Perception of Real Estate Investment Opportunities in Central/South America and Africa

By Lim, Lay Cheng; McGreal, Stanley et al. | Journal of Real Estate Portfolio Management, September-December 2006 | Go to article overview
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Perception of Real Estate Investment Opportunities in Central/South America and Africa

Lim, Lay Cheng, McGreal, Stanley, Webb, James R., Journal of Real Estate Portfolio Management

Executive Summary.

This study examines the attitudes and perceptions of institutional real estate investors towards real estate investment opportunities in Central/ South America and Africa. This research included a survey sent to 1,068 institutional investors (250 investment managers, 601 pension funds, and 217 REITs) who were asked about the characteristics of investors in these markets and the factors influencing their decision-making process. The results indicate that these investors are sensitive to higher returns and political stability and that exposure to real estate in Central/South America and Africa is currently extremely limited, although there are some interested investors. It is surprising how little attention has been given to real estate in these areas, despite the relatively high levels of funds flowing into real estate around the world.

Real estate investors have become increasingly international in their outlook over the last decade. The process of globalization has not only changed the way in which investments are made, but has also dramatically altered the breadth of investment opportunities. Indeed, the last decade has seen dramatic changes, in particular the emergence of a free market in Central and Eastern Europe, as well as significant events in Central/South America and Africa. New opportunities arise for real estate investment and related business as the process of land reform and privatization take place. However, the economic infrastructure of these countries can be poorly developed, often lacking a regulatory framework for foreign investors. In particular, land legislation can be ambiguous with major unresolved issues concerning ownership. For example, land ownership in Uganda, Africa is complex, with four different types of title in existence. As a general rule, non-citizens and foreign-owned companies can only acquire leasehold interests in land or property. The typical lease term in urban areas is 49 years, which can, in certain cases, be extended to a maximum of 99 years. In Tanzania, African land is publicly owned and remains vested in the president as trustee and allocated on 33, 66, or 99 year leases.

This study is organized as follows. First, there is a review of the role and benefits of international real estate diversification. second, there is an overview of competitiveness profiles for selected Central/ South American and African countries. Third, there is a discussion of the methodology underlying the empirical analysis and the survey used. Fourth, the results of the study are presented and discussed. Finally, the paper closes with a summary and conclusions regarding decision-making behavior.

The International Real Estate Investment Environment

A considerable body of literature addressing the process of globalization and how global forces impact various cities, depending on their location and their phase in the development cycle, has been published (Behrem and Rondinelli, 1992; Carnoy, Castells, Cohen, and Cordosa, 1993; Castells, 1993; Budd, 1995; 1998; Goodwin, 1996; Newman and Thornley, 1996; Badcock, 1997; Berry and McGreal, 1999; Short and Kim, 1999; and Sykora, 2000). In this context, the establishment of global trading blocs in North America, Europe, Pacific Rim, Asia, and the Regional Trade Agreement in Eastern and South Africa are having a significant, but different, impact on cities in major world regions.

Castells (1993) describes the global economy as one that works as a unit in real time at a planetary scale and where capital flows, labor markets, raw materials, management, and organization are internationalized and fully inter-dependent. The components of globalization include: the integration of financial markets, the internationalization of corporate strategies, the diffusion of technology, R&D and knowledge, transformation of consumer patterns, the internationalization of regulatory capabilities, a diminishing role of national governments, the functionality of transnational corporations, and the growth of foreign direct investment (Petrella, 1996).

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