Research article


Those who are unafraid of taking a punt on a risky, long-term investment should look no further than Africa, but we also identify further opportunities in the UAE, Vietnam and Cuba.

Our researchers around the world operate in established and functioning markets alongside experienced market practitioners but the world is a bigger place than these key centres alone and the real fun comes in predicting which markets our next generation of researchers will be sitting in in twenty years time. Looking out along a broader time horizon, some of the biggest changes and developments in the world of real estate are likely to happen outside or on the edge of their current geographies. Some of the most exciting opportunities for investors will be in places many of us have not yet heard of.

Indulging a taste for the exotic, and even extreme, my three tips are opportunistic and for those willing to take a long term position, high on the risk curve.

Opportunistic tip: Urban land and edge city land in growing (but as yet obscure) African cities – Long term

Africa is a huge continent and while many eyes are focussed on the mega cities of Lagos and Nairobi, its huge potential economic growth will likely play out in cities of which most people in the Northern Economies have never heard. Oxford Economics forecast that seven of the ten fastest growing cities in the world to 2030 will be in Africa, (three are in Tanzania and two in Malawi). Cities where real estate opportunities are likely to arise are in the fastest growth areas like Kigali, Dar Es Salaam and Addis Ababa and those countries experiencing a peace premium and prosperity will be more-favoured by investors.

A word of caution though: opportunities may not be conventional; institutional, western-style holdings such as big-box, plate glass offices (which do not always perform well in challenged, emerging and hot countries with unreliable power supply). The purchase of land for expansion or redevelopment as well as small retails, workshops and logistics with the potential for appropriate development and redevelopment could play out better. Participation in the purchase of land rights in what are currently slum areas ripe for pacification and gentrification by their occupants may also be an area for investigation. Real estate capital will be needed for the development of neighbourhood commercial uses in these areas. Western-style legal systems and transparent property markets meanwhile will make some locations more attractive for the more risk-averse so conventional asset classes in South Africa will have a place within a value add strategy.

Figure 1

FIGURE 1Growth in GDP, % Y-on-Y

Source: BLS, Federal Reserve

Opportunistic tip: Residential in Dubai – Medium term

It is difficult to recommend any real estate investment within such a troubled region as the Middle East at present, especially when a significant amount of money in the region is looking for a home elsewhere and contributing to cross-border activity by seeking safe haven jurisdictions outside the region. But there is potentially a strong role for residential property, both main residences and second homes, in the safer countries of the region to perform a (relatively) safe wealth-storage function.

Dubai is well-placed to service not only the wealthy of the Middle East but also its own growing middle class. Low and falling oil revenues threaten wealth creation in many parts of the Middle East but the UAE has never been oil reliant and started to diversify its economy many years ago so is better placed to ride this storm. It is likely to continue to attract businesses within the region who want to trade with the west and its economy is forecast to grow strongly.

The hybrid nature of the city as both a business and tourist destination means it has the potential to attract both residents and leisure/lifestyle second home owners. These are more likely to come from within the region than from outside in coming years but we remain cautiously optimistic for high quality, low and mid-rise, sustainable housing and resort developments.

Opportunistic tip: Resort and Leisure developments in hitherto inaccessible locations – Medium & long term

The potential growth in demand for leisure properties in Asia is a major force which cannot be ignored. A growing middle class and an ageing, wealthier population will not spend all of its time in newly urbanised cities. Local and regional tourists are already a growing force in Thailand and Vietnam and we anticipate that this is a market poised for massive expansion.

The development of Hainan island by the PRC illustrates the potential for Chinese tourism in the South China Sea and beyond. Some of this tourism may look quite different to western tourism; at present, it focuses less on sun sea and sand and more on social activities in urbanised centres but it is still evolving and participants will need to keep abreast of fast-developing trends.

Vietnam is a good example of how changes in land ownership and development rights can open up areas for tourism very quickly. Burma is another country in the region where recent political developments could also lead to this sort of change but any country with the natural resource of a long and beautiful coastline is in the running to capture this growing market.

Outside of Asia, other countries may be faced with a changing political and climate and changing land rights. Cuba is an obvious example of an opportunity on the doorstep of North America with a huge potential to capture that mature market – particularly if it can develop in a unique and distinctive Cuban way that makes the most of Cuban culture, heritage and built environment, without destroying it in the development process. The destruction of natural and cultural assets anywhere is perhaps the biggest potential pitfall of any resort and leisure development as it threatens the longer-term attractiveness of the location, as many old western resorts have discovered. It is something that investors will need to guard against if they are concerned with the long-term performance of their investment.

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