Sanlam set to list African property fund

WHILE local property prices look expensive, insurer Sanlam remains bullish about prospects in the rest of Africa and will be listing a pan-African property fund in Mauritius in January, with a debt market fund following three months later.

A billion rand in bridging finance has been made available off Sanlam’s balance sheet for the property fund, and the first investment has already been made in one of only two shopping malls in Accra, Ghana. Due diligence is being done on three other property investments in Africa.

Sanlam Investments CEO Johan van der Merwe said yesterday the mall in Accra was so popular that the doors had to be closed on weekends and new entrants were allowed in only when people inside walked out.

“I’m positive about property in Africa — there are more shopping malls in Johannesburg and Pretoria than in the rest of Africa — but Africa has 52 cities with more than a million people,” he said.

According to RisCUpdate, a quarterly market overview from investment consultancy and analytics provider RisCura, for the three months to September listed property in SA returned 10.98%. However, for the 12 months to September it returned more than 37%, versus 24.43% for shares, 17% for bonds and 5.61% for cash over the same period.

And for the three years to September, property produced a cumulative return of 94%.

However, property was the worst-performing asset class in September itself, producing a return of only 3.5%.

“Significant headwinds” could affect property’s performance, said Claire Rentzke, a senior consultant at RisCura Consulting.

Property had already “run very hard” and a reduced outlook for economic growth, coupled with more escalations in rates and electricity prices, could affect the sector’s performance.

With consumers facing mounting financial pressure, the retail sector in particular could come under pressure and the commercial sector could also be affected if companies faced further economic difficulties, according to the survey.

“Companies may downgrade from a great office space to something more affordable, and a rise in vacancies could also ensue,” Ms Rentzke said.

“So there is no certainty that property will continue to be the best performing asset class.”

As SA was offering property yields of only 7%-8% (on par with struggling Europe), Mr van der Merwe said interest was strong in the pan-Africa fund already (“soft” road shows have already begun). It would be the first time such a fund strategy would be adopted on the continent, he said.

The strategy for Sanlam is to buy finished properties in Africa rather than developing them. The company teams up with developers, who in turn team up with retailers in SA which then become anchor tenants.

Sanlam then buys in and aims to offer investors dollar returns of 12%-18% a year. The insurer is no stranger to Africa as an investment destination. It has been investing for three years on the debt side to the tune of $200m and the idea is to turn that into a fund for investors, offering potential yields of 8%-11%.

Sanlam has more than $1bn on the continent already and is active in 12 countries after making a strategic decision to build capacity in Africa eight years ago.