Property companies in Botswana have been advised to consider expanding their market exposure to boost returns as the domestic economy is becoming crowded and with less opportunities for future high returns.
Selwyn Blieden, Head of Africa coverage, commercial property finance at Barclays Africa, said the growth and development of Botswana’s commercial property sector has reached the stage where, in order to achieve growth and diversification, investors now have to consider seeking returns elsewhere.
“The country’s real estate and commercial property sector is considered to be one of the most mature in Africa, having experienced exponential growth and increased institutionalisation during the past decade,” he said.
The country’s relatively stable economy and its attractiveness as an investment destination has boosted the development of the property sector, benefitting the key players of the sector, who also tapped into their own extensive knowledge of the local market, as well as their ability to assess the potential of available opportunities, and their development capabilities. All these combined over the years made the sector very lucrative and top target for investors seeking stable and high returns.
“They have been able to attract institutional and private funding to support their expansion and over the few years they have justified investor and financier confidence by achieving steady returns,” Blieden said.
There are six property listed companies in the Botswana Stock Exchange, a platform that has allowed these companies to raise capital for investments and expansion. Institutional investors, such as pension funds and insurance companies, are attracted to property investments as they deliver higher returns over longer investment time frames. Blieden says the listed property companies which have successfully seized the opportunity have been able to grow into significant market players.
Still, Blieden says there are hard decisions to be taken going forward given the relatively small size of the country’s population and economy. At the core will be assessing the investment mandate of the property companies, with particular emphasis on growth and diversification strategies.
“The obvious alternative for companies is to grow and diversify market exposure by investing in existing or new property assets in the region,” he added. “Some companies already taken this route and are invested in or exploring opportunities in markets such as South Africa, Namibia, Mozambique and Zambia.
The BSE-listed Turnstar Holdings has been eyeing the East Africa markets, settling in Tanzania through the Mlimani City development. Another BSE listed property companies have also been expanding their footprints: New African Properties have interests in Namibia; Times projects has expanded to Zambia; RDC Properties has tapped into South Africa, Namibia and Mozambique markets for growth. The newly listed FAR Properties also has footprints in South Africa while still considering other investments in the region.
According to Blieden, investing in the Southern Africa region has its advantages. Besides for proximity that allows for cheaper and easier management of assets and relationships, operators in Botswana generally know the terrain very well, and can transfer skills they have developed and honed in their home market to these other markets.
Blieden further said another interesting option is consolidation of property sector players in Botswana. This could potentially create companies with enough scale to attract international investors.
“However, even though there continues to be scope for domestic growth, the size of the market is ultimately going to constrain returns to the largest players. Under any circumstances, questions regarding growth beyond Botswana’s borders will ultimately arise,” he advised.
As Botswana property players weigh in their options and consider expansion strategies, the type of funding used will be crucial to the success of the expansions, requiring picking the right financier who understands the intricacies of the
“At Absa/ Barclays Africa we realise that this requires use of our pan-African presence and offshore networks, and that we will need to create flexible currency and structuring approaches. An era of challenges and opportunities lies ahead for banks, investors, and other stakeholders in the Botswana property sector,” said Blieden.