Eastern Europe a hot bed but don't overlook Africa

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Seen at the panel discussion titled "Property Investment in Europe / Eastern Europe compared with Africa": Gugulethu Cele, Kundayi Munzara, Jeff Zidel and Benjamin Perez Ellischewitz. Seen at the panel discussion titled "Property Investment in Europe / Eastern Europe compared with Africa": Gugulethu Cele, Kundayi Munzara, Jeff Zidel and Benjamin Perez Ellischewitz.

Eastern European markets may be easier to enter into and invest in compared with African markets but African markets offer tremendous opportunities for investors — Africa Property News.com has learned.

Jeff Zidel, a property investment expert, has worked with the Resilient group of funds in both economic areas.  

Zidel was speaking at the African Property Investment Summit 2015 held in Sandton, South Africa last week.

Zidel is a founder of the Resilient Property Income Fund. He has been a director of funds within the group and currently is a non-executive director of Fortress Income Fund. These funds are all looking at opportunities in Europe and Africa.

Commenting about investing in Nigeria where Resilient is working with Shoprite to develop shopping centres, Mr Zidel said the number of opportunities was staggering.

"The opportunities are mind boggling. There are 2085 malls in Africa and only 140 of those are not in SA. Clearly we are dealing with an under shopped continent. But yes things are taking their time in terms of getting the right structures in place," he said.

"I wish I were 40 years younger - then I could go run a small development company across a continent hungry for expansion in various areas," he said.

Benjamin Perez-Ellischewitz, head of capital markets at JLL Europe said at the API Summit that while Africa is being pursued as an investment destination for people working in property, many institutions want to see stronger institutions such as large banks, construction groups and retailers enter the space before investing.

Kundayi Munzara, an analyst at Sesfikile Capital said that investment institutions have only recently begun to see Africa as various countries and economies and not just one blob.

"The key now is for investors to want to build and hold assets instead of going in, building and exiting suddenly. Private equity groups have done that and that has led to some development but it cannot support an entire industry," he said.

Zidel says that bigger retailers will enter when the malls are on track.

"Shoprite have around 10 stores in Nigeria now but they want a few hundred," he says.

Zidel said New Europe Property Investments (Nepi) is an example of how a South African fund can work abroad. Thjs fund owns shopping centres in Romania. It has become the dominant mall owner in that Eastern European country.

He and Perez-Ellischewitz say said that Eastern Europe has very well developed financial systems and that it has professional talent supporting its property industries.

Various South African companies have built factories, opened branches or spread their businesses by other means to fast-growing economies in Eastern Europe.

These companies say some of the Eastern European states themselves needed assistance to develop businesses or Western European companies had lost interest in the region. This has made space for South Afican companies, including property funds.

They see potential in an economic region that is growing at a considerable pace compared with its peers and has market conditions to rival fast-growing parts of Africa.

"After the collapse of communism in the 1990s, many countries in Eastern Europe were left without adequate infrastructure and only in the past five to 10 years has this improved.

"Now, companies from outside Eastern Europe and even from outside Europe are taking notice. We recognise that a number of property groups like Nepi," says Polish economist Andrzej Falinski.

One SA group which has developed a strong foothold in the region is construction company Group Five. The group has a portfolio of transport concessions under the Intertoll brand, operating motorways in Hungary and Poland.

Management have said that weak economic growth and the slow roll-out of public sector contracts in SA means the company has to rely more on projects in other countries.

"Currently beyond SA we are more dynamic as a business. Market sentiment in Eastern Europe has improved over the past three years and we have our eyes open for further business in the region," former CEO Mike Upton says

Group Five chose Hungary and Poland carefully and economic trends suggest they were good strong choices.

Hungary struggled during the 2008-2009 recession but its growth stabilised by 2012, when the economy managed to grow 1.1%. It grew 3.9% in the second quarter of 2014 on a year-on-year basis and the country’s central bank has forecast growth of 3% overall for the year.

Poland has been considered as the true darling of Eastern Europe said Zidel. He said economic growth was strong since political reform in 1989. Between 1989 and 2007, the Polish economy nearly tripled in size.

In 2009, when the GDP of the European Union contracted by 4.5%, Poland was the only country in the union to see its economy grow, by 1.6%, said Zidel.

Poland has a population of about 38m and a labour force of about 18.2 -million people, according to the Polish Central Statistical Office. Population growth is actually negative but only barely at 0,11%.

The border with Germany is to its advantage. Germany is its biggest trading partner, accounting for more than a quarter of Poland’s exports and imports, said Zidel.

Another SA company that is seeking opportunities in Poland is Rockcastle Global Real Estate. The property group is buying shopping centres there.

"We are in Poland because it ticks so many boxes. It has a young working population which hopefully will bring with it more retail demand and urge us on to build more malls," said CEO Spiro Noussis in an interview.

Polish shopping centre assets currently offer yields of between 6% and 9%.

"Clearly Eastern Europe has competitive opportunities but don't overlook Africa," said Zidel.

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