SUDAN WATCH: Southern Sudan is emerging as a strong contender for investors interested in emerging markets

Monday, June 26, 2006

Southern Sudan is emerging as a strong contender for investors interested in emerging markets

Copy of article at The Standard - Business News Propertywatch 22 June 2006 - Boom across the border:


As peace returns to Southern Sudan, a property market boom is in the making. Kenneth Kwama was there to find out who's in the race

Charles Anyama has always wanted to move opposite the crowd.

In 2000, when most investors were still hesitant to venture in war-torn South Sudan, he decided to set up an investment and property company there.

The company -- Nile Bay General Works -- now has a dominant presence in Juba's real estate scene and is one of Southern Sudan biggest developers.

Southern Sudan is emerging as a strong contender for investors interested in emerging markets.

Business was not good until last year when Sudanese leaders signed the Comprehensive Peace Agreement (CPA) treaty, giving both business and peace a chance.

"Since then many Kenyans have flocked in here to invest in the real estate business," Anyama says. "Just like in Nairobi, the commercial property market in Southern Sudan is alive and booming."

The change in fortunes is attributed to an influx of United Nations staff, non-governmental organisations (NGOs) and relief agencies-all competing for housing and office space. An Sh14 billion multi-donor trust fund, set up by the international community, to aid the reconstruction of the war-ravaged region, has aided the process.

Exorbitant monthly rents

The region should be a strong contender for investors interested in emerging markets. It's biggest city, Juba, has a winning combination of what valuers price. Liberal tax regimes, good return on investment and now, security.

Lack of expertise among locals has left Kenyan property developers, including construction companies and sub-contractors, competing among themselves. Hundreds of up-coming construction sites dot downtown neighbourhoods. In most places, the houses under construction have either been booked or paid for.

Prospective tenants and buyers have been forced to offer sweetheart deals to developers and landowners, exorbitant monthly rents, with several years of contracted stay.

Some Kenyans with extra bucks to spare are in there big time, hoping to fetch quick returns. The majority are property developers who have either been edged out of the Kenyan market by stiff competition or are simply looking for quick returns on their investments.

One Kenyan investor, Rose Nyamunga, is running a restaurant with cottages that cost between US$120 and US$150. Her immediate plan is to built apartments in the 20-acre plot that she co-owns with a native Sudanese in Juba.

"The good thing about building in Juba is that you are guaranteed of tenants," she says. This is because demand is not only higher than the supply but is growing at a faster pace.

International attention

Nyamunga says a number of businesspeople, especially from the US are settling in Southern Sudan with the result that housing and rent prices are skyrocketing.

Her desire to build apartments has been fired by the fact that most rental property in Juba is either temporary or semi-permanent. She gives the example of her restaurant, Rock City that has had to operate in tents. Even the cottages have been constructed from this material.

"I think it would make more business sense to have something more decent and durable," she says.

But while most investors may be dreaming of a property market that will offer high yields and capital growth at the same time, Anyama says identifying the right market is vital to realising such dreams.

"With so much international attention on Sudan as an emerging property market, it is difficult to know where to begin," he says. Anyama says this is the reason he and his partners decided to set up the company to guide investors on the Sudanese property market.

Anyama says the requirement by Sudanese investment law that any foreigner wishing to own property should partner with a Sudanese is spoiling the party.

Big gamble

This has left the vast market to a few daring real estate developers, mostly from Kenya, Uganda and Eritrea. To some extent, the small number of investors in real estate has meant that demand for housing has outstripped supply and is driving up rental yields.

"Others say it's risky to invest here, but I think the risk is worth taking," he adds.

"What you need to do is to seek professional advice, work with reliable agents and always be willing to do your homework."

Though Sudan's property market could be a bit difficult to navigate, Anyama says it is possible to link up with locals as required by law and start on a property that is sure to yield high returns.

Investing in such property markets can be a big gamble but this comes along whenever one is investing in any new territory. For those daring enough to take the risk, the returns are far higher than what one could dream of in more secure markets such as Kenya's.

A one-bedroom apartment, just 10 minutes drive outside Juba, where some Eritreans have put up residential houses goes for about US$1000.

"The rental yields are very high and one is almost guaranteed healthy returns compared to what property of that kind could yield in Nairobi," says Anyama.

Speculators' market

The downside, however, is that constructing a house in Juba is not an easy task.

The cost of building materials, which are mainly sourced from Kenya and Uganda, is high. Labour is also expensive and one needs about US$70 (about Sh5,000) to hire a plumber for just one day.

Part of these costs are, however, set to come down with the entry of Kenyan firms such East African Portland Cement Company (EAPCC) into the market. EAPCC's Managing Director Zakayo Ole Mapelu says the company is exploring ways of reducing overhead costs to make its products competitive.

One major concern with Juba is that it is a speculators' market with various investors teaming up with locals -- as is required by the country's investment law -- to put up houses.

"The biggest impediment to owning property in Southern Sudan is that land belongs to the community," Anyama says.

Good research

This means you can't buy from an individual, but developers are allowed to lease for long periods and even renew the leases. One should, however, understand that all property markets, not just those that are emerging, carry risks.

The key to success of any investment is good research. Patrick Jakino, a Kenyan investor, who owns a construction company-Building Concepts and has been working for the regional government as a consultant, says gathering as much information as possible and keeping up to date with market trends is vital to making a smooth investment.

Gathering of such information would also help one move smoothly into other towns like Rumbek and Yei, which are also magnets for traders and other workers.

"It is important to get the facts right. While the potential to make immediate returns on investment is always there, there is also possibility of business getting disrupted by sporadic violence," warns Jakino.

Despite these fears, developers are optimistic.

They speculate that 10 years down the road, Sudan's property market will also take off in much the same way as Kenya's has over the past five years. But the rewards, it seems, will only be there for those brave enough to start early.

Further reading

2nd International Investment & Trade Conference for Sudan 12 - 14 September, 2006, Khartoum.

East Standard article - Society: Sudan here we come by Kenneth Kwama.

June 26 2006 IPS - South Sudanese teenager transforms pain into art: A repatriation exercise started by the UNHCR in December has seen only 1,500 refugees head home - a fraction of the total number of Sudanese in Kenya. Kakuma camp in the north-west of the country has over 90,000 refugees, mostly from Sudan. "There is no infrastructure, no schools, and the international community needs to be involved in these development projects," UNHCR head Antonio Guterres said of the situation in Sudan while addressing reporters in Nairobi, June 18.


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