By Azania Post Reporter
RELIABILITY of the income stream, on a project is one of the most notable challenges that property financiers and investors must deal with, the South African Export Credit insurance (ECIC) specialist has said.
Speaking ahead of 8th annual Africa Property Investment (API) Summit & Expo, which is taking place at the Sandton Convention Centre today, the Chief operations officer of insurance firm Mandisi Nkuhlu, said commitment is much needed in the business.
“In financing a property transaction, for instance a mall or office space, it is important to get a reliable anchor tenant who is willing and able to commit to a long-term lease”, he said.
Whilst there is a strong market practice on the continent of paying large up-front lease payments, the reliability of the income stream over the debt repayment period and contractual lock-in arrangements remain crucial.
He said the financing tends to be provided in hard currency, whereas the tenants may be generating local revenue streams, so the currency mismatch is one of the risks that have to be mitigated.”
As the African property landscape shifts and investors and developers increase their focus on delivering projects on time and within budget, Nkuhlu believes there is a growing need for proper planning around managing in-country and Africa specific risk.
He adds: “There are quite a few projects that struggle to reach construction completion on time and on schedule. Sorting out the construction risk is quite important.
In this regard, choosing the right contractor with the relevant experience for the size and complexity of the project is critical.
The contractual arrangements and risk allocation, such as penalties for delays or poor workmanship, needs to ensure that the construction company has sufficient incentives to perform and avoid the contractual breaches.
Locking in key and sufficient tenants before financial close is another useful risk mitigation of the commercial risk.”
Despite Africa’s market and political challenges, local property developers, contractors and investors are still delivering projects successfully throughout the continent.
He said the ongoing expo will discuss various issued that aimed at improving the sector.
One of the core focus discussions will be on managing project delivery risk in Africa. While emerging African markets are filled with long-term growth and investment opportunities, conventional insurers and financiers remain hesitant about covering local property stakeholders wanting to do business in African markets.
Nkuhlu, Greg Pearson, Director of GRIT Mauritius, Zo Hlongwane, COO of G5 Properties and Nick Allan, Group Chief Executive Officer of Control Risks, South Africa will go deeper into this topic at the summit sharing an experts’ guide to successful development and risk mitigation in Africa.
This discussion is just one of many for this year’s API Summit & Expo, which will see participation from over 35 countries, with 600 delegates and 250 companies attending, offering a programme aimed at providing a wide range of key insights and infinite networking opportunities.