Will He Cash in on Africa’s Real-Estate Boom?
WHY YOU SHOULD CARE
Because it’s all about location.
You’ve heard it before: Africa, the new investment frontier! Risky, but high reward potential, the mantra goes of emerging markets — particularly in Africa, home to 13 of the 20 fastest-growing economies in the world.
This mantra was on the mind of Zambian-born, Zimbabwean-raised Patrick Chella when he decided it was time to move in on the continent’s real estate market. The 42-year-old CEO of real estate crowdfunding platform Realty Africa considers himself a Robin Hood of the sector, as he’s opening up the industry for investment opportunities from average folks. Property developers can use Chella’s platform, the first real estate crowdfunding platform on the continent, to gather funds for new ventures across sub-Saharan Africa. Like other crowdfunding services, Realty Africa allows investors and developers to connect; projects on the site undergo an initial vetting process. The minimum investment is $1,000. (American investors must be accredited, which requires an annual income of at least $250,000.)
In the age of crowdfunding madness, as everything from new technologies to comic books and even startup stock becomes available to everyday people without millions in their pockets, Chella is making a practical business decision. According to a 2015 report by Massolutions, real estate crowdfunding closed the year a $2.57 billion industry, a 150 percent growth from the year prior, making it one of the fastest-growing forms of crowdfunding. Around 20 percent net annual returns are forecast from investments in shopping malls, office blocks or industrial complexes, according to a 2015 PricewaterhouseCoopers report.
A housing market can crash but it always has value.
Demand for property will skyrocket on this continent already dotted with gleaming new malls. The harbingers of middle-class hunger are visible everywhere: Weaving along busy Robert Mugabe Road in the central business district of Harare, Zimbabwe, one can see dozens of workers sweating to build the next Chadstone shopping mall. A drive into Harare takes you past the upmarket Sam Levy’s mall, the urban Joina City mall and the spacious Westgate mall. The air is thick with a Zimbabwean spin on keeping up with the Joneses.
Chella, a well-built, affable man, takes us through the proposed concept of a Victoria Eco hotel, located in Victoria Falls, and worth $12 million. It exemplifies the sorts of projects on the platform: an eco-friendly luxury hotel relying on new Japanese science that uses a “shower tower” cooling system in which water passively flows through a tall cylinder to simulate rain. (Negotiations to fund the hotel are still underway.) There’s another project, a $3.5 million gated community of 25 residential flats, that’s gathering steam, Chella says. Together with Realty Africa Chief Financial Officer Erik van Eeten and Chief Technological Officer Emil Bengtsson, Chella says he’s got 100 investors pouring in, collectively, “millions of dollars.” (He wouldn’t name specifics.)
This is how the sausage is made: A project is submitted to Realty Africa’s team, who ensure it’s really ready to build by visiting the project site, checking bank documents and legality, etc. Then, one of the 100 investors already registered on the platform can pledge. The investor is guaranteed a refund if the project doesn’t hit its target within two months. In the event of success? Realty Africa guarantees 13 percent returns, and makes a commission of 5 to 8 percent, depending on the country and the size of the project. But Chella knows this business is vulnerable to the same weaknesses that led to the 2008 crash in the U.S. His plan: focusing on and promoting low-income projects to ride the waves of depressed real estate markets.
Born to an entrepreneur mother and an accountant father, Chella studied in Zimbabwe and then headed to the Netherlands for college and business school, with a brief return home in between to work for an asset management fund. He stuck around in the Netherlands after getting his MBA and worked for NIBC Bank, a midsize outfit in The Hague. There, over the course of 10 years, he dipped his toes into real estate markets and met van Eeten. After hatching Realty Africa, they approached three people, only for the initial funding to come from the most unlikely source in mid-2014 — a South African cinematographer named Bert Haitsma, who wouldn’t disclose the specific amount he invested.
Chella admits it was tough to get money; real estate isn’t a guarantee. “A housing market can crash but it always has value,” Chella argues when pressed. And lucky for him, Africa hasn’t had a significant real estate crash yet — its most troubling signs are sluggish growth in the continent’s two biggest economies, Nigeria and South Africa.
Chella’s wisdom is that of the crowd: “He knows everybody and anybody on the continent,” van Eeten says. His weakness: He’s overeager. And, cautions property analyst Washington Musiiwa, since crowdfunding is new to Zimbabwe, it’s “likely to receive a very slow uptake. Most institutions and individuals are likely to engage a wait-and-see attitude.” If real estate proves to be a strong investment — which he expects it to in unstable times — Chella will have proof on his side.
Mega market trends aside, van Eeten says Chella’s other strength is his habit of leaving room for “his small staff,” largely made up of country directors, to take responsibility for their own actions. When they don’t measure up, though? The amicable Chella turns tough and isn’t afraid to tell folks to move on. Democratic he may be, but real estate is still a shark’s market