Outule Bale, CEO Khumo Property
Advocates for more sophisticated development practices
Urges better alignment with tenant needs to ensure long-term success
Botswana's burgeoning real estate sector faces a key challenge at the development stages: investor hesitation.
Despite the market's potential, many investors—especially those unfamiliar with the local landscape—are reluctant to commit funds to property development projects.
The long-term nature of these ventures, with returns potentially taking years to materialise, is a significant deterrent, according to insights shared during a property development risk webinar hosted by Khumo Property Asset Management.
The caution among investors is driven by several factors, including a shortage of experienced developers and contractors, the perceived risk of unfinished projects, and the complex timelines associated with construction, said Outule Bale, CEO of Khumo Properties.
However, Bale believes that with the right adjustments, Botswana has the potential to build stronger investor confidence in the real estate sector.
“I think if and when the market gets sophisticated, has created enough pool of developers, experienced professional teams and particularly contractors, such risk can be dealt away with where they could be mechanisms for investments to have faith in the process,” he said.
“Money can be accessed by the developer on a drawdown basis, not the money entirely being given to the developer at once, but on proof that the development is quite progressing as planned.”
The panel discussion moderator had questioned Bale about the key reasons behind investors' cautious or hesitant approach to property development in Botswana.
“The issue of having experienced developers, contractors and professional teams is very key. Investors are looking for a return on the money that they put aside into projects,” he answered.
Given the limited pool of professionals in the Botswana market, Bale believes investors are often unwilling to take on the risks associated with this challenge. Instead, they prefer to invest in fully developed properties where they can start earning revenue almost immediately.
Bale explained that with property developments, investors must set aside capital and wait for it to generate returns over time. This raises a crucial question: while the development process is underway, how can investors be protected from the lack of immediate returns on the money they have committed to a project?
Another key challenge Bale identified is that in Botswana's local market, owners, investors, and developers often build without a clear understanding of demand, hoping that occupiers will materialise once the development is complete. This approach, he noted, leads to developments that are not driven by the actual needs or preferences of future occupants.
The problem with this approach, Bale explained, is that it often results in developments that fail to meet the needs or expectations of potential tenants. He emphasised the importance of ensuring that when projects are undertaken, the goal is to align the development with the desired outcomes, ensuring it meets tenant requirements while also delivering the expected returns for investors.
“Where we have revenue and costs mismatching, the outcome usually is that investors would not reach the return goals that they envisage,” he said calling for developments driven by the demands of those that will occupy it in the future.
“Let them have their say in how it will eventually look. By that way, you are already dealing away with the risk that you will struggle to have long-term occupiers in your building.”
The other component he advocated for is the need to make buildings less costly to operate businesses in for tenants. By incorporating ESG attributes into buildings, he said this will go a long way in making sure that when “we secure businesses in our buildings they can remain there for the long term, which gives the investor the assurance for elongated cash flow in the building”.
Bale observed that building control regulations in Botswana often lack clear trends, which can unintentionally transfer risk to investors. Developers may not always notice or may overlook, how tight regulations around factors like parking or access can create issues once the building is in use. These constraints, he explained, can become problematic for investors, especially when they are managing the property long-term.
He believes that by aligning developments with tenant needs and investor expectations, this can help build the confidence investors need to commit their capital even during the development phases.
The regulatory environment in Botswana has generally been okay, but this is not without areas that Bale thinks could be better arranged to ensure projects take off and are completed within the timelines that investors have envisaged.
As an example, Bale highlighted the requirement for environmental impact assessments, reports, or studies, which by law can take months to complete. During this waiting period, developments are often stalled, leaving projects in limbo as they await the necessary authorisations from the Department of Environmental Affairs.
Another issue is the fragmentation of real estate services.
“We don't have one-stop centers that deal quickly and speedily with certain approvals and processes.”
Comentarios