Basel 3 — the most comprehensive set of regulations imposed on local and global banks in 70 years and which comes into effect next year — will have a huge effect on real estate funding for investors and developers moving into Africa, Standard Bank head of real estate for Africa Fergus Mackintosh said on Friday.
In an interview with Business Day, Mr Mackintosh said his biggest concern is the effect the implementation of Basil 3 would have on debt-funding requirements, especially for investors and developers moving into Africa. "There are going to be huge changes in terms of funding requirements from the banks and the reality is that investors and developers would need to come up with a lot of their own equity and have good partners and deep pockets," he said.
Basel 3 regulations threaten revenue growth at a time when costs are increasing and demand for credit in South Africa is soft, owing to high consumer debt and large company cash deposits of more than R540bn.
The worst part for local banks was that they appeared to be unjustly punished for problems that affected global peers, which has led to regulators imposing tougher rules, according to advisory services firm Deloitte.
Local and global banks have been told by the Basel Committee on Banking Supervision to raise capital levels, as a buffer against losses and unexpected shocks to their business.
Mr Mackintosh said his division, which is responsible for real estate funding on the continent was working closely with South African company Resilient Property Income Fund in Nigeria to fund shopping centres.
In Ghana, another growing African country, the bank was working closely with developers Atterbury on retail assets.
"There is still a lot of work to be done. Nigeria, for instance, has critical mass and a strong, growing middle class which is becoming increasingly sophisticated." Mr Mackintosh said Nigeria had been underserved in retail offerings, with less than 10 modern shopping centres catering to a population of 160-million.
"I would say in Lagos, with a population of 17-million, there are only two international standard shopping centres. Lagos can support 10-15 new shopping centres and our role is to bridge the funding gap," Mr Mackintosh said.
But he said investors and property developers looking to expand into Africa should look at doing so via joint ventures with seasoned developers on the continent and locals.
"The advantage for us as a bank on the ground is that we can quickly analyse our partners in terms of their capacity and capability. Realistically, in the next three to five years we want to assist in funding $500m-worth of shopping centres, each costing $15m," he said.
The scope for property development on the continent is enhanced by the involvement of leading South African retailers including Shoprite and Massmart. Walmart, which recently acquired Massmart, has set its sights on the African markets.
But the Jones Lang LaSalle 2012 transparency index shows Africa still has much to do to improve its business and economic environment and transparency levels to attract more international companies and investment.
Apart from the banking and debt crisis in the developed world, Africa is growing at a higher rate because it is coming off a low base and has big infrastructure backlogs.
Poverty has also fallen from a high of 40% in 1980 to almost 30% in 2008, so consumers have more money to spend.
African property developers hesitating to invest elsewhere in Africa will face stiff competition in the next couple of years from global players that also want a piece of the pie, but low levels of transparency remain a great problem for the continent.