Experts’ take on impact of Covid-19 on sector

Friday, May 8th, 2020 00:00 |
Ilaria Benucci, Head of Construction and Real Estate for CDC Group. Photo/PD/WAHINYA HENRY

A webinar called to discuss the impacts of real estate investment implications in Africa reveals the state of property market across the continent following the onset of Covid-19.  

The online event saw key industry players from real estate advisory, development, banking and private equity speak on various topics ranging from market fundamentals to valuations, financing and currency implications, risk management, social impact and after-effects.

Landmark Africa MD Paul Onwuanibe said the pandemic had taken about 35 to 70 per cent of trading off the markets but the financial realities for each client are different.

Landmark is an African-focused real estate and serviced office firm with more than 500 clients and with offices in five continents.

Onwuanibe said retail and hospitality sectors are the most vulnerable but office and industrial segments appear to be more resilient.

Clients with resilience buffers such as more capital reserves are better placed.

“We still don’t know the impact of Covid-19. If it lasts for three months, that will be more digestible.

Niyi Adeleye, Head of Real Estate Finance for Africa Regions, Standard Bank Group Photo/PD/WAHINYA HENRY 

If it lasts longer such as six months or more, that will be harder to take,” said Niyi Adeleye, Head Real Estate Finance for Africa Regions, Standard Bank Group.

Adeleye said remote working appears successful now because everyone is locked up.

“There is no replacement for social interaction and normalcy should resume once this is done,” he added, refuting the idea that working at home will be the new normal. 

The banker said the current  volatile market conditions in most of sub-Saharan Africa is counterproductive to the paradigm for private equity where high Internal Rates of Return and positive cash flow in a short time period are the favoured measures of viability. 

According Ilaria Benucci, Head of Construction and Real Estate for CDC Group, the instability of African currencies has also presented a significant challenge to international financiers and private equity.

The stability of market fundamentals will depend on how fast people recover their livelihoods.

Landmark Africa MD, Paul Onwuanibe. Photo/PD/WAHINYA HENRY 

“The sustainability aspect of African investments is tied to domestic currency lending,” said Adelaye, commenting on the technicalities of importing finance brought about by volatile currency exchange rates in countries such as Nigeria.

Thomas Schultz, Director of Africa Real Estate for Investec said the shape of an investor before the crisis will determine how one comes out from the crisis.

“We’re collectively in survival mode — we really want to get through this together,” said Schultz regarding the landlord-tenant debate.

He said taking legal action on delinquent tenants is the wrong approach. “You don’t want to be chasing your tenants in court three to six months from now,” he added.

CDC’s Ilaria Benucci also advised that landlords would do well to maintain flexibility and engagement with tenants.

The panel agreed that the crisis could have an adjusting effect on market valuations to more sensible levels both in terms of price and discount rates.

Ilaria Benucci said housing is expected to be the more relevant after now with a possible spike in demand for low human density assets, logistics and storage.

“However, the aftermath of the pandemic may tilt the markets more in favour of impact investments.

People will be more cautious about investing in offices and retail that are operated traditionally,” said Onwuanibe.

He said real estate investors usually make some core assumptions, and some of those assumptions might change in Africa post-Covid-19 where sustainability, social and environmental impact could increasingly determine where to invest capital.

On how long the crisis may last, CDC group’s Ilaria Benucci said, “It’s difficult to draw a conclusion right now. I don’t see this ending 3-4 months from now, what we expect is a gradual lifting of the situation.”

The webinar was co-hosted by API events CEO Kfir Rusin and JLL Head of International Capital for sub-Saharan Capital, Thomas Mundy

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