Kenyan and African pension funds are shifting assets at an accelerating rate from the continent’s stock markets into real estate investments, where returns are running at more than 20 per cent a year, at a time when Africa’s equity markets are losing value.
Data to be presented at the in Nairobi on 5th & 6th April 2017, shows that Kenyan pension funds have nearly tripled their real estate investments in the last eight years, moving into property development on a grand scale.
In this, stock market performance is proving a major driver.
For pension funds fully invested in the Nairobi Stock Exchange at the beginning of 2015, the market’s decline had reduced their assets by almost 40 per cent by the end of 2016, fueling an urgent focus on diversification.
“Pension schemes need to invest in real estate as part of a diversification strategy and with a view to reducing portfolio risk and complementing the overall returns to members,” said Wangeci Kanjama, Trustee of the Safaricom Pension Scheme and Chair of the Real Estate Project Committee, which has led the way in Kenyan pension real estate investments.
Safaricom Staff Pension Scheme (SSPS), which was an early mover into real estate project finance, is now developing the new Crystal River Mall and Gated Community and the luxury Mandharini holiday homes in Kilifi County.
Stanlib Asset Management, in its Africa’s Direct Property Investment Fund report, states that, currently, Africa’s real estate market has an estimated Internal Rate of Return of 25 per cent.
That compares with an equity market that in Kenya declined by 11.2 per cent in 2016. Across Africa, the equity market return for last year averaged 1.2 per cent, excluding Egypt, which enjoyed substantial gains.
The relative strength of real estate investments had already seen Kenya’s pension funds increase their real estate holdings to Sh150.8bn by 2015.
The strength of the returns has also seen SSPS additionally establish the Safaricom Investment Co-operative, which invests the funds of members that span both Safaricom staff and non-staff into real estate through developments and the buying and selling of land, as well as by trading shares among the members.
Other pension schemes in the country that have moved into real estate investments include the state owned National Social Security Fund (NSSF), the Kenya Ports Authority (KPA) – which has independently ventured into providing low cost affordable housing – the University of Nairobi Staff Pension Scheme, the Kenya Power Pension Fund (KPPF) and the Kenya Commercial Bank (KCB) Pension Scheme.
Elsewhere, the Rwanda Social Security Board (RSSB), which is Rwanda’s largest pension fund, is now holding almost 20 per cent of its total investments (±RWF 100 million) in real estate, both as indirect funding and as funding for key commercial and housing developments across Kigali, including the well-publicised project, Vision City.
“These interventions by local pension funds are changing the balance of funding from the traditionally international funding of large real estate projects, either by direct foreign investors or by global private equity firms, towards local investments that are far more attuned to local needs,” said Kfir Rusin, General Manager at Africa Property Investment Events, which hosts The East Africa Property Summit (EAPI), now in its fourth year.
“Internationally funded projects are presented with strict investment timeframes, and specific asset size and value mandates. This leaves almost no room for setbacks, market volatility, and other emerging market risk factors,” he said.
The results can be insufficient or hurried research, overly expensive properties, and real estate projects that are poorly tailored for the local market.
“While it is still inevitable that Africa needs the interest of international investors to survive and thrive, local capital should no longer be overlooked in favour of foreign-only approaches. It is time we turned more attention to mobilising local funds, in particular institutional funds, such as pension and Sacco funds, as there is a real opportunity emerging,” said Rusin.
“Pension schemes, have a good understanding of the local opportunities and needs as well as the ability to pool funds from the local market giving them the “fast mover advantage,” said Wangeci, who will be speaking at the EAPI Summit.