China black – why Chinese investors are eyeing Africa’s real estate industry.

china black

Much of a meal has been made about China’s aggressive investment drive into Africa. I first read Dambisa Moyo’s Winner Take All in 2013 and Dead Aid later on – even though the books were written in the reverse order. In Winner Take All, Ms Moyo makes a fantastic point about how the West is almost jealous about China’s presence in Africa. From toothpicks to bridges, clothes supplies to construction of railway lines, China has a finger in every African pie. I cannot wait to read How The West Was Lost – Moyo’s second book – about the economic tussle between the West and China.
A prophet is not honoured in his homeland
A few years ago, I visited my father’s village – a rich gold mining area in Ghana – with the aim of joining the gold rush by purchasing land and joining the teeming masses in the village involved in “galamsey” (the surface mining of gold). Coming from that region, I can count a long line of family members – dead and alive – whose means of living was through “galamsey”. On this occasion, my father and I had completed negotiations about a piece of land we intended mining. We were in the bush with about half a dozen men. While there, I heard the noise of a vehicle but kept going deeper into the muddy land. When I turned around, to the dismay of both my father and I, there was no one around us. We quickly traced our steps back and saw in the distance all the men and the queen mother standing by a Chinese couple, in a rented Ford Explorer 4×4. They were already busy with negotiations on the same land on which I had already completed negotiations. I waited for them to finish and for the “foreigners” to leave before confronting my kinsmen. The reason they gave was that, with me, they had to bend over backwards to give me a deal. Moreover, as a native, they did not think I had the money to buy the land and that the “foreigners” would pay four times the price they had already agreed on with me. Disappointed, we left.

Fanny Mae and Freddie Mac
During the height of one of the worst recessions in recent times, which some experts believe was partly caused by the fall in the housing market, two names sunk in my head: Fannie Mae and Freddie Mac – two giants of America’s housing and mortgage industry. The Federal National Mortgage Association (FNMA), or Fannie Mae, was set up in 1938 as a government-sponsored organisation whose purpose was to help expand the secondary mortgage market by securitising mortgages in the form of mortgage-backed securities. This allowed lenders to reinvest their assets into even more lending and to increase the number of lenders in the mortgage market. This was better than relying on locally based savings and loan companies.
The Federal Home Loan Mortgage Corporation (FHLMC), or Freddie Mac, was set up in 1970 with a similar remit as Fannie Mae. Up until 2008 when the Federal Housing Finance Agency put these two under some kind of receivership, these giants straddled America’s mortgage industry with some swagger. In most African countries, the mortgage market is still in its infancy. Many financial institutions ether haven’t got the financial clout, funds or technical know-how to enter the mortgage market. Aside from a few, such as South Africa and, more recently, Nigeria, Kenya and Ghana, the mortgage industry in Africa is very limited despite the huge demand for residential housing stock and the quest to own a home.
With GDP averaging 6% and a growing middle class in practically every African country, the stage is set for a Fanny Mae or Freddie Mac to appear on the horizon of Africa’s mortgage industry.
On the other hand, China’s property prices have fallen for a third straight month, by more than 0.9%, with the worst slump coming in July this year. Developers are scaling back investments, prompting experts to predict financial defaults and lower economic growth in the second half of the year. Stephen Green, head of macro research at Standard Chartered in Hong Kong said: “The next six months are a make or break for China’s property market.”
If China’s property market continues this way throughout this year, it may be the Fannie Mae and Freddie Mac moment in China – a sign that Chinese investors need to look elsewhere.
Presently, I struggle to find places where real estate investments’ yields are higher than in Africa, which averages 25%. The mortgage market may still be in its infancy, yet the opportunities here are huge and are ready to be taken by the bold and swift. With financial institutions in the West marking time and playing the “wait and see” game, it will not surprise me to read headlines in the New York Times or Financial Times one day that China has given birth to a Fannie Mae or Freddie Mac in Africa. To distinguish it from its American competitors, they may call it China Black. After all, have we not read similar headlines about China’s investments in oil and gas, and in the mining industries?
Final thoughts
The Chinese appear to be ubiquitous in practically every African country and industry. Its investments transcend the oil and gas, energy, mining, agriculture and consumer industries. It will not come as a surprise if China gets involved in Africa’s real estate industry, particularly the mortgage sector. It will be a welcome “foreigner” since this industry is still virgin in most African countries and needs investment. Do not say I did not tell you so.

Quote of the day:
“With financial institutions in the West marking time and playing the “wait and see” game, it will not surprise me to read headlines in the New York Times or Financial Times one day, that China has given birth to a Fannie Mae or Freddie Mac in Africa”

Douglas Oppong is Founder and CEO of Property Investor Africa. He consults on finance, infrastructure and real estate projects for governments and companies doing business in Africa. douglas@propertyinvestorafrica.com