The Chief Investment Officer of Pantera, Ayo Ibaru, says investor protection and a predictable legal framework remain critical to attracting foreign investment into West Africa’s real estate market.
Speaking during an interview with ARISE News on Monday, Ibaru said while economic activity is an important factor in assessing real estate investment opportunities, investor protection and the legal framework are particularly significant when considering foreign investments.
“But in the end, and maybe more to your point, the protection of investors and the legal framework is really the linchpin, especially when you’re looking at, uh, foreign investments.”
Ibaru said the assessment was based on the Real Estate Investment Attractiveness Index developed by researchers Lieser and Groh in 2011.
He said the framework, which analysed 66 countries, identified six elements used to assess real estate investment attractiveness.
“Now, what you want to do is understand the index as a holistic framework.”
Ibaru said economic activity generally carries significant weight because of its impact across the other elements of an investment environment.
“Economic activity is generally touted as the, uh, more important one, and that’s because of the heft that it brings to every conversation.”
He emphasized that legal protection becomes particularly important when foreign investors are considering where to commit capital.
Ibaru pointed to Cabo Verde as an example of a country that has prioritised creating a predictable legal environment to attract foreign investment.
“So what they have decided to do is be the most predictable legal environment.”
He said Cabo Verde has reorganised its laws and investment processes because of the importance of foreign investment to its tourism-driven economy.
“They are largely a tourism destination country. And so they’ve realized, in short order, that if they don’t make processing of permits efficient, if they don’t deal with how laws are written and how investments are put together and given to the public, it will be very difficult to sustain the very economy upon which the country itself stands.”
Ibaru stated that the approach had helped Cabo Verde maintain its position in the assessment, noting that the country had also performed strongly when the report was produced in 2023.
“And it’s the same thing we did see when we did this report in, uh, 2023.”
Turning to Nigeria, Ibaru said the country’s large economy and population provide significant opportunities for real estate investment, particularly in Lagos and Abuja.
“When you’re looking at West Africa, it’s almost a no-brainer that Nigeria will be the largest by sheer size.”
He said Nigeria also has significant unmet demand and a diversity of opportunities within its real estate markets.
“And, of course, there’s the unmet demand, um, that is, you know, um, in Nigeria.”
Ibaru said the challenge is converting the country’s size and demand into actual investment opportunities.
“Now, the challenge is, how do we translate all of this, um, into actual, um, real estate opportunities that are investable?”
He said recent investment patterns show the importance of local capital in Nigeria’s real estate market, even as foreign investors continue to participate in specific opportunities.
“It’s really down to, um, the local investor bias, which, again, our research showed, uh, four or five years ago.”
Ibaru said Nigeria’s legal protection ranking was one of the factors that affected its overall position despite its economic strength and investment opportunities.
“So, Nigeria is sheer size and sheer opportunity, but then, um, there are still a few inefficiencies in the system that, uh, drew it back, not least of which is our, um, ranking around legal protections.”
He said having more real estate companies and investment instruments listed on the stock exchange could improve transparency and send a stronger signal to investors.
“So, it’s a chicken-and-egg situation. And by that I mean, yes, it’s good to have more listings because it does suggest an increased level of transparency in your market, and that’s, uh, a very strong signal to investors far and wide.”
Ibaru said listings alone would not guarantee strong investment returns, stressing that the quality of the underlying assets remains important.
“But the question is, uh, instruments are founded, or they stand on, um, the quality of the assets that are underlying these investments.”
He said investors must therefore pay attention to the specific real estate submarkets supporting investment instruments such as Real Estate Investment Trusts.
“So, it’s good to have more instruments, ’cause it does suggest, uh, transparency, and you are able to attract more investment, local and and foreign-denominated currency. Uh, but asset selection, in the case of Nigeria, is really where, um, the rubber meets the road.”
Ibaru also said high interest rates are making borrowing more expensive for real estate developers, limiting the types of projects that can be developed profitably.
“It just makes borrowing more expensive. That’s that’s really how to put it.”
He said the high-rate environment pushes developers towards areas and asset classes where returns are more predictable and cash flows can better match their funding costs.
“And and what that does is, in the end, it corrals, uh, developers into a certain, um, submarket or a certain asset class.”
Ibaru said easing interest rates could help improve conditions for real estate developers, although he noted that the transmission mechanism remains challenging.
“So, ultimately, we’re we’re hoping for, uh, some some easing of the rates, but I mean, I I don’t know where where where the central authorities are going to go.”
He said stronger investor protection, improved transparency and more efficient legal processes would be important in making West Africa’s real estate markets more attractive to capital.
Ojo Triumph
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