Real estate situation in South Sudan 1 East Africa Real Estate & Infrastructure Investment Summit 2012 Opportunities in South Sudan Kenyi A. Spencer (Private

Real estate situation in South Sudan

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East Africa Real Estate & Infrastructure Investment Summit

2012Opportunities in South Sudan

Kenyi A. Spencer(Private Sector Development Consultant for the World

Bank)5th – 6th February, Nairobi, Kenya.


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Outline of Presentation The real estate Urban infrastructure market Market dynamics Market strategies Sector growth Key players New products Challenges in the sector Opportunities across the residential, retail,

office and hospitality sectors.


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Background… South Sudan’s inflation in Dec., 2012 stood at a

whopping 65.6% (42.9% in Juba, the capital), dropping to 47.8% (42.6% in Juba) in January, 2013 (SS National Bureau of Statistics).

The decrease in inflation was attributed to the government’s move to remove illegal check points on the country roads, and the notable improvement in road networks, e.g. the tarmacking of the Juba-Nimule Road has considerably reduced transport costs between Uganda and South Sudan - (between mid- to late 2012).

The cost of transportation decreased by 9.4% in the same period.


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Background (cont’d)… CPI in Juba increased by 2.7% within a year (January

last year to January this year). That of Wau (Western Bahr el Ghazal) and Malakal (Upper Nile) instead decreased by 5.1% and 5.2% respectively. This possibly is due to many people relocating from these towns to Juba, the capital; adding to the refugees returning from Sudan who have settled in and around Juba instead of in their respective states.

In 2012, prices of food & non-alcoholic beverages increased by 40.6%, while those of alcoholic beverages and tobacco, as well as furnishing and household equipment surged by 205.1% and 111.0% respectively in the same period.


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Impact of oil discoveries to the real estate industry… The East Africa region is discovering vast oil deposits,

which will (hopefully in the long-run) translate into a low petroleum import bill, cheaper oil derivatives for the domestic market and increased disposable income per capita.

Increased disposable income may translate into higher investments.

Increased disposable income will strengthen EA economies.

The big question is ‘what will be the effect of these oil discoveries on the real estate industry?’ – considering the plague of oil ‘curse’.

Let’s examine different scenarios:


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Scenario 1. Increased Local Property investment:

Likely outcome of oil production is a stronger domestic currency, which would entice property investment by foreign investors – to the advantage of local property owners.

Unfortunately, as a consequence of this, local investors may find it too expensive to invest in the property market by themselves.

Local products may be out-competed in the external markets on account of price.

This is likely to reduce investments in the property market further.


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Scenario 2. Boost to Real Estate investment:

Oil sales and the eventual petroleum value-chain development for domestic industrialisation will add huge earnings to the hard-currency inflows, eradicating the current account deficit, and allowing more real estate investments.

The ‘disposable income’ could translate into vast investments in tradable property instead, moving away from heavy industrial development. This will smolder the long-term growth in the real estate industry. Consequently, this may reduce sustainable industrial devt. by encouraging short-term wins, which is the main problem at the moment – petty trading.


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Scenario 3. Increased Investment Projects…

Public spending on physical infrastructure (roads, power, water) would increase tremendously, allowing for investor mobility within the region, thus increased investments in the property market. Need for institutions to govern accountability

and transparency in govt. spending Development of the infrastructure would also

influence the way the country plans real estate investments. Currently, South Sudan has more than 100 hotels in Juba alone. Need for prudent real estate planning at all

levels of govt.


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Increased investments (cont’d)…18 to 20 firms have created more than 30 formal and hundreds of informal jobs each. These include:

SS Breweries Ltd Water bottling plants (Canaan, Aqua’na, JIT,

etc.) ABMC Road Construction Co. Building and Civil Engineering Contractors Jagan Drilling Co. Ltd MTN, Vivacell, Zain and Gemtel cellular and

internet companies.

Tourist resorts at Nimule, Boma and Badingilo to be renovated.


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Other interesting achievements…

45 local entrepreneurs (25 women) trained and facilitated through special commercial loans arranged with World Bank support.These, plus a hundred more to be trained and facilitated (soon) will form the first cadre of South Sudanese entrepreneurs capable of partnering with foreign investors. These may add to the future demand for real estates.


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Scenario 4. Increased need for rental space…

Giant construction projects, like the Lapsset (Lamu Port-South Sudan-Ethiopia Transport Project): a pipeline and a superhighway will bring in a lot of labour, increasing the population – jostling for rented housing, hotels, hostels, motels, guest houses, etc.

This will contribute to a boost in the real estate industry in the whole region.


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Scenario 5. Employment… Improved livelihoods for the ordinary

citizens will translate to healthy and capable labour force. This will need prudent revenue

redistribution methods and effective provision of public goods.

Increased revenue will lead to development in the industrial sector and the subsequent need for labour. Need for labour-intensive industries.


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Scenario 5. Employment… (cont’d)

Increased revenue will open channels for government spending in huge public works, leading to increased employment and subsequent increased demand for housing.

Increased GDP per capita will lead to investment in personal property proceeded by rigorous campaign by real estate agents.


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Scenario 6. Power source… Natural gas and LPG will improve the diverse

culture of energy generation in the region to thermal systems as to supplement our current hydro-electric systems that are constantly failing to meet the (heavy) industrial needs, especially during dry seasons. Fears of environmental pollution abound.

Current low power sources in Juba are constraining city erf development into compact accommodation, i.e. no tall sky-scrapers to maximise spacial use of the urban environment. Tall buildings require lifts/hoists/escalators.


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Scenario 6. Power source… (cont’d)

Abundant electricity will mean low unit cost per family - more savings, thus increased investment in the property market.

With a good network of power distribution, more property developers will construct housing in the more remote parts of the country. This will improve the rural economy; reduce rural-urban migration and bring more people into the national economy. Ultimately, this will spread out the demand for

immovable proprty.


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The Real Estate Investment Strategies…

There’s need in the nearest future for:Special Investment zones

Industrial parksFree zonesFree portsBusiness parksVirtual zonesHub marketsRetail markets … (private or public or PPP)


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The Real Estate Investment Strategies… (cont’d)

Real estate dealers/holdings e.g. Trans-millennium Property Group

Land Dealers Real Estate Bailiffs (to handle repossessed

property) Business direction (private and public) Housing estates: residential, commercial

and industrial.


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The Real Estate Investment Strategies… (cont’d)

NB. There’s urgent need for labour-absorbing industrial investments to generate more income for property investment.

Priority areas are to improve on the standards of the already established hotels, constructing office spaces, low-income housing estates.


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Service Provider in Juba (Trans-millennium Property Group)…

A registered and licensed professional company as a: Real Estate Agency Property Management company Project and Construction Management

company Property Guide and Facility Management

Consultancy. As property agency, their functions include:


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Management of space and real property Tenant selection Assessment of rent and service charge Collection of rent and service charge Property marketing- sale and purchase of

property Letting and re-letting of premises Drawing of lease agreements and

negotiations/extension of leases Registration of property documents-leases,

sale agreements, etc. Supervision of repairs and maintenance

works


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Trans-millennium (cont’d)… Resolution of real estate disputes Carry out project feasibility studies on

project financial analysis, resource availability, and project scheduling

Develop concepts into building designs Advise/assemble building design teams Obtain all planning approvals required Carry out tender analyses Supervise design and construction teams

on behalf of the client Property receivership


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Current Property investments in Juba…

To avoid potentially costly real estate investment mistakes and be able to maximise profits, investors are: Improving on their low-cost lean-toes; from Pre-

fabricated structures and constructing slightly more permanent buildings;

Assisting govt. in infrastructural development, e.g. roads, airstrips, River dry-ports, etc.

NB. There will be future need for industrial shells in vicinity of petroleum refineries to facilitate value chain development in the oil sector in anticipation of the second oil flow.


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Urban infrastructure market…

The relationship between infrastructure investment and economic performance is key to real estate development.

Rapid population increase of about 52% in Juba took place between 2010 and 2012 causing a heightened need for: Shopping malls Mixed-use real estates: industrial, office and

retail investment property Residential housing.


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Real Estate Market Dynamics… In a typical market, demand increases are

unlikely to result in long-term price increases. Demand decreases, however, may lead to dramatic price decreases.

Juba or any of the larger markets in SS are atypical, in that demand is distorted by the unclear land policy: demand is skewed towards the ‘haves’ and against the general market, thus reducing effective demand.

The ‘haves’ play monopoly and fix high minimum prices.


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Market Strategies… The current 125 hotels in Juba alone show

the growth path of SS: Increased investments in the short-run

businesses (retail market development) Anticipated oil flows (short-and long-run) Anticipated industrial activity (in the long-run)

However, the current low room occupancy is due to the glitch resulting from the shutdown (room occupancy fell by 30% between Jan. 2011 and Jan. 2013).


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Key players… Only one main real estate agent in Juba.

None in the other major towns. The govt. Company Registry Ministry of Justice Chamber of Commerce (national and state) Investment Authority Land Commission Ministry of Housing and Physical Planning Parliamentary Committee on Housing and

Physical Infrastructure


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New Products in the market… Residential housing construction in Juba = average of

30 houses per month in 2011, dropped by 50% due to austerity measures instituted in January, 2012, following the oil shutdown.

Construction of hotels has dropped from a high of 12 hotels/month in 2010 to as low as 4 or 5 per month.

Road construction has ground to a complete halt after having constructed 26 km of asphalted Juba roads in 2011 and a 192 km Nimule-Juba highway.

A brand new International Airport in Juba is nearing completion.

A new surface for the Wau airstrip completed in Dec. 2012.

Five new 5-storey hotels constructed in Juba in the last 10 months.


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Challenges… Current oil crisis has created a stagnation in the

economy No mortgage law yet in South Sudan No secure transaction law No professional realtors Unclear land policy Few and unregulated estate agents No institution to regulate the real estate sector No self-regulatory system on property insurance Real estate investment firms are still lacking Real estate investment strategies, principles and

regulations of residential investments are absent.


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Opportunities in the sector… SS plans to relocate its capital from Juba to Ramcel –

100 km north of Juba - a huge boost in the real estate industry.

The planned dredging of the navigable part of the River Nile will open construction works in the landing sites and dry ports along the Nile.

Failing to revitalize the oil sector, SS is likely to invest in tourism, fisheries, forestry and agricultural sectors. This will spark up major construction works of: Hotels, restaurants and guest houses

Fish-drying facilities Fish-net industries Fishing equipment (boats and accessories).


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Opportunities (cont’d)…The lumber sector would introduce the following:

Wood saw mills Carpentry works Carpentry training centres Wood marketing stores

Non-wood product facilities (honey processing plants).

The agricultural sector would draw in the following businesses:

Tractor-hire plants Crop storage warehouses Processing industries, etc.


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Planted Forest of Teak in Loka – 60 km west of Juba (Central Equatoria State)


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Opportunities (cont’d)… Before the oil shut down on January 20,

2012 South Sudan spent between SSP 97 and 348mn annually between 2005 and 2011.

About 30% of that in construction. High numbers of South Sudanese

returning to the country account for 2.2% of the South Sudan’s - population total growth rate of 3%. This means a lot in housing needs.


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Opportunities (cont’d)… More than 12 million heads of cattle, more than 20

million heads of SHOATS (sheep and Goats) and millions of tons of Fish in the Nile, the Sudd Region and in its myriad of lakes. This translates to a great deal of facilities that include housing, slaughter houses, fish storage facilities, etc.

In 2010, GDP was estimated at 30.5 billion South Sudanese Pounds (SSP); up from SSP 10.8 billion in 2009 (SSNBS). The upward trend could translate into property investments in the long-run.

In comparison with its neighbours in the East African Region, South Sudan’s GDP ranked 4th out of eight countries, ahead of Burundi, Rwanda, Democratic Republic of Congo and Central Africa Republic. More investments in secure propetryare highly likely.


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Current Oil Deposits…


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Summary of current South Sudan vital socio-economic indicators, 2011:

51% of the population < 18 years 72% of the population < 30 years 80% has no access to toilet facilities 60% of households at least owns a mosquito net Infant Mortality Rate is 102/1000 live births Under 5 Mortality Rate is 135/1000 live births: the

highest in WES (192) and lowest in Jonglei (82) Maternal Mortality Rate is 2054/100,000 live births 55% has access to potable water 18% of households live on borrowed money Total No. of formal businesses, e.g. in Juba and Torit

are 7,333: 84% are shops and restaurants.


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On the ease of starting a business, Juba ranks 123rd. Thanks to the success of the modern Business Registry set up in 2006.

Entrepreneurs can start a business in just 15 days.

There are 4 Local Road Construction companies (only 2 in 2010).

South Sudan now has 16 Commercial Banks (up by 6 since 2010)


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Tourism could easily become the second largest industry after

Petroleum.

The Elephant Population is mind-boggling.

The New Serengeti or Tsavo of Africa.


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The largest wildlife migration in the world takes place in South Sudan.


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Ostriches on an AGM in the middle of nowhere!


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Conclusion… Whether you want to invest in single-family homes,

condominiums, cooperatives or multifamily residential real estate or commercial estates you will find SS a fertile ground.

Rules related to deferment of tax payments, profit repatriation and re-investment quotas are still in their quasi state, thus quickly reinvesting the proceeds into a "like-kind" investment property is highly profitable.

We already have a property management company on the ground to handle upkeep, tenants and maintenance.

We also have a unique business-connect company that will help partner your company with a local one that suits your calibre.


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Conclusion (cont’d)… You want to be sure you invest in an area with

a strong economy, that is growing and where prices are steadily rising, SS is there for you!

You also want to invest cheaply in pre-existent property as a way to ease into the market, this is no option in SS because there’s nothing there.

Perhaps, with the rapid spate of construction during the oil boom (2009 to 2011), and thanks to the recent govt. austerity measures, some property now is falling into bankruptcy. Perhaps you could consider investing into some of these.


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Housing estates required…


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Housing estates (cont’d)…


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Thanks a million…

Documents

Real estate situation in South Sudan 1 East Africa Real Estate & Infrastructure Investment Summit 2012 Opportunities in South Sudan Kenyi A. Spencer (Private