As 2015 draws to a close, the big question on all real estate professionals’ lips is: what will 2016 hold? Migration away from capital cities, infrastructure improvements and increased international interest from investors are just some of the expected developments for real estate markets within emerging nations.
Mobile is driving innovation in developing countries. Internet users in these countries are skipping the traditional desktop usage, and moving straight to mobile. While 2015 saw more emerging markets-focused companies developing their Internet presence, 2016 will see real estate professionals turning their attention to apps.
As a result of high costs of Internet services in many developing countries, apps are increasingly popular when it comes to interacting with online companies. As Internet penetration strengthens in second-tier and suburban areas, reduced mobile connectivity costs, more affordable SIM cards and the evolution of mobile technology are driving app usage.
Industry professionals have already noted the increased attraction of second and third tier cities in emerging urban areas. Rapid population growth has led to physical growth of urban areas in cities including Colombo, Jakarta, and Manila. As capital cities become slowly saturated, real estate developers and investors alike are turning their attention to smaller cities. In these second and third tier cities, property is significantly cheaper as a result of higher land availability and lower building costs.
According to Kian Moini, cofounder and managing director of emerging markets-focused real estate platform Lamudi: “In 2016, we will see the development of smaller cities in the emerging markets, as they invest in themselves to improve transport services, water and electricity supplies, and develop their infrastructure. This is essential if these cities want to compete with bigger markets, both locally and internationally.
“By shifting focus from capital cities to smaller areas, investors get more for their money due to lower costs of land, resources and building materials, and developers have more space for construction. This makes these second tier cities a very attractive option for real estate professionals,” he concluded.
Commercial property growth
As countries across Asia, Africa, the Middle East and Latin America experience rapid population growth, urbanization, and economic development, demand is increasing for commercial property. This includes mixed-use developments, shopping malls, retail space and office units.
The next 12 months will likely see an increase in commercial property developments across the emerging markets, as the sector must accommodate population and tourist growth, as well as increased interest from international corporations. These projects are not only driving economic growth, they provide employment opportunities, and boost the value of surrounding properties.
Will 2016 be the year of the real estate investment trust (REIT)? The last 12 months have seen a number of real estate investment trusts opening in the emerging markets, encouraging investment into the sector. In October of this year, the Capital Markets Authority approved Kenya’s first income real estate investment trust, also known as a I-REIT, to be issued by investment manager Stanlib Kenya. This marks the first ever license to an asset management firm, to list on the Nairobi Securities Exchange (NSE). In June, Pakistan’s first ever REIT was launched, paving the way for expected growth in the country’s commercial property sector.
Ghana’s HFC Bank established the country’s first REIT 20 years ago. Despite the successes, there is the need for more improvement, such as facilitating the acquisition of land from traditional authorities to reduce real estate costs.
Increase in foreign investment
FDI inflow into the African real estate sector was strong in 2014, according to EY data. Real estate, hospitality and construction was in fact the fourth most attractive sector by FDI project numbers in Africa in 2014. This is expected to improve over the next 12 months. In Ghana, there is a growing demand for infrastructure investment, such as housing, roads, and rails. This has created an opportunity for private investors to aid in the development of infrastructure through direct investment and public-private partnerships.