest of the continent, its population, which is more than 184 million people and its general development potential. Yet its reliance on oil and its volatile currency had hindered investment.
A falling Brent crude oil price caused the nation’s outlook to weaken. This meant the state struggled to pay salaries and to stimulate growth, prompting it to increase borrowing.
Nigeria needs to make structural reforms to its economy so as to attract real estate investment. At least the central bank chose to float the naira, but Nigeria needs to do a better job at increasing its foreign exchange, especially US dollar reserves.