The Quiet Rise of Real Estate Investment

Webber Wentzel's team of dedicated real estate lawyers have extensive legal experience in the field of immovable property law. Their keen insight has been invaluable to clients who include black empowerment companies, national property groups, banks investment companies, local government and many more. As one of the leading law firms in South Africa, Webber Wentzel provides the necessary legal expertise in property law, both in the public and private sectors.

Over the last ten years, much of the publicity about investment in Africa has been focussed on the opportunities in natural resources, infrastructure, telecoms and financial services sectors. More recently we are seeing many investors focussing on the consumer story as economies on the continent develop, people have more disposable income and urbanisation accelerates.

However one area which has not attracted as much of the spotlight is real estate. The reality however is that a number of savvy investors have been investing in this asset class for a long time and are now reaping the rewards of their foresight. This has been demonstrated by the recent sale by Actis of their interest in the Accra Mall following on from their previous sale of the Palms Retail Mall in Nigeria developed some years ago.

Nowadays if you travel to the major cities in Africa such as Lagos, Accra, Nairobi, Lusaka, Dar, etc it is very obvious to see that real estate is on the move as those cities transform their skylines with new retail malls, hotels and office buildings. The rapid urbanisation that is taking place has even led to the creation of new mini-cities such as Tatu City in Nairobi and Eko Atlantic City in Lagos.

Growing interest in raising funds for investment in agricultural land
At the same time we have seen a growing interest in agriculture driven by the abundant reserves of unutilised arable land which the Continent possesses. There has of course been some criticism in some quarters of so called "land grabs" by various foreign governments to provide food security for their own populations. However we have also seen an increasing number of investors, particularly within the private equity field, raising funds for investment in the agriculture space.

Legal and regulatory frameworks for real estate investments in Africa
However investment in real estate in Africa like other industry sectors requires an understanding of the legal and regulatory framework in each country and each of the 54 countries on the Continent has a different system There are many influences in those systems often linked to the country's colonial past which are overlaid with local customary or indigenous laws and in some parts of Africa sharia law.

Each country has its own laws governing the ownership and the taking of security over real estate. A variety of rights to land exist and "title to land" means different things in different countries. There are many examples of African countries that have no system of freehold ownership. In some of these countries all real estate vests in the state and the right to use and develop it are granted under leasehold (such as Angola and Ethiopia).

In other African countries where real estate vests in the state (or the governor or the president as is sometimes the case) the right to use or develop it is granted by way of concession or a right of occupancy (in for example, Mozambique and Nigeria). Some countries may allow for more than one form of title which would vary depending on the rights held by the current owner. Ethiopia by way of example has four land tenure forms namely customary, freehold, mailo (similar to full freehold but with limitations) and leasehold.

Limitation of foreign ownership of real estate
Many African countries limit foreign ownership in real estate either by limiting the duration of rights granted to foreigners or foreign entities or by imposing other restrictions limiting ownership rights.

An example would be limitations, in the case of companies acquiring rights to land, requiring a certain percentage of the shareholding to be held by local citizens. Tanzania for example requires 51% of the shares in any company owning land to be held by Tanzanians.

Most African countries have legal systems which permit the taking of security over leasehold or other rights. Most commonly security would take the form of a mortgage. Each country has rules governing the registration and enforcement of security interests. The ease with which security can be obtained or enforced differs from country to country and needs to be carefully considered as part of a comprehensive risk analysis.

African countries are updating land and restate laws and registration systems
Some countries are in the process of updating their land laws and registration systems to provide clarity and certainty for investors. A good example is Kenya who have enacted a new Land legislation this year with a view to revising, consolidating and rationalising their land laws to address a number of issues including a lack of a central land management and registration system which had given rise to misappropriation and fraud surrounding land titles. Whilst the complete overhaul of the system will have long term benefits for the country, it will no doubt cause uncertainty in the property market in the short term.

Real estate investment challenges in emerging markets
One of the challenges seen in structuring real estate investments in emerging markets is trying to use structures and investment instruments which are commonly used in developed markets where the law or regulatory framework in the host country doesn't allow or envisage such structures to be used. Much patience and out of the box thinking is required in dealing with regulators who can be reluctant to embrace innovative deal structures.

About Webber Wentzel

Webber Wentzel is one of the leading corporate law firms in Africa. The firm far outstrips the local competition being consistently ranked at the top by a diversity of international ratings agencies and have achieved a number of legal accolades in 2012.

From offices in Johannesburg and Cape Town, the firm provides high-quality legal services to meet the multiple and varying needs of a powerful client base that includes many of South Africa's Top 100 companies in mining, insurance, technology, media and telecommunications and intellectual property and property.

As you would expect from a premier firm such as Webber Wentzel, we are a full service corporate law firm offering expertise in legal areas including Dispute Resolution, Banking and Finance, Mergers & Acquisitions, Tax and Project Finance.

Webber Wentzel has a staff complement of 750 people and a Level Four B-BBEE rating. Its 21 practice groups cover virtually the entire spectrum of legal endeavour.

Work on the African continent represents a growing area of Webber Wentzel's business and the firm is the South African member of ALN, an established group of Africa's 12 foremost law firms.

For more information visit www.webberwentzel.com. Follow Webber Wentzel on Twitter: @WebberWentzel.